Increasing the minimum wage is an inefficient way to reduce poverty, according to a Fed research paper that comes amid a national clamor to hike pay for workers at the low end of the salary scale.
David Neumark, visiting scholar at the San Francisco Fed, contends that raising the minimum wage has only limited benefits in the war against poverty, due in part because relatively few of those falling below the poverty line actually receive the wage.
Many of the benefits from raising the wage, a move already undertaken by multiple governments around the country as well as some big-name companies, tend to go to higher-income families, said Neumark, who also pointed to research that shows raising wages kills jobs through higher costs to employers. Neumark is a professor of economics and director of the Center for Economics and Public Policy at the University of California, Irvine.
"Setting a higher minimum wage seems like a natural way to help lift families out of poverty. However, minimum wages target individual workers with low wages, rather than families with low incomes," he wrote. "Other policies that directly address low family income, such as the earned income tax credit, are more effective at reducing poverty."
His conclusions drew a response from advocates for raising the wage who said the argument that boosting wages would cost jobs has been proven invalid and that an increase would help cut into poverty levels.