The Effects of Minimum Wages on Food Stamp Enrollment and Expenditures

• DOI: http://doi.org/10.1111/irel.12110
• Author: Rachel West,Michael Reich
• Published date: 01 October 2015
• Date: 01 October 2015

The Effects of Minimum Wages on Food Stamp

Enrollment and Expenditures

*

MICHAEL REICH and RACHEL WEST

We provide the first causal analysis of how minimum wages affects enrollments

and expenditures in the Supplemental Nutrition Assistance Program (SNAP).

Exploiting state- and federal-level variation in minimum-wage policy between

1990 and 2012, and incorporating local controls in our specifications, we find that

a 10 percent minimum wage increase reduces SNAP enrollment between 2.4 and

3.2 percent, and reduces program expenditures an estimated 1.9 percent. If the

federal minimum wage were increased from $7.25 to $10.10, enrollment would

fall between 7.5 and 8.7 percent (3.1 to 3.6 million persons) relative to 2012

levels, and annual expenditures would decrease 6 percent ($4.6 billion).

Introduction

Although the effects of minimum wages on employment have been much

studied, the effects on public aid spending have not. How does minimum wage

policy affect enrollments and expenditures on means-tested public assistance

programs? In this study we address this question for the case of the Supple-

mental Nutrition Assistance Program, or SNAP, formerly known as the Food

Stamp program.

By definition, government spending on a means-tested program should

decline as average earnings increase, insofar as benefit levels fall with

increased earnings and insofar as the earnings increase makes some individuals

ineligible for any benefits. Both of these conditions are satisfied in the case of

the effect of minimum wages on SNAP benefits. SNAP benefits decline 30

cents for every $1 increase in gross family earnings and phase out entirely at

about 130 percent of the federal poverty level (U.S. Department of Agriculture

2013). Although only 13 percent of SNAP recipients in 2011 were employed

*The authors’affiliations are, respectively, University of California, Berkeley, Berkeley, California. Email:

mreich@econ.berkeley.edu; Center for American Progress, Washington, DC. Email: rwest817@gmail.com.

The authors are grateful to Sylvia Allegretto, Carl Nadler, Arindrajit Dube, Zachary Goldman, Ben

Olinsky, Jesse Rothstein, Daniel Thompson, and Ben Zipperer, as well as two anonymous referees, for their

valuable suggestions and assistance. Funds to support this research were provided by the University of Califor-

nia, Berkeley and the Center for American Progress.

INDUSTRIAL RELATIONS, Vol. 54, No. 4 (October 2015). ©2015 Regents of the University of California

Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford, OX4 2DQ, UK.

668

(Rosenbaum 2013), low-wage workers are disproportionately enrolled in

SNAP. A minimum-wage increase that lifts many families out of poverty

should therefore reduce public expenditure on this program.

But the relationship may be more complex. If, for example, a minimum-

wage increase reduces employment, thereby adding to the number of unem-

ployed, the number of SNAP recipients could increase. Even if employment

does not fall, the quantitative effect of minimum wages on SNAP enrollment

and spending is still not self-evident. For example, if many SNAP recipients

have earnings that already bring them close to becoming ineligible for the pro-

gram, or if many minimum-wage workers belong to families with incomes that

are above the federal poverty level, a minimum-wage increase may have a

very small effect on SNAP expenditures. Similarly, SNAP recipients who are

unemployed, disabled, or retired will not be affected by a minimum-wage

increase. Identifying the sign and magnitude of the effect requires a causal

analysis.

The possibility that a higher minimum wage may lead to increased or reduced

public spending has great relevance to the public and to policymakers. This

study presents the first causal analysis of the effects of minimum wage policy

on SNAP participation and expenditures. We conduct this analysis by exploiting

more than two decades of variation in binding state and federal minimum-wage

changes in a causal econometric framework. We also contribute to the growing

literature that demonstrates the importance of using local controls to identify the

causal effects of minimum wages on a variety of outcomes.

We find that a 10 percent increase in the minimum wage reduces SNAP

enrollment between 2.4 and 3.2 percent and reduces program expenditures an

estimated 1.9 percent. Taking into account each state’s 2014 minimum-wage

level, we apply these results to the case of a federal minimum-wage increase

from $7.25 to $10.10 per hour, indexed in subsequent years to consumer price

increases.

1

The adoption of a $10.10 federal minimum wage in 2014 would

reduce SNAP enrollments between 7.5 and 8.7 percent (3.1 to 3.6 million per-

sons). The total anticipated annual decrease in program expenditures is nearly

$4.6 billion, or about 6 percent of current SNAP program expenditures. An

indexed federal minimum wage would increase at the same rate as SNAP ben-

efit and eligibility levels, which are also indexed to the consumer price index

(CPI). Consequently, the savings over 10 years, in 2014 dollars, would be ten

times the one-year savings, for a total of approximately $46 billion.

1

For this analysis, we model the effect of adopting a $10.10 federal wage floor in 2014. We do not con-

sider an increase in the subminimum wage for tipped workers. The so-called tipped minimum wage has not

increased since 1991. Raising this wage would increase the estimated SNAP savings by an unknown—but

likely substantial—amount.

Minimum wages and food stamps / 669