Minimum Wage Policy and Poverty in the United States

Abstract

Recent studies have found that increasing the minimum wage is a useful antipoverty tool. In this analysis, we examine the influence of minimum wages and other important variables on US family poverty rates using state data over the years 1984-98 by estimating both a fixed effect and random coefficients regression model. Taking into account labor market influences, demographic factors, and differences in poverty rates across states, we find that expanding the minimum wage coverage and increasing labor force participation both have larger effects on poverty rates as compared to equivalent changes in the level of the minimum wage. It is further implied from the empirical results that the most effective means of lifting families out of poverty are policies that are directed toward increasing minimum wage coverage, encouraging increased labor force participation, raising the minimum wage, and subsidizing higher education, respectively.