Minimum Wages and Poverty: Evidence on Single Mothers in the Post-Welfare Reform Era

Joseph J. Sabia, University of Georgia

Following the passage of state and federal welfare reforms in the 1990s, many policymakers argued that increases in the minimum wage were necessary to prevent single mothers from falling into poverty. Using pooled cross-sectional data from the 1992 to 2005 March Current Population Survey (CPS), this study provides estimates of the effect of minimum wage increases on less-educated single mothers. The evidence shows that minimum wage increases failed to reduce poverty among this vulnerable population because of the offsetting effects of minimum wage increases on wages and on employment and hours. A 10 percent increase in the minimum wage was associated with 9.9 percent increase in wages, but an 8.8 percent reduction in employment and an 11.8 percent reduction in annual hours worked. A more effective and better targeted pro-work, anti-poverty strategy for single mothers would be to expand the federal Earned Income Tax Credit or state supplements to it.