There has been a long going debate that has recently heated up about the effects of raising the minimum wage on poverty. Tyler Cowen had favorably linked to a paper by Sabia and Burkhauser that said only 11 percent of those who would benefit from an increase in the minimum wage actually are in poor households.
On the other side of the spectrum is Arindrajit Dube who has found a significant negative elasticity between the minimum wage and poverty of between -0.12 and -0.37, meaning a 1% increase in the minimum wage would lead to between a -0.12% and -0.37% decrease in the poverty rate. Or to put it another way, you would need to increase the minimum wage between 3 and 8% to reduce the poverty rate by 1 percent.
This isn’t a huge effect, but it is significant and can be combined with other programs like the EITC and SNAP to help reduce poverty overall. The problem with Cowen’s post was that he said that the Sabia and Burkhauser paper foces more clearly on “facts” instead of that fancy-shmancy econometrics. I looked at the paper and saw that their “facts” were based on computer simulations that relied on overly restrictive assumptions. But it’s not exactly my field, and so I didn’t post on it.
Fortunately, I didn’t need to as Dube has a very thoughtful post that explains everything very clearly. And this, I think, shows the real benefit of blogs in academic debate. The problem, of course, is that Marginal Revolution is a more widely read blog than is Dube’s, so his response may not get as wide an audience as it deserves. I found it through Counterparties, so hopefully it will be picked up by more thoughtful economics blogs as well.