Factoring in the wage distribution can increase understanding of how minimum wages
might affect poverty. But it is still necessary to know the household income of workers
at different wage levels, because poverty is defined in terms of household income, not
individual earnings.
For example, a worker in the upper half of the wage distribution might live in a poor
household, so a higher minimum wage could help that worker’s household escape
poverty. Or a worker at the bottom of the wage distribution could be a secondary
wage earner in a nonpoor household, so a higher minimum wage would make this
household better off but would not reduce poverty.
The impact of higher minimum wages on poverty also depends on whether the concern
is solely with the number of households with incomes below the poverty line (the
incidence of poverty) or also with how far the poor are below the poverty line (the
poverty gap). In the second case, it will matter which poor households benefit and
which poor households lose when minimum wages rise. Raising the minimum wage
could raise the incomes of some poor households with incomes near the poverty line
while reducing the incomes of the poorest households at the bottom of the distribution
(Figure 2).
Studies using aggregate country-level data to examine the correlations between
minimum wages and poverty have generally found that in developing countries higher