Minimum Wage Hikes Don't Benefit Low-Income Families But Do Raise Youth Unemployment Rates

With 19 states raising the minimum wage at the beginning of 2017, it seems that Sen. Bernie Sanders (I-Vt.) "Fight for 15" campaign is becoming a reality.

While Democrats have been wholeheartedly behind the movement to increase the minimum wage, now Republican lawmakers are increasingly leaving the door open to minimum wage increases. The prevailing argument in favor of raising the minimum wage is that a higher minimum wage would reduce poverty and alleviate income inequality.

So, what does the empirical research reveal about the effectiveness of the minimum wage to reduce poverty?

From a lawmaker’s perspective, setting a higher minimum wage seems to be a viable remedy for lifting families out of poverty. However, it is important to note that the minimum wage targets individual low-wage workers, not low-income families. The merits of using minimum wage as a tool to combat poverty depend on the level at which poor families benefit from such policy changes.


The statistics show that the relationship between being a low-wage worker and a low-income family is very weak. In fact, data from CPS suggests that the majority of poor families with heads of household of prime working age simply don’t work, so a minimum wage has no impact on these families.

What’s more, a sizable proportion of low-wage workers are new entrants to the labor force, such as teenagers, who are not necessarily in low-wage families. Taking these facts into consideration, basic calculations indicate that a sizable share of benefits derived from a minimum wage increase does not go to impoverished families.

In fact, if the federal minimum wage was hiked from $7.25 to $10.10, only 18 percent of resultant increases in income would go to poor families (based on 2010-2014 data), meanwhile 32 percent would go to families with incomes more than three times the poverty line. With a $15 minimum wage the corresponding figures would be 12 percent and 38 percent, respectively.

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