The mainstream arguments about \”The Effects of a Minimum-Wage Increase on Employment and
Family Income\” are compactly laid out in a report released earlier this week from the Congressional Budget Office. On one side, the report estimates that about 16.5 million workers would see a rise in their average weekly income if the minimum wage raised to $10.10/hour by the second half of 2016. On the other side, the higher minimum wage would reduce employment I(in their central estimate) by 500,000 jobs, which from one perspective is only 0.3% of the labor force, but from another perspective is a loss of jobs concentrated almost entirely at the bottom and low-skilled end of the wage distribution. I\’ve laid out some of my thoughts about weighing and balancing these and related tradeoffs here and here.
In this post, I want to focus on a different issue: the modest effect of raising the minimum wage on helping the working poor near and below the poverty line. The fundamental difficulty is that many of the working poor suffer from a lack of full-time work, rather than working for a sustained time at a full-time minimum wage job. As a result, many of the working poor aren\’t much affected by raising the minimum wage. Here are the CBO estimates:
\”Families whose income will be below the poverty threshold in 2016 under current law will have an average income of $10,700, CBO projects … The agency estimates that the $10.10 option would raise their average real income by about $300, or 2.8 percent. For families whose income would otherwise have been between the poverty threshold and 1.5 times that amount, average real income would increase by about $300, or 1.1 percent. The increase in average income would be smaller, both in dollar amounts and as a share of family income, for families whose income would have been between 1.5 times and six times the poverty threshold.\”
Of course, these are averages, and families who are now working many hours at the minimum wage would see larger increases, if they keep their jobs. But the higher minimum wage actually sends an amount of money to these workers that is relatively small in the context of other government programs to assist the working poor. CBO estimates that families below the poverty line, as a group, would receive an additional $5 billion in income from raising the minimum wage to $10.10/hour, while families with incomes between the poverty line and three times the poverty line would receive a total of $12 billion.
To put those numbers in context, consider a quick and dirty list of some other government programs to assist those near or below the poverty line.
- Food stamps had a total cost of about $80 billion in 2013.
- The Earned Income Tax credit is projected to cost about $60 billion this year..
- Spending on Temporary Assistance to Needy Families, which is commonly known as TANF or \”welfare,\” was about $31 billion in 2011, including $16 billion in federal funds and $15 billion in matching state funds.
- The Child Tax Credit, a refundable credit aimed at families with lower incomes, cost $57 billion in 2012.
- The National School Lunch Program spends about $12 billion on subsidized lunches for children from low-income families.
- Vouchers to help low-income families rent housing (Section 8) cost about $17 billion.
- The Low Income Home Energy Assistance Program costs about $3 billion.
- Medicaid spending is $415 billion.
Of course, this list doesn\’t include unemployment insurance, disability insurance, Social Security, Medicare, and other programs that may sometimes assist households with low incomes, along with their extended families.
A few thoughts:
1) Of course, the fact that raising the minimum wage has a relatively small effect in the context of these other programs doesn\’t make it a bad idea. But it does suggest some caution for both advocates and opponents about over-hyping the importance of the issue to the working poor.
2) In particular, it\’s fairly common to hear people talk about the rise in U.S. inequality and a need to raise the minimum wage in the same breath–as if one was closely related to the other. If only such a view was true! If only it was possible to substantially offset the rise in inequality over the last several decades by bumping up the minimum wage by a couple of bucks an hour! But the rise in inequality of incomes to the tip-top part of the income distribution is far, far larger (probably measured in hundreds of billions of dollars) than the $17 billion the higher minimum wage would distribute to the working poor and near-poor below three times the poverty line. To put it another way, the problems of low-wage workers in a technology-intensive and globalizing United States are far more severe than a couple of dollars on the minimum wage.
3) A number of the current programs to help those with low incomes either didn\’t exist or existed in a much smaller form a decade or two or three ago, including the Earned Income Tax Credit, the Child Tax Credit, the expansion of Food Stamps, and the rise in Medicaid spending. It seems peculiar to offer simple-minded comparisons of the hourly minimum wage now to, say, its inflation-adjusted levels of the late 1960s or early 1970s without taking into account that the entire policy structure for assisting those with low incomes has been dramatically overhauled since then, largely for the better, in ways that provide much more help to the working poor and their families than would a higher minimum wage.
4) For me, it\’s impossible to look at this list of government programs that provide assistance to those with low incomes and not notice that the costs of the U.S. health care system, in this case as embodied in Medicaid, is crowding out other spending. To put it another way, if lifting the minimum wage to $10.10/hour raises incomes for those at less than three times the official poverty rate by $17 billion per year, that would be about what Medicaid spends every two weeks.