Middle Class Welfare Effects

Abstract

The minimum wage needs to be understood as a reference point for the larger low-wage labor market. By constructing ten wage contours on data from the CPS, it becomes clear that there are welfare effects for the middle class from raising the minimum wage. In years when there were increases in the statutory minimum wage, there were also increases in the median wages of each contour. And in years when there were no increases in the statutory minimum wage, the median wages in each contour remained the same. As those earning at the top of the tenth contour in 2015 were earning the equivalent of $125,000, it would appear that the minimum wage may have positive welfare effects. A policy that places upward pressure on wages can also reduce income inequality. To the extent that the minimum wage does reduce income inequality it again serves as a tool to bolster the middle class. Institutions, in other words, do matter.