Most empirical studies of the impact of minimum wages on poverty in developing
countries conclude that increases in minimum wages reduce poverty, on balance,
though they find only a modest impact—for two reasons.
• First, a large share of workers is not covered by minimum wage legislation.
• And second, higher minimum wages do not affect all low-income households the
same way: minimum wages pull some households out of poverty, but may push
others into poverty.
Given the potential for negative impacts on the employment status and incomes of
some of the poorest families, raising minimum wages is an inefficient tool for reducing
poverty. More efficient policies would focus on:
• enhancing compliance with minimum wage laws;
• improving incomes in the informal sector where minimum wages do not apply;
• and increasing the long-term productivity of workers from low-income families.
This suggests that while minimum wages can be part of a package of poverty-reducing
policies, they should not be the only mechanism or even the most important one.
For example, Brazil’s conditional cash transfer program, Bolsa Familia, was more
effective than higher minimum wages at reducing poverty and income inequality
using an identical amount of resources [11]. Conditional cash transfers to low-income
households have the additional benefit of providing part of a social safety net for
households when workers lose their jobs because of higher minimum wages. Labor
supply incentives, particularly the earned income tax credit, have also been shown to
be effective in increasing both the employment and earnings of low-income workers
in the US