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Psychohistorian comments on AndrewH's observation and opportunity costs - Less Wrong
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...no, I don't see why that means one shouldn't give money to beggars.
Let's say beggars in my city can make $1/hour. Everyone who, in a world without begging, would have made <$1/hour becomes a beggar, and everyone who in a world without begging would have made >$1 hour does not become a beggar.
Now let's say people in my city become more generous and give more money. The number of beggars cannot increase without the wage of beggars also increasing, because the only reason more people would become beggars is that there is a higher incentive, and if the influx of new beggars drive wages back down, those new beggars will "quit" their "job" and the hourly wage will stabilize. So it may be that now beggars earn $2/hour, and everyone who would earn <$2/hour at normal labor quits and becomes a beggar.
In a country with a minimum wage, this suggests that no one will ever leave a job for begging until a beggar's wage exceeds minimum wage; despite the horror stories I don't think this has happened here. It suggests that the population of beggars will probably consist of the people who would have a (low-paying) job if there was no minimum wage but can't get any job in the current regulatory climate. These people seem worth helping.
In a country with no minimum wage, begging establishes an effective minimum wage. That is, if beggars can earn $1/day, then no one will work for less than $1/day because they'd rather beg. This may be bad from an economic standpoint, but it's good from a humanitarian standpoint; it means we can be assured every poor person in the country will earn at least $1/day, whether working or begging, and that no one will have to make do with less. If people become more generous and donations rise to $2/day, this just means that all poor people can be assured of a little bit more money. This seems like exactly what people donating to beggars have as their goal.
Although it may leave a bad taste in our mouths that beggars are quitting their fifty-cent-a-day jobs for begging, if we place a greater value on people not having to live on fifty cents a day than we do on the "moral value of hard work", we are making people better off. We'd have to balance that against the lost productivity of these beggars' fifty-cent-a-day jobs,but if they're only earning fifty cents a day, they can't produce all that much.
[possible counter-argument: if you have a fifty-cent-a-day job, you might learn skills and get promoted. This seems a much more relevant concern in a first world country than in a third world country, where most people labor at dead-end jobs their whole lives, and since first world countries generally have minimum wages anyway, I don't consider it too important]
[this argument probably only works in Economics Land; I think gworley does a better job of describing what happens in the real world.]
I do not have hard data, but I strongly suspect a lot of beggars make more than minimum wage. Many don't, and this varies by area, but in Berkeley at least, there's a ton of foot traffic and people beg in the same spot day-in, day-out, and I would make a large wager that some if not most of them make more than $7 an hour, on average, tax-free. In fact, you occasionally hear about someone who is employed or on disability or otherwise should not be begging doing it on weekends to make a bit extra, though this is more an issue of supply size than it is of wage.
From the straight dope:
http://www.straightdope.com/columns/read/2255/how-much-money-do-beggars-make
I really like Tyler Cowen's position on the issue. He basically said when in a third world country that receives lots of first world tourists, there usually are a huge number of beggars. Many of these people could get work, but they would make less than they can as skilled beggars. Instead of rewarding this non-productive work, he gives money to poor people who are cooking, offering to work as guides, etc. This way he incentivizes doing productive work, while still giving money to the poor.