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Higher minimum wage increases poverty in poor areas

Unemployed men outside a soup kitchen in Depression-era Chicago, Illinois, the US, 1931 (Wikimedia Commons)

Unemployed men outside a soup kitchen in Depression-era Chicago, in 1931 (Wikimedia Commons)

As many jurisdictions move to implement a $15-an-hour minimum wage, a new study is out showing that higher minimum wages have increased poverty in poor neighborhoods.

Led by the University of California, Irvine economist David Neumark, the study found that in poor neighborhoods, a $1 increase in the minimum wage raises poverty rates and government dependency by about 3 percent, the Washington Examiner reported

The study, published by the business-backed Employment Policies Institute, also found evidence that cash welfare fails to lower poverty.

“The clear evidence here is that the minimum wage doesn’t deliver long-run gains and welfare doesn’t deliver long-run gains,” said Neumark said, the director of the Economic Self-Sufficiency Policy Research Institute at the university.

Neumark, the Examiner reported, has co-authored a book on the impact of the minimum wage.

His new study is distinguished from previous research on the topic by examining the effects of the minimum wage based on location and over long periods of time.

The study, which hasn’t been peer reviewed yet, also assesses the impact of minimum wage changes on poverty and public assistance generally, the Washington paper said.

Neumark also examined the Earned Income Tax Credit, which effectively subsidizes work by giving low-income earners a refundable tax credit. He found no evidence that the EITC lowered poverty over the long run.

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