Redistribution through Minimum Wage Regulation: An Analysis of Program Linkages and Budgetary Spillovers

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Program linkages and budgetary spillovers can significantly complicate efforts to project a policy change’s effects. I illustrate this point in the context of recent increases in the federal minimum wage. Previous analysis finds that these particular minimum wage increases had significant effects on employment. Employment declines were sufficiently large that the average earnings of targeted individuals declined. Payroll tax revenues thus also fell. I find that transfers to affected individuals through programs including unemployment insurance, food stamp benefits, and cash welfare assistance changed little. These programs thus offset relatively little of the earnings declines experienced by individuals who lost employment. I discuss how this broad range of spillovers matters for assessing the relevant minimum wage change’s welfare implications.