Minimum Wage as a Tool to Reduce Poverty: Expected Consequences of the Reform

E. Grishina and Polina Kuznetsova
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E. Grishina: Institute for Social Analysis and Forecasting at RANEPA, Moscow, Russia

Journal of the New Economic Association, 2018, vol. 40, issue 4, 137-156

Abstract: Consistent growth of the minimum wage is one of the important issues in recent Russian legislation. In May 2018 the minimum wage was increased up to the value of the subsistence minimum. In this paper we estimate the expected impact of the growth of the minimum wage on poverty, not taking into account possible negative effect on employment. According to the results obtained, even a significant increase in minimum wages will not lead to a noticeable poverty reduction. The main reason lies in the differences between the concepts of poverty, defined at the household level, and low wages, determined individually. If the minimum wage grows to the subsistence minimum, only a little more than a quarter of all additional payments will go to poor households. At the same time, almost half of the benefi ciaries of the growth of the minimum wage live in formally non-poor families with incomes that slightly exceed the poverty line. A greater impact on poverty can be achieved by determining the minimum wage on the basis of regional subsistence minimum values. However the main emphasis in overcoming poverty should be made on targeted programs, in which assistance is provided taking into account household incomes rather than individual incomes of workers, as in the case of minimum wage increase.

Keywords: minimum wage; poverty; subsistence minimum; microsimulations; impact assessment (search for similar items in EconPapers)
JEL-codes: I32 J31 J38 (search for similar items in EconPapers)
Date: 2018
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