Abstract

We review evidence on the effectiveness of the minimum wage versus in-work benefit policies in reducing poverty in OECD countries. The most credible evidence suggests that raising the minimum wage is an ineffective policy tool for reducing poverty. On net, minimum wage increases tend to redistribute rather than reduce poverty. In contrast, government subsidies to people who work, through tax credits or transfers, can be appropriately targeted to households with low incomes and lift them out of poverty. Such policies also have the advantage of increasing labor supply, which can offset work disincentives inherent in means-tested benefits that do not require work. These policies, along with pro-growth policies that increase the demand for workers, can increase the household incomes of workers without the negative employment effects of minimum wage increases.