Cato Analysis: Benefits to the Poor
December 1, 1995
Most of the benefits of an increase in the minimum wage would accrue to secondary workers in nonpoor households. Thus, the argument that one cannot support a family on the current minimum wage is irrelevant. That's because so few of minimum wage earners are either heads of households or in households below the poverty line:
- As of 1989, only 22 percent of low-wage workers were in poor households, down from 85 percent in 1939, when the minimum wage was first implemented.
- Only 8 percent of low-wage workers were heads of poor households in 1989, down from 31 percent in 1939.
- And almost half of low-wage workers are now in families with incomes more than twice the poverty level.
Thus, the benefits of an increase in the minimum wage from $4.25 to $5.00 an hour, for example, would mostly go to households that are not poor, based on the hours worked by each income group in 1989, and ignoring any negative effect an increase would have on the number of hours worked:
- Only 13 percent of the increased earnings would go to individuals in households with incomes below the poverty line.
- Nearly 60 percent of the benefits would accrue to households with incomes more than twice the poverty level.
President Clinton's proposed increase in the minimum wage to $5.25 an hour would cost employers and consumers about $10 billion a year.
For the same cost to the economy, the scheduled increase in the earned income tax credit (EITC) would yield substantially larger benefits to the working poor -- about 38 percent -- and only about 11 percent to workers in households with incomes more than twice the poverty line.
Source: William A. Niskanen, "More on the Minimum Wage," Regulation, Number 2, 1995, Cato Institute, 1000 Massachusetts Ave., NW, Washington, DC 20001, (202) 842-0200.
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