The Impact of Missouri’s Proposed $6.50 Minimum Wage on the Labor Market
A proposal on the November 2006 ballot in Missouri would raise the state minimum wage to $6.50 an hour. Supporters of this proposal argue that this is a way to help workers in poor families by providing them with a “livable wage.” In order to assess this claim we use a large, representative data set to examine which types of Missouri workers would be helped or hurt by the proposal.
We find that the typical minimum wage worker is young, still in school, living with a relative and living in a family that has a total family income of over $57,000. The typical poor worker is older, out of school, earning a wage substantially above $6.50 an hour, and the sole earner in a family with children. Most poor workers are poor because they work relatively few hours, not because they are paid low wages. The fact that minimum wage workers tend to look very different from poor workers suggests that increases in the minimum wage would have a limited impact on poverty.
We estimate that an increase in the minimum wage would result in over 18,000 Missourians losing their jobs and would raise total labor costs for Missouri firms by $340 million. For those who manage to keep their jobs the increase in the minimum wage would lead to a 2.4 percent increase in household income. For those who lose their jobs the increase in the minimum wage would lead to an 11 percent decline in household income. Increasing the minimum wage would reduce the overall poverty rate by less than 0.5 percentage points.
In contrast, getting all poor workers to work full time would decrease the overall poverty rate by 1 percentage point and would reduce the poverty rate among low-wage workers by 35 percent. Expanding existing government programs such as the Earned Income Tax Credit or childcare subsidies would likely have a much larger impact on poverty in Missouri than increasing the minimum wage.