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The †Poverty Trap†and Living Wage Laws

Author

Listed:
  • Richard S. Toikka

    (Metropolitan Legal Services, LLC)

  • Aaron Yelowitz

    (University of Kentucky)

  • Andre Neveu

    (Employment Policies Institute, City University of New York)

Abstract

Advocates of living wage laws claim wage mandates will help families escape poverty by increasing family earnings beyond the poverty line. This article examines such programs and the effect a change in pay would have on taxes and benefits for low-income families in cities where living wage laws have been enacted or considered. Many families living with earnings below the poverty line take advantage of programs specifically designed to help them out of poverty. Phase-out rates of benefit programs are structured so that additional earnings from living wages largely disappear through benefit reduction and increased taxation. The living wage appears to be badly targeted and ineffective at raising comprehensive disposable income. Such vanishing benefits reduce the ability of living wage laws to reduce poverty. Nearly 75% of those affected by the living wage were not initially in poverty, and more than 40% had initial incomes at least twice the poverty line.

Suggested Citation

  • Richard S. Toikka & Aaron Yelowitz & Andre Neveu, 2005. "The †Poverty Trap†and Living Wage Laws," Economic Development Quarterly, , vol. 19(1), pages 62-79, February.
    • Handle: RePEc:sae:ecdequ:v:19:y:2005:i:1:p:62-79
    DOI: 10.1177/0891242404268707
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    References listed on IDEAS

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    1. Aaron S. Yelowitz, 1995. "The Medicaid Notch, Labor Supply, and Welfare Participation: Evidence from Eligibility Expansions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(4), pages 909-939.
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    Cited by:

    1. David Neumark & Matthew Thompson & Leslie Koyle, 2012. "The effects of living wage laws on low-wage workers and low-income families: What do we know now?," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 1(1), pages 1-34, December.

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