Minimum Wages and Poverty

The principal justification for minimum wage legislation resides in improving the economic condition of low-wage workers. Most previous analyses of the distributional effects of minimum wages have been confined to simulation exercises employing rather restrictive assumptions that guarantee the conclusion that an increase in the minimum wage reduces poverty. In contrast, we adopt a more flexible "reduced-form" approach that links increases in both federal and state minima to contemporaneous changes in poverty rates. For the period 1983-96, we find indication of a poverty-reducing effect of minimum wages among older junior-high dropouts and among teenagers.