Greg Mankiw points out a CBO study showing the effects of a minimum wage increase versus expanding the EITC in reducing poverty. Unsurprisingly, the EITC increase does more to help people below the poverty line rather than an increase in the minimum wage. The CBO notes that only 15% of the amount added by a minimum-wage increase would go to people below the poverty line. In contrast, 60% of an EITC increase went to families below the poverty line. The study uses the figures for 2004 as a baseline to determine what the effects of each change would have been in that year.
36% of an increase in the minimum wage would have gone to families who make 300% more than the poverty line — most of whom are either secondary income earners or teenagers.
Trying to sell an increase in the minimum wage as an anti-poverty measure isn’t accurate. 85% of the increase will go to those who don’t need it. What we need to fight poverty are targeted solutions like expansions of the EITC or tax changes to make health savings accounts viable. Sadly, it’s much more politically expedient to just go with a minimum-wage increase rather than deal with the problems of poverty. After all, if we significantly reduced poverty, who would politicians use as backdrops for their constant efforts to expand the scope and intrusiveness of government?