Historically, Minimum Wage Hikes Don’t Save Taxpayer Money

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Fight for $15 advocates have recently turned to arguments that raising the minimum wage reduces reliance on means-tested welfare programs, and therefore reduces government spending. However, past minimum wage hikes demonstrate that there is no evidence to suggest this is true.

Summarized in the 2019 book Fighting $15: An Evaluation of the Evidence and a Case for Caution, the economic literature rigorously documents that past hikes have had no significant effect on reducing the number of those in poverty, and also have no significant net changes on means-tested welfare program reliance. Raising the federal minimum wage to $15 is unlikely to produce different results.

1.Minimum wage increases have little to no demonstrated impact on alleviating poverty: many studies find that the effects on poverty are not significant, and in some cases show that increasing the minimum wage can increase the share of workers classified as poor.

    • “Because minimum wages focus on low worker wages and not low family incomes—and because these two conditions are only weakly related—the targeting of minimum wages is imprecise: Few of the benefits are likely to flow to poor families…there is little evidence that higher minimum wages alone reduce poverty or dependence on government programs.” – “Reducing Poverty via Minimum Wages, Alternatives”

    • “We find that binding minimum wage increases significantly reduced the likelihood that low-skilled workers rose to what we characterize as lower middle class earnings…Reductions in upward mobility thus appear to follow reductions in access to opportunities for accumulating work experience. ” – “The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers”

    • “74 percent [of economists] oppose raising the federal minimum wage to $15 an hour; 84 percent believe a $15 minimum wage will have negative effects on youth employment; Just six percent believe a $15 minimum wage is a very efficient means to target individuals in poverty, while 64 percent said the same thing about the Earned Income Tax Credit (EITC). – “Survey of US Economists on a$15 Federal Minimum Wage”  

    • “The CBO finds a $15 minimum wage would pull 1.3 million workers out of poverty at the cost of 1.3 million jobs in the median scenario, and 3.7 million jobs in the worst-case scenario. Put differently, as many as three people would lose their jobs for each person no longer in poverty.” – “How Many Jobs Would the $15 Minimum Wage Kill?”

2.There is little to no evidence to support that minimum wage increases lead to reductions in means-tested program participation, and therefore reductions in government spending on these programs.

  • “…[The findings] clearly point to evidence that minimum wage increases redistribute income among low-skilled individuals, leading to welfare exit for some, but greater welfare use for others.”  – “Do Minimum Wage Increases Really Reduce Public Assistance Receipt?”

  • “…if minimum wage increases cause adverse labor demand effects, this could induce earnings losses that increase means-tested public program participation. Thus, in the same way that minimum wage hikes may redistribute poverty, they may redistribute program participation among eligible and near-eligible individuals.” – Sabia, Fighting $15 Chapter 4

3.For these reasons, raising the minimum wage to $15 is unlikely to have any impact on government spending on means-tested programs.

    • “There is strong reason to expect that a $15 minimum wage is likely to induce adverse employment effects that will undermine the goal of alleviating poverty and reducing dependence on means-tested welfare programs.”  – Sabia, Fighting $15 Chapter 4

    • Only 7.3 percent of workers ages 16-to-64 affected by a $15 minimum wage are poor and just 20.7 percent receive any form of means-tested public assistance (SNAP, Medicaid, housing assistance, AFDC or WIC).”  – Sabia, Fighting $15 Chapter 4

    • “…minimum wage increases are largely ineffective at reducing net participation in public assistance programs or in reducing expenditures on means tested public assistance…Our null findings are true across public programs, time periods examined, and data sources.”  – “Do Minimum Wage Increases Really Reduce Public Assistance Receipt?”

Sabia’s review of the literature is clear: raising the federal minimum wage to $15 won’t alleviate poverty or government welfare spending, but will put millions of Americans out of a job and at risk.