KY Policy Blog

Yes, the Minimum Wage Helps Fight Poverty

By Jason Bailey
June 24, 2015

In testimony yesterday to the Lexington Fayette Urban County Council on raising the local minimum wage to $10.10 an hour, a University of Kentucky economics professor argued against a wage increase by claiming it’s not a good strategy to help workers who live in poverty. But in fact the minimum wage is one of many tools needed to do just that and is effective in playing its role.

The testimony claimed low-wage workers (those making less than $10.10) are much different from workers who live below the poverty line, the latter of which already make an impressive $13.79 an hour on average in Fayette County. That’d be great if it was true, but it isn’t.

The actual data from the American Community Survey show that the median worker in poverty in Fayette County makes near the current minimum wage of $7.25 an hour. Their average wage is $8.50 to $9.00 an hour, not $13.79. Seventy-six percent of workers below the poverty line in Fayette County make less than $10.10 an hour and so would benefit from the proposed minimum wage increase to that level. The numbers back up the common sense that workers who live in poverty receive low wages.

Those opposing the minimum wage often try to paint the beneficiaries as teenagers — wealthy kids earning extra money through a job at the country club. In reality, 90 percent of low-wage workers are adults and the minimum wage disproportionately helps poorer workers.

Also benefiting are workers whose incomes are technically above the poverty line but who are still low-income. Experts consider the official federal poverty line a very low standard for measuring self-sufficiency and often use twice the poverty level as a rough benchmark of who can be considered low-income. In Lexington, a two-parent family with one child needs roughly $54,000 annually to attain a “secure yet modest living standard,” or 2.8 times the federal poverty line.

In total, 35 percent of workers who would benefit from a minimum wage increase in Lexington are below the poverty line and another 37 percent are between the poverty line and 200 percent of poverty, so are still low-income. Thus, 72 percent are impoverished or low-income, and most of the rest are only modestly middle class, a group whose incomes also haven’t been growing in recent years.

Wage stagnation is a major contributor to lack of progress in lowering the poverty rate in the United States over the last few decades. Had wages grown in line with workers’ productivity since 1979, the U. S. poverty rate would be 4.2 percentage points lower  — meaning 11.2 million fewer people below the poverty line.

And raising the minimum wage makes a difference in addressing poverty. Recent research shows a 10 percent increase in the minimum wage is associated with about a 2 percent decrease in the poverty rate. That same research shows that minimum wage increases are also effective at getting very low-income people closer to the poverty line (reducing the so-called poverty gap).

Can a minimum wage increase solve poverty all on its own? Of course not, but neither can any other single policy change alone. Addressing poverty requires a portfolio of strategies, programs, laws and investments that are even more effective if done together (see here, for example). When we let wages erode, including by failing to adjust the minimum wage to growth in cost of living, other governmental programs have to work even harder.

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