Minimum Wages and Public Assistance: Do Higher Minimum Wages Reduce Government Spending?

A number of policymakers have advocated minimum wage increases as tools to fight against poverty and thus reduce government spending. Using data from the Survey of Income and Program Participation between 1996 and 2013, we study the effects of minimum wage increases on a number of government assistance programs, including the Food Stamps and Temporary Assistance for Needy Family, Earned Income Tax Credits, Medicaid, and Supplemental Security Income. The longitudinal nature of the SIPP allows us to examine individual- and family-specific transitions onto and off of public assistance in response to minimum wage increases. This analysis is supplemented by the use of aggregate state-by-year data on welfare caseloads and public expenditures to examine the effect of minimum wage increases on government spending. Preliminary estimates suggest that minimum wage increases are associated with no net changes in government benefit receipt in the pre-Great Recession Era. While minimum wage increases may aid some working families in leaving the welfare rolls, adverse labor demand effects may increase government benefits received by others. Future analysis will explore effects in the Great Recession Era and examine the target efficiency of minimum wage increases to individuals eligible for public assistance.