Minimum Wages and Welfare Programs Don’t Help Poverty

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This isn’t exactly surprising news that Joseph Lawler reports in the Washington Examiner:

A new study from a prominent researcher finds that higher minimum wages have increased poverty in poor neighborhoods, a finding that could shake up the debate over the federal wage floor and slow the liberal push for a $15-an-hour minimum.

The study, led by the University of California, Irvine economist David Neumark and published by the business-backed Employment Policies Institute, finds that, over the course of decades, higher minimum wages don’t reduce poverty in disadvantaged neighborhoods. Rather, the analysis finds that a $1 increase in the minimum wage raises poverty rates and government dependency by about 3 percent.

The report also finds evidence that cash welfare fails to lower poverty.

“The clear evidence here is that the minimum wage doesn’t deliver long-run gains and welfare doesn’t deliver long-run gains,” Neumark said.

The article goes on to suggest that the earned income tax credit (EITC) might be a more promising approach to addressing poverty, although the specifics of the policy seem to matter quite a bit.

From a philosophical point of view, the interesting thing is the lack of real debate about these things.  I mean, the whole progressive idea is that government can consider evidence (Science!) and adjust policies to improve the human condition, and yet findings like Neumark’s will hardly be discussed or will be dismissed outright on the grounds that a “business-backed” group released them.

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The thing is, these findings are not only empirically valid, but also in line with logic and economic theory.  Raising the minimum wage increases the cost of labor, which will reduce demand for labor, one way or another, and the dollars redistributed in this way aren’t likely to be spent more efficiently by the remaining workers, now making a little more money, than the businesses that take hits to their bottom lines or customers who see price increases.  Similarly, subsidizing non-work decreases the value of working for individuals without creating enough market boost for businesses to be able to pay enough to draw people back into the labor force.

Perhaps the EITC has found some means to “trick” the market into raising low-end wages with no effect.  It increases incentive to work without increasing costs for employers, but it subsidizes lower-pay work and takes money out of the economy for the government subsidy.  So, its negative effects may just be more subtle.

In any event, there is no substitute for a strong economy and letting the market multiply prosperity.



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