Impact of Minimum Wage on Poverty

The minimum wage is the smallest rate of remuneration that company owners are permitted by statute to compensate their workers. It was largely put in motion to attempt to mitigate the consequences of the Great Depression's aftermath. One of its primary aims was the abolition of hunger. A frequent challenge raised by analysts and other interested parties is whether the minimum wage helps to reduce hunger and assist the vulnerable in the United States. According to the Bureau of Labor Statistics, the working poor in America are the individuals who spend more than 27 weeks per year looking for a job while their net employment is below the federal minimum amount. These individuals’ incomes are below the poverty line level. In America, more than 1.3 million people were earning the exact minimum wage of $7.25 while 1.7 million earn below the minimum wage (Ragan, 1978).

Recent surveys and research indicate that minimum wage does not really achieve this goal of poverty eradication. As cited from the findings of various researches, eradication of poverty should primarily provide high family income and income that achieves more than just subsistence needs. Other indicators include a narrowed wage gap between the most paid or the rich and those depending on minimum wage, high skilled labor among others. The effects of minimum wages and the ever-growing requests for its increment after a period of time by the government, to suit the ever-growing living standards, may prove to contribute to poverty rather than alleviate it.

Since the establishment of minimum wage laws in the early 20th century at about $0.25, the various changes in economic conditions and standards of living have led to it being gradually increased over time. However, this increment has had a negative impact on the development of minimum wage jobs. States with high paying minimum wage laws are more likely to discourage the establishment of new firms and my inevitably lead to the relocation of old firms to states with favorable minimum wages. This is because of the obvious factor of the high cost of non-skilled labor which lowers the firm’s profits. This will consequently result in the loss of minimum wage jobs in the state, heightening unemployment. Thus, the issue of poverty arises due to the high unemployment rates (Pond, 1992). Furthermore, when minimum wages are raised, employment opportunities consequently reduce, therefore in trying to reduce poverty, the people who will lose their jobs must be considered. This is due to the fact that companies do not consider employing too many people because of high labor cost.

Consequently, the slow growth of minimum wage jobs in such states is likely to progress, for a long time, but will not lead to the disappearance of minimum wage jobs. This will be of advantage to the already employed but will harden the lives of those seeking employment in the minimum wage class. The need to increase minimum wages will therefore do little to increase or create opportunities for employment, and will only serve to benefit the already employed.

The use of minimum wage has a modicum effect to narrowing the wage gaps in the economy. Narrowing this gap means that the least paid workers in an economy will be earning substantial fractions to what the most paid worker earns. Meanwhile, family incomes will raise thereby decreasing the poverty levels in the state and country. For example, currently, an adult working for a minimum wage of $7.25 full time at a fast food, is likely to earn about $14,500 a year, which lies well below the recognized US poverty level of $19,073. While the average pay for a fast food firm lies roughly around $24 million per year. It’s quite clear that the minimum wage worker given other factors that will require his or her financial need will not be comfortable and will have to operate on a tight budget, adding to the fact that they are already under the poverty line (In Magro, 2014).

In relation to these facts, it is quite clear that minimum wage is, by amount, capable of tending to the major subsistence uses like food or shelter. The earnings leave little for the minimum wage employee to invest in projects that will help them develop and improve their financial situation. Given the fact that one earns about $14,500 a year, with deductions from medical needs, rent, food, education just to mention a few, little or no amount is left for the said persons to save and invest or start a business venture of their own. Thus, they are likely to remain poor. This has led to the popular trend of minimum wage workers working several jobs in order to make more money.

Also by design, minimum wage seems to be targeting the individual wage rather than the family wage. The individual wage only works best in cases where the individual has a family or a second party that depends on them financially, which most unlikely to be the case for most minimum wage workers, many have families and in some cases, are single parents. Income from minimum wage does little as the family needs to outweigh the wage amount. Thereby, the worker and their families still remain poor. It would do a better job of alleviating poverty if it targeted family income.

Moreover, raising minimum wage in an effort to alleviate poverty among poor families is not a deliverable goal. This is because the wage is raised on an individual basis rather than a family basis. According to statistics, 57% of poor families have the head of the family who is not employed. In other instances, individuals are poor not because of low wages but because of low hours. Furthermore, the majority of the low wage employees do not come from poor families. With these facts in mind, it is clear that the benefits of the minimum wage will not go towards poor families. To achieve the goal, other measures need to be put in place, including raising the earned income tax credit and raising the number of working hours. Raising minimum wage may help poor families, but for every dollar that goes to the poor families, the larger share of it goes to the non-poor families (Paton, 1918).

Conclusion

When it comes to poverty and minimum wage, it is safe to imply that wage matters, but it matters less than other factors prevailing affected by politics, society and economics. It is a myth that increasing the pay for low-skilled or unskilled labor helps move people from poverty to prosperity. In the economic times of the 21st century, it is skills that move people to prosperity rather than higher wages and higher wages do little to inspire and encourage people to gain more skills they need to gain, to move to the middle class and probably the upper class. The government sanctioned minimum wage laws distracts the skilled labor force from growing their skills and better their future and let their value and productivity command their wages. This unmasks minimum wage as a red herring in the fight to end poverty.



















References

In Magro, L. (2014). Federal minimum wage and earnings supplements: Policy impacts.

Paton, J. S. (1918). Progress & plenty: Advocates the single tax, a scientific currency and a

minimum wage to abolish poverty and unemployment. Boston: Christopher Pub. House.

Pond, D., Ontario., & Ontario. (1992). The relationship between the minimum wage and

unemployment and poverty. Toronto: Legislative Library, Legislative Research Service.

Ragan, J. (1978). Minimum Wage Legislation: Goals and Realities. Nebraska Journal of

Economics and Business, 17(4), 21-28.Top of Form

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