Minimum Wages and Poverty Will a $9.50 Federal Minimum Wage.pdf

Southern Economic Journal 2010, 76(3), 592–623 Minimum Wages and Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working Poor? Joseph J. Sabia* and Richard V. Burkhauser{ Using data drawn from the March Current Population Survey, we find that state and federal minimum wage increases between 2003 and 2007 had no effect on state poverty rates. When we then simulate the effects of a proposed federal minimum wage increase from $7.25 to $9.50 per hour, we find that such an increase will be even more poorly targeted to the working poor than was the last federal increase from $5.15 to $7.25 per hour. Assuming no negative employment effects, only 11.3% of workers who will gain live in poor households, compared to 15.8% from the last increase. When we allow for negative employment effects, we find that the working poor face a disproportionate share of the job losses. Our results suggest that raising the federal minimum wage continues to be an inadequate way to help the working poor. JEL Classification: J21, J31, J38 1. Introduction Proposals to increase the minimum wage are politically popular because they are widely seen as an effective way to help the working poor (AP-AOL 2006). Former President Bill Clinton captured this majority view in his statement of support for an increase in the federal minimum wage when he said: ‘‘It’s time to honor and reward people who work hard and play by the rules….No one who works full time and has children should be poor anymore’’ (Clinton and Gore 1992). The goal of helping the working poor was also an important motivation behind the most recent legislation to increase the federal minimum wage from $5.15 to $7.25 per hour in 2007, and it remains a key rationale for Senate Bill 2514, the Standing with Minimum Wage Earners Act of 2007, which would increase the federal min