The Effects of Minimum Wage Increases on Means-Tested Government Assistance

Abstract

One of the more popular contemporary arguments for raising the minimum wage is that it will save taxpayers money. Specifically, proponents of a higher minimum wage have argued that taxpayers “subsidize” employers who provide entry-wage jobs, and that raising the minimum wage could reduce employees’ reliance on social safety net programs.

The proof to support such a claim has so far been thin. One 2015 report published in Industrial Relations estimated that a higher wage floor reduces taxpayer spending on a social welfare program (the Supplemental Nutritional Assistance Program, or SNAP). However, in its 2014 report on a $10.10 minimum wage, the Congressional Budget Office estimated that the higher minimum wage would, across all programs, have little net effect on the federal budget.

In this study, Dr. Joseph Sabia of San Diego State University, working with graduate student Thanh Tam Nguyen, examines 35 years of government data across a number of different datasets – including the Current Population Survey, the Survey of Income and Program Participation, welfare caseload data, and National Income and Product Accounts. Their results suggest that, on net, minimum wage increases have little to no ameliorating effect on participation in (or spending on) a range of means-tested programs.

For instance, the authors find that federal and state minimum wage increases have had no measurable impact on the use by working-age adults of SNAP, Medicaid, Temporary Assistance for Needy Families (TANF) and the Women, Infants, and Children (WIC) program. In some specifications, they find evidence of an increase in the use of free and reduced-price lunches (FRPL) and housing subsidies following minimum wage increases. The authors also examine net welfare caseloads and taxpayers’ expenditures on those programs. They find no statistically significant evidence that a higher minimum wage has reduced participation in or spending on public programs.

Among specific sub-groups of minimum wage earners – women with less work experience, and young adults without a high school diploma – the authors find evidence that minimum wage increases create winners and losers. For instance, the data suggests some reduction in SNAP enrollment for less-skilled women following a minimum wage increase, but this reduction is offset by an increase in the use of FRPL among non-white employees and young employees without a high-school diploma.

The authors’ results differ from the earlier Industrial Relations study on this topic, and they demonstrate that it suffered from methodological problems that call the results into question. For instance, the earlier study’s model suggests that, following a minimum wage increase, participation in public programs falls among people who don’t have a job. As the jobless have no wages to boost, a mandated wage increase is unlikely to be linked with their participation in a welfare program.

The authors also find that a higher minimum wage—and a $15 minimum wage in particular—is a blunt tool to aid the recipients of these programs. For instance, among those who would be affected by a $15 minimum wage, just 12 percent are SNAP recipients and just 10 percent are Medicaid recipients.

These conclusions suggest that the conventional wisdom on minimum wage increases is wrong: The policy will have little impact on taxpayers, but the impact on less-skilled employees who lose their jobs may be severe.