One of the strangest arguments for raising the minimum wage has come from liberals claiming it will cut welfare spending. Many on the left argue that raising the minimum wage will raise earnings and cause workers to qualify for fewer welfare benefits.
It’s a strange argument because most liberals have no problem with welfare spending. They want to increase it dramatically. The argument seems primarily aimed at persuading conservatives to support raising the minimum wage.
It’s had some success. Prominent conservative activists Ron Unz and Phyllis Schlafly now support raising the minimum wage for exactly that reason. Indeed, virtually everyone on the right wants to reduce government dependence by expanding economic opportunity. If raising the minimum wage reduces welfare dependence, that‘s a strong argument for raising the minimum wage.
Last week economists shed some empirical light on this question. Joseph Sabia and Thanh Nguyen of San Diego State University released the most comprehensive analysis to date of the effects of minimum-wage increases on welfare caseloads. They examined every minimum wage hike between 1980 and 2014, as well as spending on the largest federal means-tested welfare programs: SNAP (aka food stamps), Medicaid, school lunches, AFDC/TANF, Section 8 housing vouchers, and WIC.
Our findings suggest that minimum wage increases are largely ineffective at reducing net participation in public assistance programs or in reducing expenditures on means tested public assistance, particularly during non-expansionary times. These findings are true across public programs, time periods examined, and data sources. Only for the SNAP program is there some (inconsistent) evidence that higher minimum wages reduce program participation.
Sabia and Nguyen did indeed find that minimum-wage hikes raise some workers’ pay, reducing their eligibility for welfare benefits. But other workers lose (or cannot find) jobs. They qualify for even more welfare benefits than before. On balance these two effects cancel each other out, leaving total spending unchanged.
It would be wonderful if increasing economic opportunity was as simple as ordering firms to pay more. Unfortunately it is not.