Poverty and Minimum Wage

Impoverishment throughout the United States of America has affected many. According to the U.S. Census Bureau in 2017, the official poverty rate was 12.3 percent (“What is the Current Poverty Rate in The United States”.) With such an alarming and high number of poverty, what did Congress propose to the people? In order to fight back against this problem, push back and lower the percentage, the Congress proposed to raise the minimum wage. The thought of increasing the federal minimum wage from $7.25 to $15.00, has been a debate for years (Doyle 2018). The real question is, will raising the federal minimum wage benefit the economy? Although raising the minimum wage may seem like the solution to the poverty problem in the United States, such a high increase will be detrimental to the economy.

At first glance, $15.00 is a very attractive and popular want among the working class of the United States. People will see this as them being able to make more money, pocket more from their earnings, from working minimum wage jobs. What the people do not know is that as the minimum wage increases, so will the cost of labor for small and big businesses. The increase of costs will force companies to cut corners in any way, shape or form they can, in order to keep their average total costs low. How will they attempt to cut their costs if minimum wage were to be increased? One of the many ways they will take action is by laying off current workers.

Companies will let go of existing employees and keep a selected few, without a thought of hiring new employees any time soon. In simpler terms, the workers who keep their job will pocket more money but those who are fired will receive the short end of the stick. Those who lose jobs will not only be out of a job, but will also not be able to find one in the near future as all companies, no matter the size will not be looking to hire any new workers. The CBO, Congressional Budget Office, estimates that the economy would lose 500,000 jobs if the minimum wage would be raised to $10.10. The amount of jobs lost if the minimum wage were to be raised to $15.00 would be astronomical. A raise of $2.85 would cost the economy 500,000, imagine what a raise of $7.75 would cost the people?

As well as cutting back on employees, companies will raise their prices in order to cover costs. Once a company increases their selling price, all prices will rise as well. In other words, those who were able to manage keeping their now high paying minimum wage jobs, will remain stagnant. Although they are earning more now, they will reduce their unnecessary purchases as prices would have skyrocketed. All in all, workers will be purchasing less from the market, which will seemingly affect the economy as it counts on the population to purchase goods and services.

On the same side of the coin, companies will try to cut corners instead of raising prices as that will be a risky game to play. By cutting corners they will reduce the amount of money put into production of their goods or services, this will result in low quality items being produced. Once a company is known for releasing low quality goods and services, their sales will plummet. Take a closer look at McDonald’s for example as they provide an exemplar definition of cost cutting gone south. McDonald’s business in Asia, which makes up almost a quarter in its global revenue, took a huge loss in profits once it was discovered that they were using contaminated and even expired beef as well as chicken. Sales in China decreased sharply and fast as it caused a health scare among one of its biggest and most popular revenues (“Why McDonald’s Sales are Failing”.) This is a clear example of how companies will cut production costs and suffer in sales because of it.

Increasing the federal minimum wage will be destructive to the economy. In spite of the fact that the working citizens will want it, economically it will prove to not be an ideal solution to reduce poverty. Many will lose their jobs as well as experience high cost of goods and services. Not to mention that the quality of the high-priced goods or services will be low quality, this is not the outcome that the people want. Although they may have been attracted to it by first glance thinking that they would be earning more money. Legislating the minimum wage to $15.00 will not be productive or efficient to helping those who suffer from poverty as majority of people who earn the federal minimum wage are not those who are affected by impoverishment. 58.7 percent of minimum workers are teenagers according to the Bureau of Labor Statistics.

In other words, those who earn minimum wage are teenagers or secondary earners in a household. Those who are indeed in poverty do not have a job at all, so who would the raise in minimum wage really affect? Raising the minimum wage would cause those in the working class to suffer from its repercussions. Joseph Sabia and Richard Burkhauser conducted research which implied that if minimum wage were to move from $7.25 to $9.50, less than the proposed $15.00, a small amount of 11.3 percent of workers would benefit (Hassett and Strain 2013.) What would happen to the 88.7 percent left over? Would they be looked over and forgotten by the Congress?

Many think that a 50% increase of the minimum wage will also increase economic growth as well as job growth. The Economic Policy Institute predicted “a minimum wage increase from the current rate of $7.25 an hour to $10.10 would inject $22.1 billion net into the economy and create about 85,000 new jobs over a three-year phase-in period.” A key factor that the public is not accounting for is that an increase in the federal minimum wage will encourage family businesses, as well as big companies, to let go of employees therefore increasing unemployment levels through the roof. 1,213 businesses were surveyed, and it was concluded that 54 percent of employers who currently pay their workers the federal minimum wage of $7.25 would decrease their hiring volumes if it were to be raised to $10.10. What percentage of employers would hire other additional employees if that minimum wage bar would be raised even higher to $15.00? Steve H. Hanke, an economist professor at John Hopkins University, studied and surveyed all 21 European countries who have a higher minimum wage compared to the 7 whom do not have a higher minimum wage, but instead no minimum wage at all and found that the 21 countries had an unemployment rate of 11.8 percent while the other 7 only had 7.9 percent of an average unemployment rate.

The National Retail Federation found in a recent survey that nearly 38 percent of small business owners would see a threat to their ability to continue operating under a federal minimum wage of $15.00 per hour (Dixon 2017). To offset and cover the costs of the increase, according to The Wall Street Journal’s March 2017 story, “New on Your Dinner Tab: A Labor Surcharge,” restaurants will start to add surcharges of 3 to 4 percent. Small businesses are not all restaurants though, small businesses in general will be under serious attack. An increase of labor costs may force these businesses to reduce their number of employees. The Heritage Foundation found that a minimum wage raie to $15.00 would lead to at least 9 million jobs lost. The Heritage Foundation also found that “states with lower costs of living would see the most negative impact and efforts to create jobs and reduce poverty should not center on forcing employers to pay higher starting wages.” All in all, the bad outdo the good. If the minimum wage were to change and increase, it will add 38 percent more earning for the average worker, but it will cost 9 million Americans their jobs. Is it worth it?

The Los Angeles Times, released an article written by Kevin A. Hassett and Michael R. Strain, that wrote “Raising the wage will make it more expensive to hire younger and low-skill workers. There are better ways to help the poor.” Raising the minimum wage will prove to be a menace, as Hassett and Strain discussed, it will do more harm than good to the economy. A solution is in the works. There are other policies in place which could seamlessly be more effective in decreasing the poverty than raising the minimum wage. One policy is the Earned Income Tax Credit, as well as the Child Tax Credit, which goes hand in hand. The EITC and the CTC make their way into millions of working family homes each year providing “work, income, educational and health benefits to its recipients and their children, a substantial amount of research shows” according to the Center on Budget and Policy Priorities.

Studies have indicated that the EITC has provided work and work boosts among singe mothers and female heads of households. What does this mean? This implies that they have boosted the employments and amount of earnings of workers among women, a specific geographical part of the population. By doing so the Earned Income Tax Credit increases and maximizes the amount of Social Security retirement benefits they will later on benefit from. How did it help reduce the poverty rates? The EITC and CTC “greatly reduce poverty for working families. These working-family tax credits lifted 9.4 million people out of poverty in 2013, including 5 million children, and made 22 million other people less poor.  And by encouraging work, the EITC and CTC have an additional anti-poverty effect not counted in these figures.  Recent research on EITC’s effects on single mothers’ employment shows that counting the employment-boosting effect of the EITC nearly doubles its anti-poverty effect for these families.

These anti-poverty effects are particularly important since large numbers of Americans work for low wages, the minimum wage’s purchasing power is substantially lower than in the 1960s and 1970s, and job growth thus far in the economic recovery has been disproportionately concentrated in low-wage occupations” presents the Center of Budget and Policy Priorities. This solution has shown that in can make an impact to those who suffer from poverty. The EITC and CTC has produced numbers and reduced the amount of people in poverty, 9.4 million people in 2013 alone. Not only do these two policies increase the number of working people, it also helps them plan for the future by providing their kids with education and the people with retirement benefits. Knowing this, consumers will see that raising the minimum wage is not as appealing, or attractive, as the policies such as the Earned Income Tax Credit as well as the Child Tax Credit which has been put into place and has proven to be effective (Marr 2017.)

Poverty is a problem as it affects the life of millions of Americans every single day. The United States government has endlessly debated over raising the federal minimum wage to $15.00, failing to realize that it is not the end all solution to the bigger problem. If the raise were to be in acted, and placed into the system, the economy will face the consequences as the cost of labor will rise, thousands will lose their jobs, and millions of low-quality goods or services enter the market. Such change will hurt businesses no matter the size, and eventually trickle down to the people they very well want to help. On that same note, those who suffer from poverty, are not the ones likely to be earning minimum wage income, in total an increase to the minimum wage will be deemed ineffective in its goal to reduce poverty. There are policies that have been set into place already that will not cause at least 5000,000 Americans to lose their jobs, or raise selling prices throughout markets. Policies such as the Earning Income Tax Credit and Child Tax Credit that have proven to be anti-poverty policies and provide numbers and statistics of the millions they have helped out of poverty while working on their future as well as that of their children. Despite of the fact that raising the minimum wage is popular among the people, it would be ineffective and hurt the economy.