February 18, 2014

Minimum wage hasn’t been enough to lift most out of poverty for decades

MinimumWage_Poverty

A new report from the Congressional Budget Office likely will fuel both sides of the minimum-wage debate — those who see it as a valuable weapon against poverty and inequality and those who dismiss it as irrelevant at best and a job-killer at worst.

The CBO projects that raising the federal minimum wage, now $7.25 an hour, to $10.10 by 2016 would raise incomes for 16.5 million low-wage workers, but also would cost about 500,000 workers their jobs. The office also estimated that such an increase would move a net 900,000 people above the poverty threshold — out of the roughly 45 million who are projected to be below poverty in 2016 should current law not change.

Analyzing the interplay between the minimum wage and poverty is complicated by the fact that there isn’t just one poverty threshold. The Census Bureau calculates 48 different thresholds, based on different combinations of age, family size and number of children in a household. Because the thresholds are indexed to inflation but the federal minimum is not, its real value relative to any given threshold tends to fall unless and until Congress raises it. In the chart above, for instance, the spikes in 1990-91, 1996-97 and 2007-09 reflect the most recent statutory increases. (21 states and the District of Columbia have established their own minimums higher than the federal level; of those, 10 are indexed to inflation.)

The chart compares the federal minimum to the poverty thresholds for five different household types. (We used the Consumer Price Index for All Urban Consumers, Research Series, to adjust the wage levels.) For example, in 1968, when the minimum wage was at its peak value, one minimum-wage job could keep three people out of poverty. Today’s minimum, which works out to $15,080 a year (assuming a full 40-hour work week), will lift a single person out of poverty. However, it’s nearly $1,000 below the poverty threshold for a one-adult, one-child household.

Along with being fodder for political debate, the CBO report demonstrates the complex dynamics of the U.S. labor market, in which a positive change for one group often creates a negative offset for some other group. For instance, the CBO estimates that under the “$10.10 option” real income for the poorest workers (those earning less than the poverty threshold to three times the threshold) would rise by a collective $17 billion by 2016. But that would be offset by a $17 billion decrease in real incomes among affluent families (those with incomes six times the poverty threshold — roughly $150,000 for a family of four), mainly because of higher prices and lower business incomes. When all the pluses and minuses are taken into account, overall real incomes would rise by $2 billion.

 

Topics: Income, Poverty

  1. Photo of Drew DeSilver

    is a Senior Writer at the Pew Research Center.

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28 Comments

  1. vik6 months ago

    When you put that extra money in the pockets of low-wage workers, they don’t squirrel it away in offshore tax free havens; they spend it, and they spend it here.

    Reply
  2. Esteban6 months ago

    I feel for the families of 4 w/ over $150K in income. Gee, since they make more than $65K, their kids can’t even get full tuition scholarships to Harvard…..

    Reply
  3. Randy6 months ago

    It’s a complex issue. I’ve been reading some research papers and some of the Federal Reserve papers do not come up with the same conclusion as the CBO report. Some research shows that the CBO overestimates job losses and the “multiplier” effects of those getting the raise (and taking out new credit to boot) will boost spending. This is always a plus in a consumption based economy.

    Reply
  4. Oro6 months ago

    There are larger issues than just dollars and cents. There’s a feeling of being part of. There’s a feeling of having a little something. There’s a little less worry, a little breathing room. To give this gift to people is worth any shuffling we might have to do.

    Reply
  5. slk6 months ago

    how many of those who are over the minimum, but under the new minimum, will be bumped above the new wage??? there’s going to be a lot of unhappy workers out there still!!! anyone who’s been flippin’ burgers for the last ten years, hasn’t done a thing to get better!!! why should they get bumped up???

    Reply
    1. Emily6 months ago

      Somebody has to flip those burgers, right? If somebody has held onto the same thankless, monotonous job for 10 years just to keep food on the table why shouldn’t they be given a break like anyone else? You sound like you must have been lucky enough to get an education, and never ended up stuck in that kind of miserable job. Some people never got the opportunity to “better” themselves, that doesn’t make them any less of an honest worker or less deserving of a good quality of life.

      Reply
  6. slk6 months ago

    not everyone in poverty, is down on their luck!!! many don’t know how to handle finances!!! i’d like to know what percentage of powerball tickets were from people who shouldn’t even think about tossing money!!! there’s a reason why 46% of all jackpot winners are worse off then before!!! about 30 years ago, there was a study done by either the ny times or d news, about why most of the shop owners on 125st were asian!!! people were given $50,000 grants to start a business!!! asians decided to invest, and later celebrate, where others decided to “celebrate first!!! give a million people a million each, and after some time, how many would have anything left??? you don’t have to be a rocket scientist to figure out a couple making a total of 30,000 a year can’t afford a 300,000 house, much less any house, but it happened!!!

    Reply
    1. retiredtaxpayer6 months ago

      Unless you’re a congressman named Dodd or Frank! By their actions, dumber than a post!

      Reply
      1. slk6 months ago

        oh, the dodd frank circus!!!

        Reply
  7. Joe6 months ago

    It’s not supposed to! entry level=no skills

    Reply
  8. Jerry6 months ago

    If the minimum wage really works don’t raise it by a couple of dollars, raise it to $20/hour and end all poverty across the country.

    Reply
  9. Gpa Danny6 months ago

    The federal minimum wage will be a maximum wage for many. Wages and health care should not be under government edict. Govt. influence only distorts the open market.

    Reply
    1. Esteban6 months ago

      how do you know that it distorts the market? any empirical evidence, or just opinion masquerading as fact–again. Have your opinions, but not your own “facts.” Old adage…

      Reply
  10. Andre Leonard6 months ago

    The labor market in a FREE society is driven by supply and demand.

    Even with a current minimum wage we still have millions of people who will come and work for less than the current minimum wage.

    A quick trip to Wal-Mart quickly reveals 80% of the goods are made in China.

    Reply
    1. slk6 months ago

      whats the minimum wage in china, compared to unionized wages here??? why is walmart doing so well??? not to mention many of their employees make more then minimum!!! if you don’t like that, then where ever you go, check labels and “buy American”!!!

      Reply
  11. Donald Brown6 months ago

    This is great but totally taken out of context by not including all the non income benefits the people receive.

    Reply
    1. Esteban6 months ago

      but the same folks who ant to keep the min. wage low say that these benefits are “too kucvh” and should not be a USG reap. Go figure. Consistency is the ban of small minds?

      Reply
  12. Arnold Coda6 months ago

    This brief report illustrates that the minimum wage “issue” is neither simple nor one-dimensional as many people, including legislators, would like to believe and as many legislators present it to the country at large. We have not won the “War on Poverty” nor, I believe, will we ever. However, raising the minimum wage to a living wage certainly will help pull many out of the abysmally dire conditions in which they are mired.

    Reply
    1. slk6 months ago

      what about inflation, and those who “will” lose their jobs???

      Reply
  13. Cynthia6 months ago

    Thank you so much for this study.

    Its really a smart thing to do for the government, by requiring businesses to pay a higher salary, they will be moving Americans off or reducing their need for government subsidies to the responsibility of employers to pay living wages.

    This will be significant to communities of color and low income communities that exist where there is little economic opportunity for growth.

    Reply
    1. slk6 months ago

      do you tink a “skill” may help them get better wages???

      Reply
      1. Ajh6 months ago

        Sure, if there were jobs that existed offering fair pay for those skills. We sent all the blue collar work over to china and other parts of asia though, so we have nothing to give people to work with except those minimum wage jobs in many areas. Look around, how many people are hiring for minimum wage work in your area vs good higher paying jobs?

        Reply
  14. Chasen6 months ago

    But would this not raise the poverty line? Businesses will pass on the expense to the consumer, thus making the raise pointless?

    Reply
    1. Doug6 months ago

      . . . unless businesses keep the same expense line by getting along with fewer employees — and then we’ve brought the arguments full circle.

      Reply
    2. Arnold Coda6 months ago

      There is no way to know in advance whether or not businesses will raise prices of their products or services. Even if they do, will the increases erase a minimum wage increase? My thinking is that there is no way to know or project this with any acceptable degree of certainty. Certainly, it would be most interesting and educational to know what the price reaction was when minimum wage was established and then later when it was increased.

      Reply
      1. slk6 months ago

        say hello to the new $10 value menu!!!

        Reply
        1. Ajh6 months ago

          that’s funny, cause minimum wage is waaaay higher in australia and their big mac isn’t any more expensive than ours.

          Reply
    3. slk6 months ago

      bingo!!!

      Reply