Study: Increased Minimum Wages Raise Poverty Rates in Lower Class Neighborhoods
When advocates of a higher minimum wage began their campaign to jack up the rate to $15 an hour, they claimed it would create prosperity for the poor.
A new report shows just the opposite is taking place in communities where the minimum wage has been increased.
The study found that over time, higher minimum wages actually increase poverty rates, according to The Washington Examiner.
The study reported that for every $1 increase in the minimum wage, there is a 3 percent increase in poverty rates and government dependency.
The study was led by University of California-Irvine economist David Neumark and published by the Employment Policies Institute.
In addition to looking at the impact of a higher minimum wage, the study examined whether cash welfare lifted the poor out of poverty. That, too, failed, the study said.
“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.
“We find evidence that higher minimum wages lead, in the longer run, to increases in poverty and the share of families on public assistance. We find some evidence that the EITC (Earned Income Tax Credit) has positive longer-run employment effects. We do not generally find significant evidence of longer-run effects of the EITC on poverty or public assistance,” said an excerpt from the study posted on the National Review.
“Finally, we find evidence that more generous welfare benefits lead to higher poverty and public assistance in the longer-run. Perhaps the most robust important conclusion is that a higher minimum wage and more generous welfare benefits do not reduce poverty and reliance on public assistance in the longer-term,” the study reported.
The big difference in this study was that it followed communities over four decades. Most minimum wage studies are short-term.
The new study comes on top of a report that says even for those making more in wages, a higher minimum wage can be costly because employers reduce their share of an employee’s health benefits, The Washington Post reported.
The National Bureau of Economic Research report covered five years, from 2011-2016.
In the study, workers whose minimum wage went up $1 ended up getting less than that because between 9 percent to 57 percent of their higher wages went to make up a reduction in what an employer paid as its share of health insurance.
That reflects comments form employers that they cannot manage to remain competitive amid rising wage rates without making cuts elsewhere.
The study reported most workers impacted by the reduction in insurance benefits simply eschewed insurance instead of looking for subsidies from the Affordable Care Act exchanges.
As states and localities consider a higher wage, an EPI report aimed at informing the debate about a higher minimum wage in New Jersey sent a warning signal.
The report warned that almost 32,000 New Jersey jobs would be lost due to a higher minimum wage.
“New Jersey’s $15 minimum wage proposal is based on ideology, not proven economic research,” said EPI managing director Michael Saltsman in a statement published by Insidesources. “The state should consider proposals such as expanding the (Earned Income Tax Credit) before mandating a disastrous minimum wage increase that will only worsen job prospects for teenagers and the less-experienced.”
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