Economists agree: Raising the minimum wage reduces poverty

[quote]One funny part of watching journalists cover the minimum wage debate is that they often have to try and referee cutting-edge econometric debates. Some studies, notably those lead by UMass Amherst economist Arin Dube, argue that there are no adverse employment effects from small increases in the minimum wage. Other studies, notably those lead by University of California Irvine economist David Neumark, argue there is an adverse effect. Whatever can we conclude? But instead of diving into that controversy, let’s take a look at where these economists, and all the other researchers investigating the minimum wage, do agree: They all tend to think that raising the minimum wage would reduce poverty. That’s the conclusion of a major new paper by Dube, titled “Minimum Wages and the Distribution of Family Incomes.” Let’s first highlight the major results. Dube uses the latest in minimum-wage statistics and finds a negative relationship between the minimum wage and poverty. Specifically, raising the minimum wage 10 percent (say from $7.25 to near $8) would reduce the number of people living in poverty 2.4 percent. (For those who thrive on jargon, the minimum wage has an “elasticity” of -0.24 when it comes to poverty reduction.) [..] Now, this is normally the part where we’d have to go through the counter-arguments, using different data and techniques from different economists, to argue that the minimum wage wouldn’t do this. But this is the fun part: Dube’s paper finds a remarkable consistency across studies here. For instance, in a 2011 paper by minimum-wage opponent David Neumark, raising the minimum wage 10 percent would reduce poverty 2.9 percent (an elasticity of -0.29) for 21-44-year-old family heads or individuals. That’s very similar to what Dube finds. Neumark doesn’t mention this directly in the paper however; Dube is able to back out this conclusion using other variables that are listed. Indeed, Dube digs out the effects of the minimum wage on poverty from 12 different studies in the new wave of literature on the topic that started in the 1990s with David Card and Alan Krueger field-creating research. Of the 54 elasticities that Dube is able to observe in these 12 papers, 48 of them are negative. Only one study has a sizable positive one, a 2005 one by David Neumark, a study that stands out for odd methodology (it lacks state and yearly fixed effects, it assumes quantiles are moving in certain directions) that isn’t standard in the field or in his subsequent work. (Indeed, it is nothing like Neumark’s standard 2011 study, mentioned above, which finds that the minimum wage reduces poverty.) As many economists have argued, the minimum wage ”substantially ‘held up’ the lower tail of the U.S. earnings distribution” through the late 1970s, but this effect stopped as the real value of the minimum wage fell in subsequent decades. This gives us an empirical handle on how the minimum wage would help deal with both insufficient low-end wages and inequality, and the results are striking.[/quote] [url=http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/04/economists-agree-raising-the-minimum-wage-reduces-poverty/]Wonkblog - Economists agree: Raising the minimum wage reduces poverty[/url] An interesting result that, as far as I can recall, seems to quite rarely be the focus of any argument over the minimum wage here - but probably should be. I'm hesitant about the fact that the author was taking implied results from other papers, though, and as I understand things, it's still just a working paper, so I'll be interested to see if much changes when it's published properly. Still, though, it's a perspective to incorporate. A minimum wage increase is a particularly important discussion to have in the United States, where low levels of unionism and substantial unemployment have left the negotiating power firmly in the hands of employers. Thoughts? Comments from the economically-minded?