Higher minimum wage gets some workers off welfare, puts others on it
As economist Henry Hazlitt observed in his classic, “Economics in One Lesson,” thoughtful economic or public policy analysis requires looking not only at the most immediate and obvious effects of a policy, but at also examining the hidden costs, long-term effects and unintended consequences. Discussions of minimum wage policies are too often an example of the fallacies of shortsighted or myopic examination.
Some argue that boosting wages by government mandate will benefit society at large, for example, by helping more people to get off public assistance programs. But new research from San Diego State University economics professor Joseph Sabia and graduate student Thanh Tam Nguyen reveals that there is little evidence for this claim. That’s because, while some minimum wage workers will earn enough to extricate themselves from social safety net programs, others will be rendered unemployed or underemployed by increases in the minimum wage, and will be forced onto the welfare rolls.
In their study for the Employment Policies Institute, Sabia and Nguyen analyzed data from multiple government sources covering programs such as Medicaid, housing subsidies, cash assistance to needy families and nutrition assistance over three decades.
“Our findings suggest that minimum wage increases are largely ineffective at reducing net participation in public assistance programs or in reducing expenditures on means-tested public assistance, particularly during nonexpansionary times,” they concluded. The data “more clearly point to evidence that minimum wage increases redistribute income among low-skilled individuals, leading to welfare exit for some, but greater welfare dependence for others.”
Moreover, the authors concluded that increasing the minimum wage would be a poor way to reduce poverty because a relatively small percentage of minimum wage earners are on welfare to begin with.
Facts and sound reasoning aside, this will still not convince some who support the minimum wage because they feel like they are helping some people, even if they are harming many others that they do not see.
Reprinted from the Orange County Register
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