Why Raise Minimum Wage Reduce Poverty?

Poverty is a huge problem in America that has been around forever. There is also the problem of the minimum wage, and how it relates to poverty, that has been studied by many researchers. According to the U.S. Census Bureau in 2015, 13.5% of Americans suffer in poverty, and the average annual salary of minimum wage workers is $15,080, which is right below the poverty line for two or more person families (David Cooper 1). This brings us to the question, will raising minimum wage reduce poverty? Raising the federal minimum wage would fail to reduce poverty because according to research, most benefits of raising it would not go to those in poverty, unemployment would rise, and business would be hurt and forced to raise their prices.

Raising the

federal minimum wage would raise unemployment rates. 38% of employers who pay minimum wage said they would lay workers off if the minimum wage were raised, and 54% said they would decrease their hiring levels (Minimum Wage 3). Even with these facts and statistics, it is still widely believed that raising the minimum wage would reduce poverty. Some studies propose that raising the minimum wage would create 85,000 new jobs over only 3 years (Minimum Wage 2). However, real facts and statistics show that it would actually result in the loss of 500,000 jobs (Minimum Wage 2). For struggling, unskilled workers that didn’t attend college, working for minimum wage is their only option. The article Should the Federal Minimum Wage Be Increased? states The Pew Research Center shows that businesses wouldn’t be willing to pay more than minimum wage to these unskilled workers, leaving them unemployed and struggling more than before (5). Jeffery Clemens and Michael J. Withers found that minimum wage increases will result in reduced monthly incomes of the unskilled workers that get to keep their jobs and that the unemployment of low-skilled workers would go up by ⅓ (Should the Federal Minimum Wage Be Increased? 6). According to What Are Poverty Rates among Working Adults, “62% of unemployed Americans from age 18-64 are in poverty” (Stevens 1). These numbers are scary to those who work for minimum wage because there is a larger risk of becoming unemployed after a federal raise. Again, a federal minimum wage increase would be overall detrimental to the employment rates of America, and would actually raise poverty percentages.
Yet another reason that poverty wouldn’t be reduced by raising the minimum wage is that most benefits of the raise would go to workers who are not in poverty.

A minimum wage raise from $7.25 to $9.50 was estimated to benefit only 10.6% of the working poor, and nearly 60% of those with incomes over twice the poverty line (Sabia 18). Carlos Ramirez says in his paper The Effect of Minimum Wage on Poverty, “The CBO estimates that only 19% of the $31 billion increase in real wages in a week would fall into the hands of low-income families which amounts to a reduction of people under the poverty line by 900 thousand. This is an improvement of roughly 2% for poverty while the increase in minimum wage was 30-40%” (4). Similarly, David Neumark says in his article Reducing Poverty via Minimum Wages, Alternatives, If wages were simply raised to $10.10 with no changes to the number of jobs or hours, only 18% of the total increase in income would go to poor families” (3). Workers who would benefit from any minimum wage raise are less likely to be poor. In fact, only 19% of those in poverty work at all (Stevens 1). The general conclusion from this research is that there is no statistically significant relationship between raising the minimum wage and reducing poverty (Neumark

3).
Again, poverty wouldn’t be reduced because when you raise wages, it affects all other factors of production.

As explained by George Reisman, “The higher wages are, the higher costs of production are, the higher prices are. The higher prices are, the smaller quantity of goods and services demanded and the number of workers employed in reducing them” (Minimum Wage 3). Business owners would be required to raise prices, and even have to go through the hassle of employing new people. 24% of minimum wage workers are teenagers and many businesses said that if wages were raised, they wouldn’t be willing to pay those high wages to unskilled workers (Minimum Wage 5). 60% of small-business owners claimed that raising the minimum wage would hurt most small-businesses (Minimum Wage 4). Jamie Richardson, vice president of fast food chain White castle, said “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” (4). Raising the minimum wage to even just $15 in fast food restaurants would increase prices by 4.3%, or a reduction in size between 12% and 70% (Minimum Wage 5). Clearly, raising the minimum wage is not the way to reduce poverty, and it would be detrimental to many business owners all over the

country.
Overall, raising the minimum wage would not reduce poverty because it would increase unemployment, most benefits wouldn’t go to those in poverty, and it would harm many small businesses. Unemployment would raise by high percentages, and 62% of unemployed citizens are in poverty, meaning poverty would actually increase (Stevens 1). Only 19% of people that are below the poverty line even work at all, so a minimum wage increase would have little to no effect on poverty percentages (Stevens 1). Lastly, wage raises would have very negative effects on businesses, sometimes even leaving fast food chains no choice but to close half of its stores. Is raising the minimum wage really what the government should do to reduce poverty, or should the government be searching for alternatives?