February 18, 2014

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


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 Pew Research Center.


  1. Damien2 years ago

    No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.

    By living wages, I mean more than a bare subsistence level — I mean the wages of a decent living.

    Do not let any calamity-howling executive with an income of $10,000 a day, who has been turning his employees over to the Government relief rolls in order to preserve his company’s undistributed reserves, tell you – using his stockholders’ money to pay the postage for his personal opinions — tell you that a wage of [$10.00 an hour] is going to have a disastrous effect on all American industry.

    All but the hopelessly reactionary will agree that to conserve our primary resources…government must have some control over maximum hours, minimum wages, the evil of child labor and the exploitation of unorganized labor.

    Oh wait, sorry, I was channeling FDR again. Apologies.

    1. Anonymous1 year ago

      Haha…exactly my thoughts. Ridiculous these CEO’s are making million dollar bonuses and getting ridiculous amounts of $ but god forbid they pay their workers a wage where they can pay rent, utilities, phone, gas, daycare and food and have $ left to go save, go to restaurants a few times a month and (gasp) buy their kids some clothes. Oh, and maybe some medical. $15 an hour is even a joke. After taxes that’s about 2k. Rent is 1k, food can be anywhere from 600-$800 a month (for family of 4), gas is $150-$200 a month…daycare is $800-$1000k a month…if a single parent is paying all of this obviously they already have to use the government’s help.

    2. Anonymous1 year ago

      Living wages are relevant to where you live. Some states for example haven no state income tax, some no sales tax, some neither. Also, minimum wage may not affect the Exxon’s of the world, but it most definitely has an impact on small community based business. If your attitude is screw them if they can’t afford the increase in payroll taxes and wages, then be prepared to be raped by big business as they will be the last man standing.

  2. Mark Detwiler3 years ago

    9% of people below the poverty line have full time jobs…..2/3rds of the people below the poverty line don’t have a job. So instead of giving the 9% more money and killing off some of their jobs….let’s cultivate more jobs so the 2/3rds can get into the work force. Not that difficult…unless you don’t really care about the poor at all…..enter the Democrats. A line from a famous song says “….they ought to get a rich man to vote like that” Rich men are rich because they know how to handle money. And rich people hire other people who then have jobs. The money has to come from business not the government. Government cannot make enough profit without being communist to run this country…..but the Dem’s will try.

  3. vik3 years 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.

  4. Esteban3 years 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…..

  5. Randy3 years 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.

  6. Oro3 years 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.

  7. slk3 years 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???

    1. Emily3 years 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.

  8. slk3 years 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!!!

    1. retiredtaxpayer3 years ago

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

      1. slk3 years ago

        oh, the dodd frank circus!!!

  9. Joe3 years ago

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

  10. Jerry3 years 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.

  11. Gpa Danny3 years 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.

    1. Esteban3 years 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…

  12. Andre Leonard3 years 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.

    1. slk3 years 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”!!!

  13. Donald Brown3 years ago

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

    1. Esteban3 years 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?

  14. Arnold Coda3 years 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.

    1. slk3 years ago

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

  15. Cynthia3 years 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.

    1. slk3 years ago

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

      1. Ajh3 years 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?

  16. Chasen3 years ago

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

    1. Doug3 years ago

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

    2. Arnold Coda3 years 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.

      1. slk3 years ago

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

        1. Ajh3 years ago

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

        2. Ronald Nelson2 years ago

          I truly do not think minimum wage was designed to support families to live on, but for businesses to profit from.

    3. slk3 years ago