Minimum Wages and Social Policy: Lessons from Developing Countries

By Wendy V. Cunningham | Go to book overview

CHAPTER 5
The Households: The Minimum
Wage as an Antipoverty Tool

Chapter 4 showed that minimum wages generally have a positive effect on the wage distribution and a negative effect on employment. Ultimately though, we are concerned with the impact of the minimum wage on poverty. This requires us to shift our unit of analysis from the individual worker to the household for two reasons. First, households pool income so the net effect of the minimum wage on household earnings is more relevant than the effect on the labor status or earning of an individual within the household.1 Second, poverty is measured at the level of the household, not the individual. By examining the level of the minimum wage relative to household needs and the effect of the minimum wage on household income, we will have a better understanding of the usefulness of the minimum wage as an antipoverty tool.

This section is concerned with three questions. First, it determines whether the minimum wage is a viable household poverty reduction tool. Second, it aggregates the gains and losses across households and determines the net impact of an increase in the minimum wage on households at different parts of the income distribution. Finally, it identifies which households win and which households lose when the minimum wage increases.

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