Policies to Reduce Poverty

Political philosophers hold various views about what role the government should take in altering the distribution of income. Political debate among the larger population of voters reflects a similar disagreement. Despite these continuing debates, most people believe that, at the very least, the government should try to help those most in need. The government should provide a “safety net” to prevent any citizens from falling too far.

Poverty is one of the most difficult problems that policymakers face. Poor families are more likely than the overall population to experience homelessness, drug dependence, health problems, teenage pregnancy, illiteracy, unemployment and low educational attainment. Members of poor families are both more likely to commit crimes and more likely to be victims of crimes. Although it is hard to separate the causes of poverty from the effects, there is no doubt that poverty is associated with various economic and social ills.

Suppose that you are a policymaker in the government, and your goal was to reduce the number of people living in poverty. How should you achieve this goal? Here we examine some of the policy options that you might consider. Although each of these options helps some people escape poverty, none of them is perfect, and deciding which is best is not easy.

Laws setting a minimum wage that employers can pay workers are a perennial source of debate. Advocates view the minimum wage as a way of helping the working poor without any cost to the government.

The minimum wage is easily understood using the tools of supply and demand. For workers with low levels of skill and experience, a high minimum wage forces the wage above the level that balances supply and demand. It therefore raises the cost of labour to firms and reduces the quantity of labour that those firms demand. The result is higher unemployment among those groups of workers affected by the minimum wage. Although those workers who remain employed benefit from a higher wage, those who might have been employed at a lower wage are worse off.

Advocates of a high minimum wage argue that the demand for unskilled labour is relatively inelastic so that a high minimum wage depresses employment only slightly. Critics of the minimum wage argue that labour demand is more elastic, especially in the long run when firms can adjust employment and production more fully. They also note that many minimum wage workers and teenagers are from middle class families so that a high minimum wage is imperfectly targeted as a policy for helping the poor.


One way to raise the living standards of the poor is for the government to supplement their incomes. The primary way the government does this is through the welfare system. Welfare is a broad term that encompasses various government programs. Temporary Assistance for Needy Families is a program that assists families that have children but no adult able to support the family. In a typical family receiving such assistance, the father is absent, and the mother is at home raising small children. Another welfare program is Supplemental Security Income, which provides assistance to the poor who are sick or disabled. Note that for both of these welfare programs, a poor person cannot qualify for assistance simply by having a low income. He or she must also establish some additional “need” such as small children or a disability.

A common criticism of welfare programs is that they create incentives for people to become needy. For example, these programs may encourage families to break up, for many families qualify for financial assistance only if the father is absent. The programs may also encourage illegitimate births, for many poor, single women qualify for assistance only if they have children. Because poor, single mothers are such an important part of the poverty problem and because welfare programs seem to raise the number of poor, single mothers, critics of welfare system assert that these policies exacerbate the very problems they are supposed to cure. As a result of these arguments, the welfare system was revised in a law 15 years ago limited the amount of time recipients could stay on welfare.

No one knows for sure but supporters of the welfare system point out that being a poor, single mother on welfare is a difficult existence. From the years 5 decades ago welfare benefits adjusted for inflation have declined yet the percentage of children living with only one parent has risen.