Poverty is a continuing problem in our nation today and needs to be focused on to help those in need. Congress and the White House realize this and are constantly proposing policies that are supposed to combat poverty.
An idea that has constantly been thrown around is raising the federal minimum wage rate in the United States. However, this is not the solution to poverty that is needed and will not provide the necessary help.
At first glance raising the minimum wage may seem like a popular idea, as most people see it as putting more money into the pockets of those working low-skilled jobs, whom most people believe to be those living in poverty. However, diving into the deeper implications, one can see that this truly does not have the effect on reducing poverty as people expect it would.
For instance, increasing the minimum wage increases the cost of labor for businesses. This puts stress on companies to take a few different courses of action. One, they may have to let go some of their existing employees or not hire new ones. The Congressional Budget Office estimates that an increase in minimum wage to $10.10 would cost the economy 500,000 jobs. Two, the company may have to raise their selling price, which if many firms are forced to do this, then overall prices increase. This causes there to be really no gain for those earning more from a higher wage and a decrease in purchasing power throughout the entire economy. Third, it may cause companies to cut corners in production elsewhere in an effort to keep constant prices, leading to a lower quality of good or service. All of these things are bad for companies and the economy as a whole, making an increase in minimum wage not ideal.
Raising minimum wage is not an efficient tool to reduce poverty, because most of those earning minimum wage do not come from poor households. Research completed by Joseph Sabia and Richard Burkhauser indicated that if the federal hourly minimum wage increased from $7.25 to $9.50, only about 11.3% of workers who would gain from the increase, are actually living in poverty. This is because many of those earning minimum wage are teenagers or secondary earners in a household, In 2013 around half of those earning minimum wage were between the age 16 and 24. Many of those living in poverty do not work at all, making a rise in the minimum wage inefficient in reducing poverty.
There are already other policies such as the Earned Income Tax Credit, or the Child Tax Credit that could be more effective in reducing poverty than an increase in minimum wage would have. Both of these policies have shown to reduce poverty, by increasing work effort and providing benefits in the present along with benefits in the future. This makes raising the minimum wage even less appealing, as there has shown to be more efficient policies available.
So if raising the minimum wage is shown to not be effective in reducing poverty, why is it constantly brought up in news? It is because it is a popular idea to rally behind, as many of those in the general public have experienced or can relate to the minimum wage policy throughout everyday life. If asked on the street if you think that the minimum wage should be raised and you say no, there is instant backlash, as it seems like you want people to live in poverty. A survey completed by YouGov/ Huffington Post found that out of the 1000 US adults surveyed, 66% were in favor of raising the minimum wage to $10.10 per hour.
Poverty is a major problem in the United States that the government is working hard to combat, they must realize however, that raising the federal minimum wage is not the solution. It raises the cost of labor, hurting companies and cutting jobs. Also many of those earning minimum wage are not those living in poverty, rendering an increase in minimum wage ineffective in reducing poverty. Lastly, there are other anti-poverty policies that are more effective and have shown to reduce poverty that would be better to expand upon.