Minimum wage - poorly targeted

Minimum wage increases do very little to help the poor, even before correcting for disemployment effects. In short: they're poorly targeted. Minimum wage workers often are the second earners in higher earning families. When we allow for employment effects, things get worse. Sabia and Burkhauser simulate the effects of a federal (American) minimum wage increase from $7.25 to $9.50. They estimate 1.3 million job losses, including 168,000 jobs held by the working poor. If the demand for minimum wage labour is more elastic than -0.86, there are net monthly earnings losses to low skilled workers.

Our results show that recent minimum wage increases between 2003 and 2007 have had no effect on state poverty rates. Moreover, the proposal to raise the federal minimum wage to $9.50 per hour is unlikely to be any better at reducing poverty because (i) most workers (89%) who are affected are not poor, (ii) many poor workers (48.9%) already earn hourly wages greater than $9.50 per hour, and (iii) the minimum wage increase is likely to cause adverse employment effects for the working poor.

They instead recommend expansions of the EITC program.

Note that $7.25/hr, US money, is about $10.25 NZ. Our minimum wage, $12.75/hr, is about $9 US.