Can minimum wage increases save taxpayers money?

Union-backed activists will take that case to city halls and statehouses around the country in 2016. They argue that taxpayers “subsidize” the profits of businesses that hire entry-level employees who qualify for public assistance – a cost that could be mitigated by minimum wage increases.

However, new research conducted by Joseph Sabia and Thanh Tam Nguyen of San Diego State University concludes that minimum wage increases have little-to-no net effect on participation in or spending on social welfare programs. It’s a confirmation of what the Congressional Budget Office found in its 2014 report on minimum wages, and it should serve as a wake-up call to policymakers intoxicated by the idea of a fiscal “free lunch.”

Their study is the most comprehensive to date on the relationship between minimum wage increases and social welfare use. The authors analyze 35 years of data across multiple data sets to study the impact of minimum wage increases on six major social programs, including Supplemental Nutritional Assistance Program, Medicaid, Temporary Assistance for Needy Families and the Program for Women, Infants, and Children.

The authors give two reasons for their conclusion that minimum wage increases have no net effect on government programs. First, minimum wage increases cause employers to reduce job opportunities and cut hours, making some people more, rather than less, dependent on government.

Second, minimum wage increases are poorly targeted to those they’re supposed to help. For instance, the authors find that just 12 percent of the employees who would be affected by a $15 federal minimum wage are SNAP (food stamp) recipients, and just 10 percent are Medicaid recipients.

In other words, a minimum wage increase is a blunt tool for policymakers to target recipients of social programs. (Given that public assistance programs are generally based on family income, it is instructive to note that the average family income today of a beneficiary of a higher minimum wage is over $50,000 a year.)

In limited cases, the authors found small decreases in SNAP benefits participation with minimum wage increases; in other cases they found increases in lunch and housing assistance associated with minimum wage increases. But these findings were, if anything, indicative of redistributive effects among minimum wage employees – in other words, some gain at the expense of others.

This study contradicts the finding of another paper by Michael Reich of UC Berkeley and Rachel West of the Center for American Progress, which found minimum wage increases reduce taxpayer spending on SNAP.

Nevertheless, the powerful health care workers local of the Service Employees International Union intends to put a $15 minimum wage on the November state ballot, arguing that “Californians who are paid the current minimum wage often must rely on the state’s social safety net to meet their basic needs.”

Voters are right to support public policies that promote work and reduce dependency on government. But as this research shows, they’re wrong to think that minimum wage increases – and a $15 minimum wage, in particular – are the answer.