Report: Higher Minimum Wages Increase Poverty in Poor Neighborhoods

Higher Minimum Wages

This post was originally published on The Washington Examiner.

A new study from a prominent researcher finds that higher minimum wages have increased poverty in poor neighborhoods, a finding that could shake up the debate over the federal wage floor and slow the liberal push for a $15-an-hour minimum.

The study, led by the University of California, Irvine economist David Neumark and published by the business-backed Economic Policies Institute, finds that, over the course of decades, higher minimum wages don’t reduce poverty in disadvantaged neighborhoods. Rather, the analysis finds that a $1 increase in the minimum wage raises poverty rates and government dependency by about 3 percent.

The report also finds evidence that cash welfare fails to lower poverty.

“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.

Neumark, the director of the Economic Self-Sufficiency Policy Research Institute at the university, is a top expert on the minimum wage, having co-authored a book on its effects and published related research over many years, as well as engaging in academic debates.

The new study, which hasn’t undergone peer review, differs from past research on the minimum wage in that it studies the effects of the minimum wage based on location and over long periods of time.

Most studies on the minimum wage, such as the ones cited by the Obama administration in pressing to raise the federal rate, have studied the impact of minimum wage increases on employment and earnings in a short period after the change.

Neumark’s study instead examines the impact of minimum wage changes over four decades, based on changes between states and at the federal level. It uses data from the Neighborhood Change Database.

It also assesses the impact of minimum wage changes on poverty and public assistance generally, an outcome Neumark said is of interest particularly because of his focus on self-sufficiency.

Neumark emphasized caution about the results, saying that he was trying to open up a new line of research rather than end a debate.

Still, the study weighs against the argument that a higher minimum wage would cut poverty or lessen dependence on public assistance.

It found similar results for cash welfare.

The study also reviewed a third federal initiative: the Earned Income Tax Credit that effectively subsidizes work, giving low-income earners a refundable tax credit. The study did not find evidence that the EITC lowered poverty over the long run, although that finding depended on the exact specification of the model used. In Neumark’s other research, he has found strong positive effects of the tax credit.

Brian Asquith of the National Bureau of Economics and Brittany Bass of the University of California, Irvine helped write the study.

This post was originally published on The Washington Examiner.