Minimum wages can also affect other sources of income received by poor households.
For example, social safety net programs can soften the negative impacts of higher
minimum wages on poor households by supplementing incomes when a household
member loses a job.
Several Latin American countries tie many of the social benefits for low-income
households to the minimum wage [2]. In Brazil, for example, where noncontributory
pensions make up a large portion of the income of many poor households and their
value is tied to the minimum wage, higher minimum wages substantially lowered
poverty between 1994 and 2004. The higher minimum wages were responsible for
32% of the unprecedented reduction in income inequality in Brazil in the 1990s and
2000s because of their impact on nonlabor incomes [11].
One danger of tying social safety net payments or eligibility to the minimum wage is
that higher minimum wages may strain government budgets, forcing curtailments of
public spending on other important government priorities. In addition, the minimum
wage is generally not a good proxy for the subsistence needs of households; for half
the countries in Latin America, it is insufficient to provide for household needs. The
best practice is usually to anchor social assistance to a given consumption bundle or
to economywide average earnings [2].
Income transfers between households may also be important. In South Africa and
some other developing countries, income is shared among households to ease the
impact of a negative shock. A higher degree of income sharing between the employed
and unemployed reduces the probability that a higher minimum wage will push a
household into poverty