Increasing Minimum Wage Doesn’t Alleviate Poverty

April 19–Raising the minimum wage won't raise people out of poverty, according to a new study by a University of Georgia professor.

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Since half of working-age poor people don't work and most low-wage workers aren't part of poor families, a higher minimum wage won't do much to help improve the country's 15 percent poverty rate, the highest in the United States in 20 years, acccording to Robert Nielsen, an assistant professor of housing and consumer economics.

"By and large, evidence says that minimum-wage increases don't go to the people they are intended to help and that there are other policy tools that are more effective at helping the working poor," Nielsen said in a news release. He co-authored the study with with Joseph Sabia, an assistant professor of economics at San Diego State University. It was funded by the Employment Policies Institute, a pro-business think tank.

Linda Lloyd, director of the Athens Economic Justice Coalition, disputed the results. The EJC works to pressure employers to pay at least $10.50 per hour plus benefits. Paying higher wages helps businesses and the economy because workers have more money to spend, she said.

"There are a lot of working poor," Lloyd said. "We're making assumptions people aren't working. We are working, we're just not making enough income."

Athens' unemployment is slightly below the national rate of 8.2 percent, but its poverty rate is 38 percent, the highest in the nation for a county of more than 100,000 people.

U.S. Sen. Tom Harkin, D-Iowa, recently proposed raising the minimum wage from $7.25 per hour to $9.80, a bill that is certain to die in the Republican-controlled House of Representatives even if it passed the Senate. Over time, wages lose buying power, and every several years there is an effort to increase the minimum wage to recover some of that purchasing power, Nielsen said.

Nielsen said he personally supports a living wage because full-time workers ought to be able to support their families, but his research shows that a higher minimum wage doesn't work as well as other policies. It primarily helps teenagers or people in two-income households, not the truly poor.

"I think what's hard for people to do is separate the goal of reducing poverty from the minimum wage or a living wage," he said.

Nielsen's study recommends extending the federal Earned Income Tax Credit for the working poor to the state level because a 1 percent increase in the EITC leads to a 1 percent decrease in poverty. His past research found that transportation and child care subsidies for the working poor in rural areas help, too, he said.

Nielsen and Sabia used census data to look at the effect of state and federal minimum-wage hikes on people who had trouble paying bills and rent, went hungry, lacked health insurance and relied on public assistance. They found that 87 percent of the beneficiaries from the last minimum wage increase weren't poor. Half of poor Americans age 16 to 64 don't work, according to the report, so an increase in wage won't affect their status either.

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