A Higher Minimum Wage Doesn't Reduce Welfare Costs To Taxpayers - Forbes

A Higher Minimum Wage Doesn't Reduce Welfare Costs To Taxpayers - Forbes

This might be one of those things about the minimum wage that people will have a hard time quite grasping. For it seems so obvious that if people working for low wages are getting welfare payments that the rest of us taxpayers have to cough up for them, if we raise the minimum wage, we’ll have to cough up less in taxes because welfare payments will go down. And it’s undoubtedly true that that could happen. The important question though is does this happen? And the truth of the matter seems to be that no, it doesn’t happen.

What’s missing is that sure, those people who keep their jobs and their hours with a higher minimum wage gain less in welfare payments. But some people don’t keep their jobs and their hours as a result of this higher minimum wage. And so what is important to the welfare bill is whether the incomes gained and reducing welfare outweigh those lost and replaced by welfare? The answer seems to be that it’s much of a muchness, no great effect either way.

The paper is discussed here:

For years, the union-backed Fight for $15 campaign has argued that raising minimum wages will curb low-wage workers’ reliance on government assistance programs—saving taxpayers money.

Not so, says a new study that found federal and state minimum-wage boosts have had no statistically significant impact on working-age adults’ net use of several such programs, including Medicaid and the Supplemental Nutrition Assistance Program formerly known as the food-stamp plan.

The study, partly funded by the right-leaning Employment Policies Institute, contends a $15 minimum wage is poorly targeted to recipients of these programs. Among those who would be affected by a $15 minimum wage, just 12% are SNAP recipients and just 10% are Medicaid recipients.

Now that EPI, the Employment PI, is rather more nakedly political than we might be happy accepting the unsupported word of. As opposed to the other EPI, the Economic PI, whose every utterance is taken as gospel over on the left but which does still manage to produce respectable and reasonable research from time to time. However, let us be fair to this EPI, their basic underlying approach does seem to be markedly better than an earlier paper which contradicts their results:

One previous study Mr. Sabia is challenging is a 2014 paper updated last year by Rachel West, now a senior policy analyst at left-leaning Washington think-tank Center for American Progress, and Michael Reich, an economics professor at the University of California, Berkeley.

That study examined the effects of minimum wages on SNAP enrollments and expenditures. It concluded that a 10% increase in the minimum wage does reduce SNAP enrollments and expenditures by levels that would have saved taxpayers nearly $4.6 billion a year—6.1% of SNAP expenditures in 2012—if a federal bill seeking a $10.10 minimum wage had been approved.

Mr. Sabia said that study’s model was flawed in part because it didn’t examine the impact among workers and nonworkers. A portion of his study set out to examine that using the same model and produced results that made the prior study’s findings hard to believe, Mr. Sabia said.

Ms. West acknowledged that her study didn’t examine the effects on workers versus nonworkers, but she said she stands by her results.

Let’s just think through that starting with our basic logic.

We’re going to raise the minimum wage. Our normal theoretical result is that some workers will lose hours or even their jobs as a result of this. When we move over to look at the effects upon the welfare bill we thus want to know what is the effect of people who keep their jobs earning more, minus the costs of people earning less or nothing and thus requiring more welfare.

So, the paper that says that Hallelujah! the welfare bill is reduced manages not to look at all at the increased welfare costs of people becoming unemployed. That’s not convincing, is it? And then we’ve got the new paper that looks at both results and nets them off and finds pretty much no effect on the welfare bill. I’ll run with that second one if you don’t mind.

However, this then leads us to an insight about the true effects of a rise in the minimum wage. If more poor people get more money as a result of the rise then welfare bills should go down. If welfare bills don’t go down in aggregate then therefore poor people aren’t getting more in aggregate as a result of the rise. And this speaks to the great empirical debate about the minimum wage at present. Because we do still have that theoretical result: that higher wages should increase unemployment. And some studies say this isn’t so in detail: many others say it is. But here we’ve a study approaching the point from a completely different angle, using an entirely different set of numbers, yet conforming with our theoretical model, not the disputed empirics of recent years.

Because the welfare bill isn’t falling, the poor on welfare cannot in aggregate be net gainers from a rise in the minimum wage. We must be having hours restrictions and job losses to make up for the higher incomes going to those who don’t lose their jobs or shifts.

Or, as many people have been saying for a long time now, minimum wage rises don’t help the poor. So let’s not have them, let’s have the only minimum wage that makes any sense at all, $0. As once even the New York Times knew was correct. After all, 96% of employed Americans earn more than the minimum wage meaning that we know very well that there’s something else determining wages.