Many in Congress
consider raising the minimum wage to be an effective means of
helping the poor, but an artificial wage increase will not
significantly help the workers whom its supporters hope to reach.
Low-income workers who rely on government subsidies and earn the
minimum wage will see their total incomes rise only slightly, and
in some cases decrease, because a hike in the minimum wage would
reduce their benefits under other government programs.
An increase in the
minimum wage may reduce government benefits to workers who receive
them. Government subsidies like Temporary Aid to Needy Families
(TANF), Medicaid, child care, housing assistance, and food stamps
are aimed at helping needy families.
As individuals earn more income, most benefits are reduced because
of income phase-outs. For certain families, more earnings can
result in only a small improvement in total income (cash plus the
value of public benefits) due to benefit reductions. This reduces
the incentive to work and, as a result, keeps low-income workers
from advancing up the income scale.
Low-income minimum
wage-earners who do not lose their jobs due to employment losses
associated with the minimum wage
will at most see a slight improvement in their total incomes
because they will likely lose government benefits. The combined
effects of reduced benefits with only a minimal gain in income
clearly do not provide the total impact on poverty that some claim
an increase in the minimum wage will bring.
In addition to the
many negative effects of raising the minimum wage-such as lower
levels of employment,
higher dropout rates for high school students,
and a long-term reduction in wages-an
increase in the minimum has been shown to reduce benefits in some
states among those most in need. (See Chart 1)
Contrary to the
arguments of those who would raise the minimum wage, a wage hike
will not significantly help the poor. A wage hike will reduce the
amount of government benefits for many workers, resulting in a
modest improvement in income at best. In some cases, low-income
workers may suffer a reduction in total income.
Rea S.
Hederman, Jr., is Senior Policy Analyst, and Samuel Hyman is
Research Assistant, in the Center for Data Analysis at The Heritage
Foundation.