Minimum Wages and the Poor: Evidence on the Target Efficiency of the Obama Proposal

Joseph J. Sabia, American University
Richard V. Burkhauser, Cornell University

Using data drawn from March Current Population Surveys, we examine the effectiveness of minimum wage increases in alleviating poverty in the U.S. Our results show that state and federal minimum wage increases between 2003 and 2007 had no effect on state poverty rates. We then examine whether a newly proposed federal minimum wage increase from $7.25 to $9.50 per hour will be effective in aiding poor workers, and we compare its target efficiency to that of the last federal minimum wage increase from $5.15 to $7.25 per hour. Our simulations show that the newly proposed increase will be even less well-targeted toward poor workers than was the last increase. Only 11.0 % of workers who would be affected by the newly proposed federal minimum wage increase are poor, compared to 15.1% from the last increase. Taken together, our results suggest that raising the Federal minimum wage is a poor anti-poverty strategy.