Politics Stack Exchange is a question and answer site for people interested in governments, policies, and political processes. It only takes a minute to sign up.
Sign up to join this community
Minimum Wage laws are promoted as a way to ensure that people earn a living wage, and are not living below the poverty line. Research on the subject disagrees about the effectiveness of such legislation in reducing poverty:
Are Minimum Wage laws corellated with an increase in poverty levels? Is there are racial corelation?
This question has already been widely discussed and answered on Skeptics. For information I will copy the most upvoted and accepted answer, courtesy of Borror0, here:
The answer to this question is "we're not sure yet."
The "old minimum wage research" shows that there is a negative impact, but more recent research - e.g. Card and Kreuger (1993) and Dube, Lester, and Reich (2010) - show that there is no significant effect.
There have been attempts at reconciliation the literature on the subject, but, to the best of my knowledge, nothing resembling a consensus has been achieved amongst economists.
When reviewing the possibility to raise the minimum wage again, Québec's Interdepartmental Committee for the Review of the Minimum Wage compiled a short review of the literature. It's written in language most people will understand, and only six pages long. It's definitively worth reading.
In the event you don't feel like reading it, the most interesting passage is the following:
Economic debate concerning the minimum wage has essentially been focussed around two subjects of discussion. These are the impacts that such a policy has on employment levels and its effects on the distribution of wealth. Economic theory generally approaches the impacts that the minimum wage may have on employment using mainly two models. These are a “pure and perfect” competition model (or neoclassical) and an imperfect model called “monopsony”.
Over the last 40 years, economic studies based on the neoclassical model show that mainly young people less than 24 years old are generally the most affected by job reductions that are likely to take place when the minimum wage increases. Elasticity calculated by these models varies between –0.1 and –0.3, meaning that a 10% increase in the actual minimum wage will generate a reduction of employment for young people varying between 1% and 3%. An econometric made by the Department of Finance leads to a similar conclusion for young people aged between 15 and 19.
However, numerous conditions must be met for this model to apply, and because of that, many economists have challenged its relevancy, especially since the nineties. These economists prefer the use of a monopsony model that includes market imperfections. Results obtained using this model are very different from those obtained with the neoclassical model. In fact, they lead to the conclusion that the increases in the minimum wage that occurred over the last 15 years in certain areas of North America and Europe did not hinder employment.
Professor Burkhauser has done extensive research on who is hurt by higher minimum wages. For example, Burkhauser et al. (2000) show that minimum wage increases reduce employment among most vulnerable groups.
In addition, Sabia and Burkhauser (2008) state:
Our results show that recent minimum wage increases between 2003 and 2007 had no effect on state poverty rates. Moreover, the proposal to raise the Federal minimum wage to $9.50 per hour is unlikely to be any better at reducing poverty because (i) most workers (89.0 percent) who are affected are not poor, (ii) many poor workers (48.9 percent) already earn hourly wages greater than $9.50 per hour, and (iii) the minimum wage increase is likely to cause adverse employment effects for the working poor.
You might also find Burkhauser and Finegan (1993) informative.
There's no unanimous consensus in the research, but whatever consensus there is, is that minimum wage does not HELP reduce poverty, and can increase it.
One good study is from National Bureau of Economic Research, http://www.nber.org/papers/w6127, Neumark, David and William Wascher. "Do Minimum Wages Fight Poverty?," Economic Inquiry, 2002, v40(3,Jul), 315-333.
The results show that over a one-to-two year period, minimum wages increase both the probability that poor families escape poverty and the probability that previously non-poor families fall into poverty. The estimated increase in the number of non-poor families that fall into poverty is larger than the estimated increase in the number of poor families that escape poverty, though this difference is not statistically significant. We also find that minimum wages tend to boost the incomes of poor families that remain below the poverty line. The evidence indicates that in the wake of minimum wage increases, some families gain and others lose.
On net, the various tradeoffs created by minimum wage increases more closely resemble income redistribution among low-income families than income redistribution from high- to low-income families. Given these findings it is difficult to make a distributional or equity argument for minimum wages.
Minimum Wage laws are promoted as a way to ensure that people earn a living wage, and are not living below the poverty line.
if they were that effective, fighting poverty in poor communities or poor countries would be that easy: just declare a minimum wage law, and poverty is gone!
Are Minimum Wage laws corellated with an increase in poverty levels?
there are some studies, often partisan, that support for the positive and negative impacts of minimum wage laws. Generally speaking, labor supply is fairly elastic, especially in areas with high mobility. On top of that, what "poverty" is is highly subjective and a moving goal post so I think it is hard to correlate changes in poverty to enacting of minimum wage laws.
Is there are racial corelation?
you can think of minimum wage laws as a tax on the jobless - highly counter-intuitive but true. As joblessness is highly correlated to certain races / ethnicity, I think there is a high degree of correlation.
