Study: Minimum Wage, Welfare Programs May Be Increasing Poverty In Poor Neighborhoods

by Tim Pearce

Minimum wage laws and welfare programs designed to give poor and disadvantaged Americans a boost out of poverty may be doing the opposite, according to the Employment Policies Institute (EPI).

University of California, Irvine economists David Neumark and Brittany Bass teamed up with Brian Asquith of the National Bureau of Economic Research to study the long-term outcomes of “anti-poverty” policies in the areas that need them to work the most. The experts considered the effects of the minimum wage and welfare, as well as the Earned Income Tax Credit (EITC), in an EPI study released Monday.

The team pulled together census data and mapped out disadvantaged areas with high concentrations of low-educated or black Americans, limiting the study of the policies to within those boundaries and comparing them to find trends.

At best, a minimum wage has no effect on the rate of poverty in the disadvantaged neighborhoods.

“There is no evidence that higher minimum wages reduce poverty or receipt of public assistance,” the study says. “The evidence is in the opposite direction; all the estimates indicate that the longer-run effect of higher minimum wages is to increase poverty and reliance on public assistance, and three of the four estimates are statistically significant.”

Welfare policies coincide with a dependence on government aid in poor neighborhoods and increasing the amount of welfare corresponds to an increased amount of dependence, suggesting a “behavioral” response to the amount of welfare given.

“The longer-run effects of higher welfare benefits are to increase poverty and the share on public assistance,” the study says.

The EITC’s impact in poor communities may be negligible, as well. The tax credit did not leave areas worse off, though. The researchers did not find any strong evidence that the program was effective in disadvantaged neighborhoods.

“Given the strong pro-work incentives of the EITC established in other literature, the absence of strong evidence of positive longer-run effects of the EITC in our DDD analysis is perhaps surprising, especially given that other research has found beneficial effects of the EITC,” the study says.

The study focuses solely on disadvantaged neighborhoods that lack the job opportunities already in place in wealthier neighborhoods, which may explain the difference in the EITC’s affects in the study compared to other research, the author’s noted.

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