“Minimum Wage Policy and Poverty in the United States,” by Lonnie Stevans and David Sessions, appeared ten years ago in the International Review of Applied Economics (v. 15, n. 1) and some of their empirical findings about the correlates – and presumed causes – of poverty should be of great interest to us today.
Among the statistics most closely linked with a state’s poverty rate are a slew of variables over which we have little or no control, at least in the short run: the growth of statewide employment, the fraction of households headed by single women, the ratio of college graduates to those with high school only, and, finally, geographic location. Predictably, education and employment growth correlated with reduced poverty; the prevalence of single-female-headed households appeared to increase the rate. And (no surprise here, either), compared to the rest of the country, East Coast poverty rates were lower.
There are two important policy variables, however – the minimum wage and the extent of its coverage – which are within states’ control. According to the Stevans and Sessions study, the level of the minimum wage matters, but the proportion of the workforce covered by the minimum wage matters even more. Applying their estimates to Ohio, for example, an increase in the minimum wage from $7.40 to $8.15 would be 90% certain to reduce the poverty rate in the state from 13.6% to 12.1%. On the other hand, an increase in the fraction of covered workers from 95% to 100% would have a 99% chance of cutting the rate to about 11.5%.
The same model suggests that a five percentage-point reduction in the fraction of covered workers could increase the poverty rate to about 15.5%. And yet, this past summer, opponents of minimum wage coverage had to be persuaded to remove provisions in House Bill 153 that would have narrowed coverage in the State’s biennial budget. But avoiding a bad move, though laudable, is not enough. Instead of reducing minimum wage coverage in Ohio, we should be expanding it to afford every fulltime worker a living wage. (The federal poverty line for an individual is $1174/mo., 159 hours at $7.40 per hour.)
I know: most of the uncovered workers in Ohio are in agriculture (calculated from August 2011 data available at http://ohiolmi.com/); and I know, Governor Kasich loves Ohio’s agriculture industry (Susan Crowell, in Farm and Dairy, 9/27/11). But couldn’t we address poverty rates in Ohio by extending minimum wage protection to all those who work on Ohio farms?
Dr. Lewis C. Sage likes intersections. Since 1991, he has taught Law and Economics, Mathematical Economics, and the Economics of Healthcare. A former Fulbright Fellow (Bulgaria 1995-6), he teaches an interdisciplinary Honors seminar, Enduring Questions, and is studying strategy in the NFL draft with faculty and students in Sports Management and Psychology. E-mail: email@example.com