Lecture: Using Minimum Wages to Fight Inequality and Poverty

David Neumark discusses how we should think about the minimum wage among other potential policy levers.

Photo by Michael Longmire

by Dan Paley | 11/15/2018

Economists have been studying minimum wages for over 100 years but remain divided as to their effects. Advocates argue that minimum wages raise earnings for low-income people, sometimes as if there are no costs. Opponents contend that raising the minimum wage will lead to massive job losses. The truth is that both sides are right — low-income workers who have jobs will clearly see a boost in pay, while some may see a reduction in hours, and others may lose jobs or experience increased difficulty finding a new job.

But the real question is, how much does the minimum wage help poor and low-income families? On this front, the minimum wage is ineffective. This is partly due to the fact that low-wage work and being in a poor family are only weakly related. In fact, the majority of poor families with working age adults have no workers, while a highly disproportionate share of minimum wage workers are teens, who are often from middle to high income families. The minimum wage, simply put, is a high-cost policy that doesn’t efficiently accomplish what some see as its core goal — to get more money to poor families.

But it isn’t the only policy in our arsenal. The Earned Income Tax Credit does a much better job of targeting the poor, and without the adverse effect of raising labor costs for businesses.

It is important that policymakers and the public have a better understanding of the costs and benefits of the minimum wage and alternative policies, especially now that minimum wage increases are becoming increasingly popular at the ballot box.

Watch the full lecture below:

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