Abstract
Several recent studies contend that falling real minimum wage rates are an important factor behind rising wage inequality and increasing poverty rates. Other studies find the more conventional result that they have very little influence on poverty and inequality, but these studies are generally based on simulated labor market responses. This study examines the influence of minimum wage rates on poverty rates and family income inequality using state-level minimum wages. The methodology has the key advantage of not requiring simulated labor market responses to minimum wage increases. The results suggest that increases in minimum wage rates and coverage do not reduce poverty rates or income inequality.
Highlights
Raising the minimum wage has traditionally been viewed by many policy makers as one way to reduce poverty and to provide a "living wage" to workers at the bottom of the income ladder (Gramlich 1976; Freeman 1996; Kuttner 1997)
This study examined the influence of state-level m1mmum wage rates on poverty rates and family income inequality
LSNote that findings that minimum wage hikes reduce wage inequality generally do not include the effects of displaced workers who effectively earn zero
Summary
Raising the minimum wage has traditionally been viewed by many policy makers as one way to reduce poverty and to provide a "living wage" to workers at the bottom of the income ladder (Gramlich 1976; Freeman 1996; Kuttner 1997). One study that examines this issue is that of Card and Krueger (1995), who found evidence that the 1990-91 federal minimum wage hike reduced U.S family income inequality and modestly reduced poverty rates. This study will examine the effects of state-level minimum wage laws on U.S poverty rates and on family income inequality. Comparing differences between states that had a minimum wage rate above the federal rate to states that did not produces a unique natural experiment with a credible counterfactual (Card and Krueger 1995). This methodology has important advantages over previous studies that simulate the impact of minimum wage rates on income distribution.
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