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The Effectiveness of Raising Minimum Wage Policy

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Minimum wage has been a rising issue in the past decades, since many individuals in our nation started to question its effectiveness as a strategy to reduce poverty. To determine the validity of the usage of the minimum wage policy, there is a need to realize why was this policy originally initiated and put in place. This policy was originally established as a method to contribute to lessening poverty rates within the United States and help low income individuals meet their basic needs and have the ability to enjoy some segments of their day to help keep them healthy and away from burning out. Poverty is defined to be “a state or condition in which a person or community lacks the financial resources and essentials for a minimum standard of living”(Chen, n.d.). Thus, to determine if increasing minimum wage is an effective strategy, we will have to analyze its effectiveness in enhancing the lives of low-income individuals and families and its ability to lessen poverty level. Many opponents of this policy have been emphasizing their concern that raising minimum wages increases unemployment rate, which is a major determinant of the health of the economy. This paper will analyze different studies and articles that examine both for and against arguments on the topic of raising minimum wage and its various effects on improving or worsening our economy.

Many studies have been conducted to show that raising minimum wage is not necessarily an effective method in decreasing poverty, but rather it may even negatively impact the health of the economy as a whole. Drs. John P. Formby, John A. Bishop, and Hoseong Kim have conducted a study that gathers data to correlate raising minimum wage to enhancing the lives of low-income families and they found no correlation between raising minimum wage and the monetary benefit in the population targeted by this policy(Fomby, Bishop, and Kim). The study argues that since the majority of low-income families have members that do not work or have a low-wage worker, this presents a fallacy in the effectiveness of this policy, since it only enhances the conditions of working individuals(Fomby, Bishop, Kim). They supported their claim by finding that “more than 85 percent of low-income families saw no direct monetary benefit from each of the three 70-cent wage increases.”(Fomby et al.); thus, this study highlights a main issue of the proposed policy of increasing minimum wage, since it fails to target the individuals it was originally meant to benefit.

This was further supported by a study conducted by economists Joseph Sabia of San Diego State University and Robert Nelsen of the University of Georgia, which found that 54.7 percent of the poor and less educated individuals that are 16 to 64 years old of age do not work. Additionally, 53.6 percent who have been reported to miss a rent or mortgage payment do not hold any job position(Sabia & Nielson, n.d.). Their study even revealed that about 87 percent of those who truly benefited form the 40 percent raise were earning income that is more than twice the poverty level and lived in houses and that even one-third of them earned an income that’s three times above the poverty threshold(Sabia & Nielson, n.d.). Furthermore, Michael Saltsman, a researcher in the Employment Policies Institute(EPI), which is a nonprofit research organization that studies unemployment policies and issues, has found that the $9.80 wage earners that will benefit from the minimum wage raise are already earning $50,662 per year, which is far above the poverty threshold of 15,080 per year(Saltsman, n.d.). These studies supported findings underscore a major misconception about raising minimum wage, since they reveal that this policy would not contribute to enhancing poverty level and financial conditions of the intended population, as it misses those who are below or at the poverty level, since the majority of them do not even hold any job positions.

Additionally, the EPI has found that increasing the minimum wage would raise the unemployment level, which would worsen the economy. Studies from the EPI has highlighted that raising minimum wages would lead to 467,500 job losses and that “Accounting for the smaller labor force post-Recession, job losses in the range of 256,200 to 768,600 are projected based on results found in earlier economic literature”(Saltsman, n.d.), which shows that these findings are based on historical references and literature, which further supports their correctness. Raising minimum wage would also lead to less employed teenagers, since according to the Bureau of Labor Statistics, nearly 50 percent of minimum wage earners are under 25 years old; therefore, raising the minimum wage would make employees less willing to hire teenagers as it will require training time and money, which would raise the cost of labor employees have to pay; thus, they will reduce the number of workers and get less but already trained individuals(Saltsman, n.d.). To further support the negative effects of raising minimum wage, a survey of the country’s labor economists, found that 73 percent of these economists supported the stance that raising minimum wage would increase unemployment levels(‘Is there an economic consensus in favor of wage mandates?,’ n.d.). This highlights another important negative effect of raising the minimum wage, since it will result in many job losses and increase unemployment rates, which would significantly affect the health of the economy and the stability of many families and communities.

Opponents of raising minimum wage find raising Earned Income Tax Credit(EITC) and decreasing the Federal Insurance Contributions Act (FICA) Tax would be more effective at lowering poverty level in the U.S(Formby et al., n.d.). The EPI study found that 1.95 million living under the 150 percent of the poverty level would escape poverty if an EITC growth policy was implemented and that 1.65 million would escape it with a deduction in FICA. The authors of the EPI study state “In other words, 2.5 times more Americans would escape poverty with an EITC expansion than with the FMWA”( Formby et al., n.d.). This was also proven in another study by the EPI economists Joseph Sabia and Robert Nielsen, as they found that “Each one percent increase in a state supplement to the federal EITC reduces poverty rates by one percent.”(Sabia & Nielson, n.d.). This provides an alternative approach that many studies have shown to be more effective than raising the minimum wage and avoids the economic problems and risks associated with raising it.

After examining the potential negatives of minimum wage and the views of its opponents, now we will examine the views of its supporters and their evidences. Jack Jenkins, from The Center for American Progress, states that there is more than 10 million people who live with wages below poverty level and that majority of Americans believe that even when low income workers work extremely hard, they still fail to make a sustainable wage for living, because of the low wages(Jenkins, 2013). Eighty percent of Americans do support raising the minimum wage and adjusting it for inflation so it can support low income families according to a 2013 Hart Research Associates survey(Jenkins, 2013). Jenkins’s findings reveal that since the minimum wage was last raised from $5.15 to $7.25 in 2007, the value of it in 2013 is worth $2 less, which further indicate the need of raising minimum wage to improve the financial stability of low income houses in America, since now inflation is leading them to have to endure many deteriorating conditions to be able to sustain their basic needs. While many would argue that most low-income earners are teenagers, which should make the current minimum wage sustainable for them, this in fact is not true, since 70 percent of fast food workers are adults and over the age of 20, and 1 in 4 do have and raise children(Jenkins, 2013).

To counteract the argument of the opponents of raising minimum wage of how raising minimum wage would have negative impacts on the economy, supporters of this policy raise the concern that since these low-income individuals are unable to sustain themselves, they depend on government assistance programs which are costly for the economy. Studies show that $1.7 million are spent yearly, just for one Walmart Supercenter, on public benefits including food stamps, child care subsidies, and reduced-cost school breakfasts and lunches(Jenkins, 2013). Another study from the Chicago Federal Reserve found that if minimum wage was raised from $7.25 to $9.00 per hour, annual household spending would increase by $48 billion and more than 30 million will benefit from the wage increase, and 23.3 percent of children will have a parent that benefits from raising the minimum wage(Jenkins, 2013). This shows that lower incomes increase government spending on assistance programs, which if minimum income was raised, the government would be able to invest in this money, rather than spending it on these programs and thus this will have a great advantage and allow the economy to benefit as it lessens the governmental spending and increase demand of produced business products.

While many opponents argue that increasing minimum wage would increase unemployment rate, many studies have shown that there is no correlation between higher minimum wage and lower rates of employment(Jenkins, 2013). Additionally, it has been shown that raising the minimum wage would increase productivity and demand for new workers, since there is higher demand for products that the businesses produce, because incomes are raised and families are able to afford more goods and services than before(Jenkins, 2013). States that have a higher minimum wage tend to experience more job growth and studies show that a raise in minimum income would result in raising billions of dollars of retail revenue(Jenkins, 2013). Furthermore, a study has been conducted by T. William Lester, David Madland, and Jackie Odum to examine effects of raising minimum wage on the rates of unemployment in the 91 times minimum wage has been raised from 1987 to 2012 and the results showed that in 51 times the unemployment rate was better than the national rate of unemployment and it indicated that there is no correlation between the two faction and regional differences should be examined to truly determine why unemployment was lower in some states but not others(Lester et al., 2014.). All of these studies further emphasize the benefit of raising minimum wage and how it could contribute to uplifting the economy by increasing demand and need of workers to produce products demanded efficiently.

While reading views about this issue, I have to consider that opinions on the issue could be biased by the party the institution supports, since usually democrats tend to favor minimum wage raises, while republicans usually tend to favor the other alternatives. Additionally, if individuals writing about this issue are or have family members that include low wage earners, they are more likely to favor minimum wage raises. My stance on this issue would be that more research is needed to truly determine an effective method that helps both working and non-working individuals to improve their financial status. I do believe that raising minimum wage would help a lot of families experiencing financial difficulties to enjoy a more stable standard of living while also enhancing the economy by increasing the spending of such families; however, I still do believe that only minimum wage raises are not enough, because there are many families experiencing poverty include individuals that do not work and therefore won’t benefit from such policy, so I think there should be more research on effective methods of decreasing poverty in the United States. The solution may need a policy that unites the private sector, services including nonprofit organizations, and the government as they form a solution that would help these groups find jobs and ensure that they are able to sustain their basic needs of living.

Work Cited

  1. Chen, J. (n.d.). Poverty. Investopedia. https://www.investopedia.com/terms/p/poverty.asp
  2. Formby, J., Bishop, J., & Kim, H. (n.d.). What’s best at reducing poverty? An examination of the effectiveness of the 2007 minimum wage increase. Employment Policies Institute. https://epionline.org/studies/r124/
  3. Is there an economic consensus in favor of wage mandates? (n.d.). Employment Policies Institute. https://www.epionline.org/studies/r142/
  4. Jenkins, J. (2013, December 10). Real family values: Raising the federal minimum wage. Center for American Progress. https://www.americanprogress.org/issues/religion/report/2013/12/10/80780/real-family-values-raising-the-federal-minimum-wage/
  5. Lester, T. W., Madland, D., & Odum, J. (2014, February 26). Raising the minimum wage would help, not hurt, our economy. Center for American Progress Action. https://www.americanprogressaction.org/issues/labor/news/2013/12/03/80222/raising-the-minimum-wagel-would-help-not-hurt-our-economy/
  6. Poverty. (n.d.). Investopedia. https://www.investopedia.com/terms/p/poverty.asp
  7. Sabia, J. J., & Nielson, R. B. (n.d.). Can raising the minimum wage reduce poverty and hardship? Employment Policies Institute. https://www.epionline.org/studies/can-raising-the-minimum-wage-reduce-poverty-and-hardship/
  8. Saltsman, M. (n.d.). The Impact of a $9.80 Federal Minimum Wage. Employment Policies Institute. https://www.epionline.org/studies/the-impact-of-a-9-80-federal-minimum-wage/

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