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Study: $10.10 Per Hour Would Lift 5 Million From Poverty

CBSNews -- In the battle over America’s widening income gap, nothing may be more hotly contested than the effects of raising the minimum wage.

In the battle over America’s widening income gap, nothing may be more hotly contested than the effects of raising the minimum wage. 

One of the arguments cited by opponents is that raising the wage wouldn’t actually help lift many Americans out of poverty, given that some who are below the poverty line don’t work or aren’t their family’s breadwinners. By raising the baseline wage, they argue, companies would have to cut jobs to compensate or raise prices.  

 But a new study from University of Massachusetts-Amherst economist Arindrajit Dube calls some of those assumptions into question. 

Dube’s study, released Monday, finds that an hourly minimum wage of $10.10 would reduce the poverty rate among non-elderly Americans by 1.7 percent, pulling 4.6 million people above the poverty rate. After adding in longer-term effects of such a wage increase, that would rise to 6.8 million Americans pulled from poverty, he writes. 

“For the average family near the 10th percentile in 2013, this translates into an annual increase of $1,700,” Dube writes. “Therefore, the increase in the federal minimum wage currently under consideration can play a modest but important role in reducing poverty and raising family incomes at the bottom.”

To put the financial impact in perspective, Dube notes that the poverty rate among non-elderly Americans rose by 3.4 percentage points during the Great Recession. “The proposed minimum wage change can reverse at least half of that increase,” he notes.  

The battle over the minimum wage, which stands at $7.25 an hour, has led to employee strikes at fast-food restaurants such as McDonald’s (MCD), where workers are seeking a $15 hourly wage. At the same time, 14 states are set to boost their baseline wages this year, ranging from $7.50 an hour in Missouri to $9.32 in Washington State. 

The last federal increase was in 2007, when the federal baseline wage rose to its current $7.25 an hour from $5.15. 

Supporters of a higher minimum wage note that to keep pace with the cumulative rate of inflation, the current baseline hourly rate should be $9.10. But as CBS MoneyWatch reported last month, that doesn’t include some expenses such as healthcare, where price increases have outpaced the rate of inflation. 

Still, policies other than boosting the minimum wage may prove more effective in battling poverty, Dube writes. Those include cash transfers, food stamps and programs that help boost employment for disadvantaged groups. 

Of course, one of those approaches is currently facing its own existential crisis: the $75 billion food stamp program. Spending on the program amounted to roughly 2 percent of the government's 2012 budget. 

With the Supplemental Nutrition Assistance Program more than doubling its spending since 2006, the Republican-led House is proposing to cut almost $40 billion over a decade, while Democrats are proposing a more modest $4 billion reduction over the same period. 


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