The Effect of the Minimum Wage on Welfare Participation: A Longitudinal Study by State

Client: Applied Research Capstone
Faculty: Dick Netzer and Judy Polyne
Team: Noemi Altman, Lorie Burnett, Susan DeLuca, Leah Menzies, Diana Shaw-McCarthy
Year: 2003
The Capstone team examined the relationship between the minimum wage and welfare participation by state over a period of 27 years. The study used state and year fixed effects and controlled for a considerable number of state economic factors, as well as selected demographic characteristics. Exploring a number of different model specifications, the team found a higher minimum wage (in real dollars) to be associated with decreased welfare participation. This relationship was statistically significant and of considerable size. These findings suggest that raising the real minimum wage will not increase welfare participation, and furthermore, may have the effect of diminishing states' welfare rolls. The report's conclusions explore alternative theories that may explain this relationship.