Cashier Irene Peters checks out a customer at a department store in Phoenix.
How do minimum wage policy increases affect enrollments and
expenditures on means-tested public assistance programs? In this report
we address this question for the case of the Supplemental Nutrition
Assistance Program, or SNAP, formerly known as the food stamp program.
By definition, government spending on a means-tested program should
decline as average earnings increase, insofar as benefit levels fall
with increased earnings and insofar as the earnings increase makes some
individuals ineligible for any benefits. Both of these conditions are
satisfied in the case of the effect of minimum wages on SNAP benefits.
SNAP benefits decline 30 cents for every $1 increase in family earnings
and phase out entirely at about the federal poverty level. Low-wage
workers are disproportionately enrolled in SNAP. A minimum wage increase
that lifts many families out of poverty should therefore reduce public
expenditure on this program.
But the relationship may be more complex. If a minimum wage increase
reduces employment, thereby adding to the number of unemployed, the
number of SNAP recipients could increase. SNAP recipients who are
unemployed, disabled, or retired will not be affected by a minimum wage
increase. Conversely, if many SNAP recipients have earnings that already
bring them close to becoming ineligible for the program, a minimum wage
increase may have a very small effect on SNAP expenditures. The
quantitative effect of minimum wages on SNAP spending is not
self-evident. It requires a causal analysis.
In an era of historically low real federal minimum wage rates, rising
income inequality, job-market stagnation, and contentious debate about
government deficit spending, the possibility that a higher minimum wage
may lead to increased or reduced public spending has great relevance to
the public and to policymakers. This report presents an initial
empirical analysis of the effects of minimum wage policy on SNAP
participation and expenditures. We do so by exploiting more than two
decades of variation in binding state and federal minimum wage changes
in an econometric framework. Our future research will examine the
effects on SNAP further and apply an analogous framework to two other
public assistance spending programs: the Earned Income Tax Credit and
Medicaid.
According to the finding in this report a 10 percent increase in the
minimum wage reduces SNAP enrollment by between 2.4 percent and 3.2
percent and reduces program expenditures by an estimated 1.9 percent.
Taking into account each state’s 2014 minimum wage level, we apply these
results to the legislative proposal put forward by Sen. Tom Harkin
(D-IA) and Rep. George Miller (D-CA) to raise the federal minimum wage
to $10.10 per hour. Our results imply that the effects of the
Harkin-Miller proposal on wage increases would reduce SNAP enrollments
by between 6.5 percent and 9.2 percent (3.3 million to 3.8 million
persons). The total anticipated annual decrease in program expenditures
is nearly $4.6 billion, or about 6 percent of current SNAP program
expenditures.
Harkin-Miller proposes to index minimum wage levels in subsequent
years to the consumer price index, or CPI. The minimum wage would then
increase at the same rate as SNAP benefit and eligibility levels, which
are also indexed to the CPI. Consequently, the savings over 10 years in
2014 dollars would be 10 times the one-year savings, for a total of
approximately $46 billion.
Some of the reduction in SNAP program enrollment and expenditures
would occur among workers making less than $10.10 per hour—those whose
pay would be directly increased by the minimum wage law. Another part of
the reduction would occur among workers currently earning between
$10.10 and $11.50, who would also receive pay increases.
Although a large number of studies have examined the impact of
minimum wage increases on earnings and employment, the impact of such
minimum wage policies on public assistance enrollments and expenditures
remains an under-explored subject in the economic literature. Only a few
studies discuss the relation between the minimum wage and government
transfer spending, much less attempt to identify the causal effect of
one upon the other. Professors Marianne Paige, Joanne Spetz, and Jane
Millar find positive effects of minimum wage increases on welfare
caseloads; as they state, however, their results vary considerably with
different sample periods and assumptions about state trends. Professors
Marianne Bitler and Hilary Hoynes discuss the importance of SNAP as a
safety net program, but they do not examine its relation to minimum wage
policy. Research economist Sylvia Allegretto and her University of
California at Berkeley colleagues show that low-wage workers in general,
and fast-food workers in particular, are much more likely to be SNAP
recipients than all workers.
Several studies have examined the relationship between the minimum
wage and the Earned Income Tax Credit, or EITC. Professor David Neumark
and William Wascher, a researcher at the Federal Reserve Board of
Governors, find that a higher minimum wage increases EITC benefits for
families in deep poverty, while reducing EITC benefits for some
sub-groups. Professors David Lee and Emmanuel Saez argue that the
minimum wage and EITC are complementary policies, not substitutes. The
Congressional Budget Office, or CBO, argues that a minimum wage increase
will not have a substantial effect on EITC spending, while Professor
Jesse Rothstein examines whether the positive effect of the EITC on
female labor supply has lowered wages. While these studies are of
interest, the EITC is quite different from SNAP in having a substantial
phase-in period in which EITC benefits increase, as well as a long
phase-out period, with complete phase-out at an annual income of about
$48,000 for a family of four, quite a bit above the reach of the minimum
wage.
Research by Professor Arindrajit Dube on the causal effect of the
minimum wage on family poverty represents the study most related to the
one at hand. Dube finds that Harkin-Miller would raise about 4.6 million
non-elderly Americans above the federal poverty level, or FPL. In
contrast, when CBO uses a simple simulation method to address the same
question, they find that Harkin-Miller would raise 900,000 people above
FPL. The difference between these two estimates highlights the
importance of undertaking a causal analysis. The methods used in this
paper are in many respects similar to Dube’s. Moreover, since
eligibility and benefit levels for programs such as SNAP and Medicaid
are tied to the federal poverty level, Dube’s findings have direct
implications for this study. Nonetheless, this report appears to be the
first study to examine the effects of the minimum wage on SNAP. In
future work, we plan to undertake similar analyses for the EITC and
Medicaid.
The report proceeds as follows:
- Section 1 provides background information on the federal minimum wage, state minimum wages, and the SNAP program.
- Section 2 describes our methods and data.
- Section 3 provides our main results, including a simulation of the
effects of a Harkin-Miller minimum wage increase, and a state-by-state
analysis.
- Section 4 presents our conclusions.
Further details are provided in a series of appendices.
Rachel West is a master of public policy candidate at the Goldman
School of Public Policy, University of California at Berkeley. Michael
Reich is professor of economics and director of the Institute for
Research on Labor and Employment at the University of California at
Berkeley.
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