Effects of Minimum Wage Increase on Poverty Rates
To a certain extent, I agree that it is effective in reducing poverty because it will help some workers who really come from a poor background. But if only a small percentage of the poor will benefit from it and if it helps more people who are above the poverty line than those below it, then it is not a plausible approach. If the target is to reduce poverty, then there needs to be a better solution wherein most of the beneficiaries come from poor households.
Workers Will Either Lose Work Hours or Jobs
Another factor that makes the minimum wage ineffective is its effects on employment. If the minimum wage is to be increased, where would employers, especially the small business owners, get the money to afford it? Everett claims that most of the small businesses will choose to pass these costs to the consumers first by increasing their prices before they consider taking steps that would affect their employees (qtd. in Kapur 162). While it is true that they will increase their prices first, eventually, they would still have to fire, lay-off, or reduce the hours of their employees. An increase in prices could make consumers want to purchase less than normal, which could translate into lower sales for businesses. This could result in employers resorting to cost-efficient ways like reducing the hours of their employees, or worse “ laying them off. Dunkelburg agrees that as a result of increasing the prices of their products, Consumers buy less, and then maybe you fire a worker because you don’t need 10 anymore, maybe you need 9 (qtd. in Mantel 78). In other words, Dunkelburg believes that since customers want to purchase less, the sales will go down and employers will be forced to let some workers go. Basically, while some workers will see an hourly wage increase along with a decrease in their work hours, some will lose their jobs. As a result, the poverty rates will either stay the same or get worse. In a way, it is counterintuitive because employers will increase the prices of their goods first to help their workers keep their work hours or their jobs, but they would eventually have to reduce their hours or let them go as a result of that move.
Does Not Help the Unemployed Poor
While both the opponents and supporters of the minimum wage hike argue about whether it is an effective way to reduce poverty or not, both sides agree that it won’t help the non-working poor (Mantel 78). Card and Krueger also stress that the reason why increasing the minimum wage would not help reduce poverty is because there are many unemployed poor Americans (qtd. in Sabia, Burkhauser 593). Although to a certain extent it can help those who are currently earning minimum wage because they can take more money home every payday, it doesn’t make it an effective anti-poverty tool. It can slightly help the lives of the employed poor who are making minimum wage by giving them the potential to rise above the poverty line, but not the lives of the unemployed poor. Cooper agrees that if you really want to address poverty, you have to help a lot of people who aren’t working right now, and increasing the minimum wage is not going to do that (qtd. in Mantel 79). The minimum wage increase is supposed to help the poor but many of them are not working and will, therefore, not benefit from it. To solve poverty, a properly-targeted approach needs to be taken “ an approach where the majority of the poor will benefit from it.
While the employed minimum wage workers are slowly crawling out of the pit that is poverty, the unemployed will be left right where they are: well below their poverty thresholds. If the goal is to reduce poverty, then this is not an effective approach. A better solution than increasing the minimum wage needs to be presented “ one that will be beneficial to all those who are below their poverty thresholds and not just the poor minimum wage workers.
Despite its ability to help the poor through increased take-home pay, increasing the minimum wage has many shortcomings that are worth considering. Majority of the minimum wage workers would barely feel the effects of the wage hike because they do not work enough hours for it to make a huge difference. Also, most of the minimum wage workers do not even come from poor households, which makes the minimum wage hike poorly targeted. And despite the small businesses intending to pass the wage hike costs to consumers first, eventually, they will have to pass it on to their workers through reduction of working hours or laying off. And lastly, the unemployed poor cannot be helped by a minimum wage increase at all. Taking all of these into consideration, it is fair to say that a minimum wage hike is not an effective anti-poverty tool because it does not help reduce the poverty rates of the country. If the goal is to reduce poverty, then we must take a different approach that will perfectly target the people who we want to help “ the poor.