If California's $15 Minimum Wage Isn't Going To Reduce Poverty Then Why Bother To Do It?

Tim Worstall

Or perhaps if we were to be ever so slightly more accurate, if California’s $15 minimum wage isn’t going to reduce poverty very much and might possibly increase it then why are we doing this? I think the problem is that most people don’t quite understand the distributional issues of that minimum wage. After all, it seems pretty obvious. The minimum wage is low, poor people are the people who have low wages, so obviously a rise in the minimum wage will help poor people, right? But this isn’t actually quite so.

 

The trick is that poverty is defined as living in a poor household and it’s nowhere near true at all that all people getting minimum wage live in poor households. Thus the benefits of a minimum wage rise don’t necessarily go to people in poverty. In fact, a minority of such benefits do. And it’s worse than that.

 

For we know that there are going to be price rises as a result of this hike. But it’s generally true that those price rises will be on the things which are bought by poorer people, not richer. The net effect of those two could actually be that poverty increases as a result. Ron Bailey over in Reason is having a look at a number of papers on the minimum wage and this is, for my argument, the important part:....Ron Bailey over in Reason is having a look at a number of papers on the minimum wage and this is, for my argument, the important part........The full version of that paper is here.....

 

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