Raising the federal minimum wage to $10.10 an hour could help lift nearly 5 million people out of poverty, a new study finds.
If Congress were to go through with a plan backed by President Barack Obama to raise the minimum wage from $7.25 an hour to $10.10 an hour, it would reduce the poverty rate among Americans between the ages of 18 and 64 by as much as 1.7 percentage points, a study released Monday from University of Massachusetts-Amherst economist Arindrajit Dube finds. That would bring about 4.6 million people out of poverty directly and reduce the ranks of the nation’s poor by 6.8 million, accounting for longer-term effects.
“What I found is very robust evidence that minimum wage increases tend to have a moderate reduction in the poverty rate.” Dube said.
A $10.10 minimum wage would help to reverse some of the damage done by the Great Recession. The economic downturn, which technically ended in 2009, and recovery have been marked by high unemployment and stagnant or falling wages. After the recession, many jobs that did return were low-paying — with many offering just minimum wage or close to it.
Three-fifths of the new jobs created during the economic recovery paid low-wages, according to an August 2012 analysis from the National Employment Law Project, a left-leaning advocacy group focused on low-wage workers.
The combination of many Americans not working at all or working for not that much money contributed to a 3.4 percent increase in the poverty rate during the recession that has not abated. A $10.10 minimum wage could go a long way in reversing some of that economic damage, according to Dube.
“[The $10.10] increase would erase more than half of the increase in poverty we have seen during the Great Recession,” Dube said. “We’re talking about roughly 5 million less people in poverty in America.”
Dube isn’t the first to highlight the benefits for the working poor of raising the minimum wage. A July analysis from Restaurant Opportunities Center United found that a $10.10 minimum wage would have been enough to lift more than half of the working poor — or about 6 million people — out of poverty in 2011.
To come up with his findings, Dube analyzed 23 years’ worth of data on past minimum wage increases, controlling for things like regional differences. For comparison, he also reviewed previous literature on the average drop in the poverty rate after a minimum wage increase and calculated the average of those averages.
A few experts said Dube’s estimate is within the range of others they’ve seen, noting that a drop of nearly 2 percentage points is at the higher range of estimates.
“That’s certainly within the range of possibility,” Dean Baker, the co-director of the left-leaning Center for Economic and Policy Research, said of Dube’s estimate. “Could it be somewhat less? Sure. But I think that’s not a ridiculous number at all.”
Economists have debated for some time over how much a minimum wage increase affects the poverty rate, according to Baker. Some argue that raising the minimum wage would barely make a dent in reducing poverty because many minimum wage workers are young people just working to make extra money.
“(Dube’s study) is just re-confirming that no, actually most of the people we see in the minimum wage are not in that boat,” Baker said. “We’re looking at a lot of people that are the sole supporter for the family or main supporter of their family. There’s a large overlap between the poverty population and the people who would be benefited by the minimum wage increase.”
Still, even Dube himself noted that increasing the minimum wage isn’t the most direct way of reducing the poverty rate. Instead, policies like the Earned Income Tax Credit, food stamps and those aimed at reducing the unemployment rate of at-risk groups are more effective, he said.
“We have to remember that many families in poverty have very little or no connection to the labor market, so of course we can’t expect a wage-based policy like a minimum wage increase to have a very large effect on the poverty,” he said. “But nonetheless, we find it has a moderate-sized impact.”
In addition to reducing poverty, raising the minimum wage to $10.10 an hour would offer other benefits. During the initial phase-in period of the increase, the U.S. economy would grow by $22 billion, resulting in 85,000 new jobs, according to the Economic Policy Institute, a left-leaning think tank.
It could also help close the income gap. More than half of the growth in the gulf between low-income and middle-income Americans is the result of the fact that the minimum wage lost 30 percent of its purchasing power over the past few decades, according to Jack Temple, a policy analyst at NELP.
“If we’re interested in reducing inequality of family incomes, the minimum wage can play an important role,” Dube said.