Minimum Wage and Poverty

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Minimum wage is defined as the lowest wage permitted by law that an employer is required to earn for the work they performed during a given time period. The federal government established a minimum wage in 1938 called the Fair Labor Standards Act. At the time the law was passed, the first minimum wage was only $0.25 per hour. There’s been lots of research on this topic over the last few months, including both the good and the bad outcomes of raising the minimum wage. (Sessions)

In 2018, there were five states without minimum wage laws, two states with minimum wages below the federal minimum, 14 states with minimum wages at the federal, and 29 states, plus D.C. have minimum wages above the federal minimum wage of $7.25, which has stayed the same since 2009. This is a huge difference because back in 1980 only two other states plus D.C. had a wage higher than the federal minimum wage. For tipped employees, Federal minimum wage is only $2.13. (Employment Handbook)

1.8 million workers, or 2.3% of all hourly paid, non-self-employed workers, earned wages at or below the federal minimum wage of $7.25. Not everyone is required to receive the federal minimum wage, which partly explains why I said “at or below” minimum wage, plus, the federal minimum wage law only applies to employees of enterprises with an annual gross volume of sales of at least $500,000 or certain types of smaller firms.

Workers 20 years old or younger may earn $4.25 an hour for their first 90 consecutive days of employment. States can also set their own minimum wage laws. According to the Department of Labor, state minimum wage laws in 2018 ranged from $5.15 per hour in Georgia and Wyoming to $13.25 per hour in Washington, D.C. In Florida the minimum wage is $8.46 an hour as of January 1st, 2019 which is $0.21 more than in 2018. Florida’s current minimum wage for tipped employees is $5.44 an hour and must earn at least $3.02 in tips which is also $0.21 more than in 2018. 2.3% or 112,000 workers in Florida earn this minimum wage.

When it comes to minimum wage a lot of people argue whether it should be raised or not. Recently there has been lots of talk about raising the federal minimum wage to $15 an hour. There are so many good and bad things that can happen to raising the federal minimum wage this high. Here are some cons of raising the minimum wage. It would force lots of jobs to cut peoples hours and even let some people go. Just raising the wage from $7.25 to $10.10 would result in a loss of 500,000 jobs.

In a survey of 1,213 businesses and human resources professionals, 38% of employers who currently pay minimum wage said they would lay off some employees if the minimum wage was raised to $10.10. 54% said they would decrease hiring levels. A recent study by the Congressional Budget Office, entitled “The Effects on Employment and Family Income of Increasing the Federal Minimum Wage,” was conducted to determine how increasing the federal minimum wage from $7.25 to $10, $12 or $15 per hour by 2025 would affect employment and family income. (Kelly)

San Francisco’s Office of Economic Analysis said that an increase to $15 would reduce the city’s employment by about “15,270 private sector jobs.” Raising the minimum wage could also hurt businesses and force some companies to close. Jamie Richardson, MBA, Vice President of fast food chain White Castle, said that the company would be forced to close almost half its stores and let go thousands of workers if the federal minimum wage were raised to $15. Raising this can also increase the price of consumer goods. A forbe’s article states that a rough back of the envelope calculation of a typical restaurant that employs workers at $15 an hour exemplifies the unintended consequences of the minimum wage increase.

If employees work eight hours a day each week, over the course of one year, the labor costs will be $436,800. This does not include insurance costs, benefits, payroll and other taxes. Most service-sector businesses have thin margins and an increase in this magnitude could close the company. Teenagers and young adults may be shut out of the workforce if the minimum wage is increased because they won’t want to pay young people with no skills or experience so much. According to the Pew Research Center, 16- to 24-year-olds make up 50.4% of minimum wage earners, and 24% of minimum wage workers are teenagers. (ProCon)

According to Jack Kelly, large corporations with big budgets will weigh the increased labor costs and elect to invest in technology to displace workers. Amazon recently opened up several prototype Amazon Go stores that are self-described as “a new kind of store featuring the world’s most advanced shopping technology. No lines, no checkout—just grab and go!” They will weigh the future unknown costs associated with additional increases, coupled with the ever-increasing insurance costs, plus the time-consuming task of finding employees, training them and dealing with turnover. It’s easier and less expensive to have technology take over. Target committed to raising their minimum wage to $15 an hour by 2020 on September 25th, 2017.

Lots of employees have been let go or had their hours cut since some of them began to get this wage. “I got that dollar raise but I’m getting $200 less in my paycheck,” said Heather, who works at a Florida branch. The cuts in worker’s hours have affected employees’ eligibility for health benefits. Employees who work less than 30 hours per week are deemed ineligible for company health benefits at the start of Target’s spring enrollment period. Some of the employees have quit after getting their hours cut because they couldn’t pay their bills anymore. (Evans)

Decrease in high school enrollment rates and an increase in drop-out rates could also happen in raising the minimum wage.

Mark J. Perry, PhD, of the American Enterprise Institute states that “the attraction to higher wages from minimum wage legislation reduces high school completion rates for some students with limited skills, who are then disadvantaged with lower wages and career opportunities over the long-run if they never finish high school.” Raising the minimum wage enables workers to pay more for housing and as a result, landlords can raise rental cost leading to increased cost of living and create inflation. Inflation is a general increase in prices and fall in the purchasing value of money.

The cities that have adopted a $15 per hour minimum wage, like Los Angeles, San Francisco and Seattle, are already some of the country’s most expensive places to live. Some economists are concerned that increased incomes will put more pressure on housing markets in these areas. Raising the minimum wage will force jobs to raise the prices of things being sold. By looking at changes in restaurant food pricing during the period of 1978–2015, MacDonald and Nilsson find that prices rose by just 0.36 percent for every 10 percent increase in the minimum wage, which is only about half the size reported in previous studies. (Upjohn)

Along with all of these bad things that can happen when the minimum wage is raised, there also a lot of pros. A higher minimum wage would reduce government welfare spending. If low-income workers earned more money, their dependence on, and eligibility for, government benefits would decrease. The Economic Policy Institute determined that by increasing the minimum wage to $10.10, more than 1.7 million Americans would no longer be dependent on government assistance programs. They report the increase would shave $7.6 billion off annual government spending on income-support programs. Improvements in productivity and economic growth have outpaced increases in the minimum wage.

While the estimates of how much the minimum wage should be increased vary, many economists agree that if it had kept pace with rising productivity and incomes, it would be higher than the current $7.25 an hour. Increasing the minimum wage would have a ripple effect, raising the incomes of people who make slightly above the minimum wage. Melissa S. Kearney, PhD, and Benjamin Harris, PhD, of the Brookings Institution found that increasing the minimum wage would result in higher wages not only for the 3.7 million people earning minimum wage, but also for up to 35 million workers who make up to 150% of the federal minimum wage.

The current minimum wage is not high enough to allow people to afford housing. According to a report from the National Low Income Housing Coalition, a worker must earn at least $15.50 an hour which is over twice the federal minimum wage, to be able to afford to rent a “modest” one-bedroom apartment, and $19.35 for a two-bedroom unit which is more than 2.5 times the minimum wage. Even a person earning the then California state minimum wage of $9 per hour would need to work 92 hours a week to afford to rent a one-bedroom apartment. The current minimum wage is not high enough to allow people to afford everyday essentials.

According to a poll by Oxfam America, 66% of US workers earning less than $10 an hour report that they just meet or don’t even have enough to meet their basic living expenses, and 50% say that they are frequently worried about affording basic necessities such as food.
Raising the minimum wage would lead to a healthier population and prevent premature deaths. A Human Impact Partners study by Rajiv Bhatia, MD, found that those earning a higher minimum wage would have enough to eat, be more likely to exercise, less likely to smoke, suffer from fewer emotional and psychological problems, and even prevent 389 premature deaths a year.

Raising the minimum wage would increase school attendance and decrease high school drop-out rates. A study found that raising the Californian minimum wage to $13 an hour would increase the incomes of 7.5 million families, meaning fewer would live in poverty. Increasing the minimum wage would allow teens to work fewer hours for the same amount of pay giving them more time to study and reducing the likelihood that they would drop out of high school. According to Aaron Pacitti, PhD, Associate Professor of Economics at Siena College, raising the minimum wage would help reduce the federal budget deficit “by lowering spending on public assistance programs and increasing tax revenue.

According to an April 2016 study by the Executive Office of the President’s Council of Economic Advisors, “higher wages for low-income individuals reduce crime by providing viable and sustainable employment. Raising the minimum wage to $12 by 2020 would result in a 3 to 5 percent crime decrease which is 250,000 to 540,000 crimes, and a societal benefit of $8 to $17 billion dollars.” Raising the minimum wage gives workers more money to spend and this increases demand for business revenue which result in increasing economic growth. (Government)

An intangible benefit that could translate into tangible benefits for both companies and employees is improved employee morale resulting from higher wages. Business owners frequently note the challenge of providing sufficient encouragement to spur workers to put maximum effort into their job duties, and that this is particularly problematic with low-wage workers who feel that their efforts aren’t even managing to keep them out of poverty.

So, overall raising the minimum wage could result in both, good and bad things. There are so many things that can help businesses and employees but it can also go the complete opposite and destroy businesses or jobs. Like for example, increasing the minimum wage would reduce poverty; a person working full time at the federal minimum wage of $7.25 per hour earns $15,080 in a year, which is 20% higher than the 2015 federal poverty level of $12,331 for a one-person household under 65 years of age but 8% below the 2015 federal poverty level of $16,337 for a single-parent family with a child under 18 years of age but raising the minimum wage would also increase poverty.

A study from the Federal Reserve Bank of Cleveland found that although low-income workers see wage increases when the minimum wage is raised, “their hours and employment decline, and the combined effect of these changes is a decline in earned income. Minimum wages increase the proportion of families that are poor or near-poor.” Everyone has a different point of view on raising the minimum wage, and all in all everyone’s point is right because things can go either way, good or bad.


Cite this paper

Minimum Wage and Poverty. (2020, Sep 10). Retrieved from https://samploon.com/minimum-wage-and-poverty/



Does increasing the minimum wage reduce poverty in developing countries?
Raising the minimum wage reduces poverty in most developing countries . But the impact is modest because the minimum wage applies to only a minority of poor workers; in particular, it does not cover workers in the large informal sectors.
How does minimum wage affect income inequality?
The federal minimum wage is $7.25 per hour. Income inequality is the extent to which income is distributed in an uneven manner among a population. The federal minimum wage affects income inequality because it is the lowest wage that an employer can pay an employee for hourly work.
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