Raising Minimum Wage Would Reduce Public Assistance Spending

A report by David Cooper of the Economic Policy Institute, titled Balancing Paychecks and Public Assistance: How Higher Wages Would Strengthen What Government Can Do, finds that raising the federal minimum wage to $12 per hour by 2020 would reduce public assistance expenditures by $17 billion annually. The author suggests these savings could be used to strengthen the existing safety net of housing and other assistance programs.

The author examined worker participation by industry and wage level in eight federal and state means-tested assistance programs: the Earned Income Tax Credit (EITC); the refundable portion of the Child Tax Credit (CTC); Supplemental Nutrition Assistance Program (SNAP); the Low Income Home Energy Assistance Program (LIHEAP); the Supplemental Nutrition Program for Women, Infants, and Children (WIC); the Housing Choice Voucher (HCV) program; Medicaid; and Temporary Assistance for Needy Families (TANF).

A large percentage of low wage workers receive public assistance directly or through a family member, including 59.8% of workers with hourly wages of less than $7.42 (lowest 10% of wages), 52.6% of workers earning between $7.42 and $9.91 per hour, 43.8% of workers earning between $9.92 and $ 12.16 per hour, and 36.5% of workers earning between $12.17 and $14.72 per hour. The report highlights that certain industries have a high percentage of workers who receive public assistance either directly or through a family member, including 49.8% of workers in the agriculture, forestry, hunting, and fishing industries; 44.6% of workers in the arts, entertainment, recreation, accommodation, and food service industries; and 36.4% of workers in retail.

The author estimated that a $1 wage increase for workers earning less than $12.16 per hour would reduce the percentage of workers receiving public assistance in this wage group by 3.1 percentage points, or by more than 845,000 workers. The author also estimated that the average worker in this income group would see a wage increase of $3.16 per hour, if the federal minimum wage was increased to $12, reducing the number of these workers receiving public assistance by 2.7 million people. 

Balancing Paychecks and Public Assistance: How Higher Wages Would Strengthen What Government Can Do is available at http://bit.ly/20qBABs.