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Economy Lab

Cutting poverty: increase transfers, not minimum wage Add to ...

In my most recent post, I noted that the B.C. government’s decision to increase the minimum wage would have at best approximately no effect on poverty, and could very well make it worse. Some readers might well have asked what would be a better alternative, so here it is: increase transfer payments to those with low incomes.



Poverty among the elderly was once an issue at the very top of the policy agenda; it is much less so today. The reason is simple: instead of constructing special housing for the elderly or creating special stores where seniors could buy necessities at reduced prices, governments simply decided to make sure that the elderly would have a minimum income that they could spend as they saw fit; this is the goal of the Guaranteed Income Supplement.



This lesson seems to have been forgotten. Today’s anti-poverty activists have adopted a policy agenda that involves a kaleidoscope of market interventions: subsidized housing, tax breaks and subsidies for goods deemed to be necessities, and increases in the minimum wage. Such measures are well-meaning but misguided; as UBC economics professor and Economy Lab contributor Kevin Milligan puts it, these are “price solutions for an income problem”. The issue isn’t that certain goods are too expensive; no-one seems concerned about the prices paid by high-income families for the necessities of life. The real problem is that low-income households have low incomes.



The advantages of focusing on transfers are well-documented; see, for example, here and here. There are already several mechanisms in place for transferring income to those in need; the GST/HST rebate and the Working Income Tax Benefit are just two. Anti-poverty advocates would do well to redirect their attention to expanding and deepening this system of transfers. The best anti-poverty program is to give more money to those in poverty.



Eds note: Kevin Milligan of UBC will blog on the Guaranteed Income Supplement later this morning.



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