Raising the Minimum Wage: Another Empty Promise to the Working Poor

By 2003, only 17 percent of low-wage employees were living in poor households. Consequently, attempting to target poor families by manipulating wages is an inefficient means of addressing the problem.

Even more important than the number of low-wage employees living in poor households is the number of low-wage employees who are the heads of poor households. This stereotypical beneficiary of an increase in the wage floor is the one supporters of minimum wage increases claim represents the typical minimum wage employee. In reality, a small fraction of low-wage employees are the head of a poor household, and this number has decreased significantly over time... By 2003, only 9 percent of low-wage employees were heading a poor household.

Federal Minimum Wage Increases and Poverty Abyproduct of the aforementioned changes in the composition of family incomes is that the poor make up a small percentage of beneficiaries from a wage hike. Contrary to popular perception, the average minimum wage employee is not in poverty or raising a family on a mini-mum wage income. Analyzing Census data, the authors found that a beneficiary from a proposed federal minimum wage hike to $7.25 an hour is far more likely to be in a family earning more than three times the poverty line than in a poor family. In total, only 12.7 percent of the benefits from a federal minimum wage increase to $7.25 an hour would go to poor families. In contrast, 63 percent of benefits would go to families earning more than twice the poverty line and 42 percent would go to families earning more than three times the poverty line.

While the minimum wage is often promoted as a policy designed to help the poor, minorities, and single mothers, this analysis reveals that only 3.7 percent of the benefits from a $7.25 an hour federal minimum wage would go to poor African-American families. Only 3.8 percent would go to poor singlemother households. Even more troubling, the majority of “working poor” families—families who are working but remain in poverty— receive no benefit from an increase to $7.25 an hour. These families don’t benefit because they already earn more than the new federal minimum wage and remain in poverty either because of a low number of hours worked or a large family size. Many of these individuals would benefit far more from an increase in the generosity of federal and state EITC programs.