IDEAS home Printed from
   My bibliography  Save this article

The Redistributive Effects and Cost-Effectiveness of Increasing the Federal Minimum Wage


  • John P. Formby

    (University of Alabama, Tuscaloosa, AL, USA)

  • John A. Bishop

    (East Carolina University, Greenville, NC, USA,

  • Hoseong Kim

    (University of Alabama, Tuscaloosa, AL, USA)


Simulation methods are used to investigate the cost-effectiveness and poverty-reducing effects of the Fair Minimum Wage Act of 2007 (FMWA). The data set is created by matching and merging the Annual Social and Economic Supplement (March CPS) with the Earner Study files, which contain the best available information on wages, hours, and earnings. Three 70¢ increments in the minimum wage are compared to alternative labor market policies that could have been adopted in lieu of the FMWA. Specifically, the costs of rising minimum wages are compared to the costs of equiproportionate increases in the earned income tax credit (EITC) and equiproportionate reductions in Federal Insurance Contributions Act (FICA)(payroll) taxes of workers in low-income families that achieve the same poverty-reducing policy objective. The FMWA simulations are expanded to evaluate a hypothetical extension of the federal minimum wage to $9.50. The overall redistributive effects of the FMWA, the hypothetical $9.50 minimum wage, and the alternative EITC and FICA labor market policies are also compared.

Suggested Citation

  • John P. Formby & John A. Bishop & Hoseong Kim, 2010. "The Redistributive Effects and Cost-Effectiveness of Increasing the Federal Minimum Wage," Public Finance Review, , vol. 38(5), pages 585-618, September.
  • Handle: RePEc:sae:pubfin:v:38:y:2010:i:5:p:585-618

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Anita Alves Pena, 2013. "Do Minimum Wage Laws Affect People Who Are Not Covered? Evidence from Documented and Undocumented, Hourly and Piece Rate Workers in U.S. Agriculture," Upjohn Working Papers and Journal Articles 13-194, W.E. Upjohn Institute for Employment Research.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:pubfin:v:38:y:2010:i:5:p:585-618. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (SAGE Publications). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.