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Does minimum wage help the poor?

A government can set a minimum wage to legally prevent an employee accepting what is declared to be unfair income from an employer. The strategy is one of many cases of contentious economic regulation, where advocates of free markets may claim its distortionary effects neutralize its supposed benefits.

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Experts and Influencers

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Experts In Economics

David Card    Professor of Economics
Mostly Agree
If you raise the minimum wage a little — not a huge amount, but a little — you won't necessarily cause a big employment reduction. In some cases you could get an employment increase.
01 Dec 2006    Source

Experts In Law

Barack Obama    United States President
Government policies can help, with little impact on market efficiency. We can raise the minimum wage. It may be true that any big jumps in the minimum wage discourage employers from hiring. But when the minimum wage has not been changed in nine years and has less purchasing power in real dollars than it did in 1955, so that someone working full-time today in a minimum wage job does not earn enough to raise out of poverty, such arguments carry less force.
01 Oct 2006    Source

Experts In Entertainment

Jon Stewart    Comedian, Talk Show Host
The Democrats say the first thing they're going to is raise the minimum wage. It seems like a no brainer. It's been too long.
27 Nov 2006    Source

Ambiguous or Flip-Flop
Experts In Economics

Joseph Stiglitz    Nobel Laureate in Economics, Ex World Bank Chief Economist
The recent increase in the minimum wage will further enhance the poverty-reducing power of the Earned Income Tax Credit (EITC).
10 Feb 1997    Source

Joseph Stiglitz    Nobel Laureate in Economics, Ex World Bank Chief Economist
Price floors have predictable effects too... ...those who are lucky enough to get a job will be better off at the higher wage than at the market equilibrium wage; but there are others, who might have been employed at the lower market equilibrium wage, who cannot find employment and are worse off.There will be an excess supply of labor. ... Most poor people earn more than minimum wage when they are working; their problem is not low wages. The problem comes when they are not working.
01 Jan 1993    Source

Experts In Economics

Robin Hanson    Economics Professor
Mostly Disagree
Regarding our best estimate of the employment effect of a small min wage rise, while many have recently said this is near zero, more say it is substantially negative, and I have asked around and found *no* economist who says that it is substantially positive. Thus, I conclude, any reasonable average of these estimates must be negative, and has been so for a while.
05 Dec 2006    Source

Milton Friedman    Iconic Economist of 20th Century
The programs that are labeled as being for the poor; for the needy almost always have effects exactly the opposite that those that their well intentions sponsors intend them to have. ... The minimum wage law is most properly described as a law saying employers must descriminate against people who have low skills. To employ [a person] at [a higher wage] is to engage in charity. Now there's nothing wrong with charity, but most employers are not in a position [to] engage in that kind of charity.
07 Dec 1975    Source

James M. Buchanan    Nobel Laureate in Economics
...no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimum scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.
25 Apr 1996    Source

Paul Krugman    Nobel Laureate in Economics
...this rather iffy [study supporting minimum wages] has been seized upon by some liberals as a rationale for making large minimum wage increases a core component of the liberal agenda. Clearly these advocates very much want to believe that the price of labor ... can be set based on considerations of justice, not supply and demand, without unpleasant side effects. ...[They] not only take the [study] as gospel, but advance a number of other arguments that just do not hold up under examination.
01 Sep 1998    Source

Tyler Cowen    Economics Professor
My colleague Dan Klein continues his pathbreaking work on the sociology of the economics profession. He asked petition signatories why they favor increasing the minimum wage. The results are striking, most of all for how far they stand outside traditional economic reasoning... Bernard Wasow is the guy who makes the most sense [who says it's] "A low cost demonstration of concern for low wage workers that causes little damage. Elicits a buy-in by low wage workers to the polity".
24 Jan 2007    Source

Experts In Philosophy

Ayn Rand    Philosopher, Novelist
Today’s widespread unemployment is the result of organized labor’s privileges and of allied measures, such as minimum wage laws.
01 Jan 1976    Source


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1 Point      blacktrance      10 Feb 2011      Stance on Question: Disagree
A minimum wage makes it illegal to employ workers whose marginal product is less than whatever the real value of the set nominal wage is. That creates a surplus of workers - unemployment.

0 Points      Benja      03 Aug 2010      Stance on Question: Mostly Disagree
From what I gather from economists, the deep solution to combating poverty and equality is a negative income tax (or variant of). Rather than transfer money from employers of minimum wage jobs to employees who have minimum wage jobs, a negative income tax transfers money from all tax payers to all people who are poor. This makes a negative income tax both fairer and less distortionary than a minimum wage.

Roughly half of economists agree (though it varies according to the survey) with the above story, and as such, are against a minimum wage. The other half believe the story, while correct, is incomplete, and complicating real world factors open up the possibility that a minimum wage could be somewhat effective in certain scenarios. Daniel Klein conducted a survey of economists' opinions on minimum wages here, where these were the most common reasons given in favor of a minimum wage:

A. Equalizing an imbalance in bargaining skills (i.e., bargaining experience, articulateness, confidence)
B. Inducing employers with monopsony power to increase employment by their firm.
C. Inducing a transfer from employers to (generally less well off) workers, albeit with possible small disemployment effects.
D. Coordinating the low-wage labor market by making it common knowledge that jobs pay at least $7.25.

Economists against a minimum wage contest each of these points, and furthermore, accuse their economic opponents of politically and ideologically motivated opinion forming. In some cases, the opponents do not even deny it, one describing a minimum wage as "A low cost demonstration of concern for low wage workers that causes little damage. Elicits a buy-in by low wage workers to the polity". Critical commentary here, here, here, and here.

As a non-economist, it seems plausible that a minimum wage might have a small positive benefit in certain scenarios. The evidence is however underwhelming (it echoes to me of climate skeptics who say CO2 won't actually cause warming due to a complicating effect like a negative feedback - when in doubt I put my money on the simpler explanation). The larger point really seems to be the effect of a minimum wage is at best quite small, which is part of the reason its effect has been difficult to empirically measure. Those who tout the minimum wage most strongly, which are the politicians and union leaders, are clearly after securing political points rather than a real solution to poverty and inequality.

A final note: before I researched this I assumed there was an economic consensus on this issue, and in fact, according to Harvard's Greg Mankiw here, 79% of economists agree that "A minimum wage increases unemployment among young and unskilled workers", which is why Greg includes it in his list of top 14 public issues that economists agree on. However, he says here that "One issue that fails to generate consensus is the minimum wage: 37.7 percent want it increased, while 46.8 percent want it eliminated.". While these statements might be logically compatible, they leave non-economists like myself a bit baffled. No wonder the public end up believing whatever the influencers want to tell them.

1 Point      the27th      09 May 2010      Stance on Question: Mostly Disagree
Like all price floors it creates a surplus; it necessarily creates unemployment. I don't know how much, but it can't be helping.