How not to help the poor


Wall Street Journal
By: Jason L. Riley
February 10, 2014

"The idea of using a minimum wage to overcome poverty is old, honorable--and fundamentally flawed. It's time to put this hoary debate behind us, and find a better way to improve the lives of people who work very hard for very little."-- New York Times editorial, Jan. 14, 1987

"An hourly minimum of $10.10, for example, as Democrats have proposed, would reduce the number of people living in poverty."--New York Times editorial, Feb. 9, 2014

The Grey Lady got it right the first time. If anything, the argument for using the minimum wage as an anti-poverty tool has weakened in recent years. In a 2010 paper for the Southern Economic Journal, Joseph Sabia of American University and Richard Burkhauser of Cornell write that they could find "no evidence" that state minimum wage increases lowered poverty rates.

"Moreover, we find that the newly proposed federal minimum wage increase from $7.25 to $9.50 per hour, like the last increase from $5.15 to $7.25 per hour, is not well targeted to the working poor," write the authors. "Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households, an even smaller share than was the case with the last federal minimum wage increase (15.8%). Of those who will gain, 63.2% are second or third earners living in households with incomes twice the poverty line, and 42.3% live in households with incomes three times the poverty line, well above $50,233, the income of the median household in 2007."

But the more fundamental problem with lifting the wage floor to address poverty is that most poor people don't work. Their problem is not low wages; it's no wages. And making it more expensive to hire such individuals does not improve their situation. As James Sherk of the Heritage Foundation reported last year, Census data from 2011 and 2012 show that "two thirds of individuals living below the poverty line did not work, and less than one in 10 worked full-time year-round. Families are poor not because they have low wages but because they do not have full-time jobs."

The best anti-poverty measure is a job. The New York Times editorial writers may no longer grasp that economic reality, but it's still the reality.

About this Entry

This page contains a single entry by CFED published on February 12, 2014 4:37 PM.

Inequality is so bad even the super-rich are getting left behind was the previous entry in this blog.

How The US Government Is Driving Innovation In Financial Services is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.