Reducing Poverty: What Minimum Wage Boils Down To

Imagine living off of $7.25.

There’s only so much you could save, invest, and splurge on. There’s only so much you can do with the national minimum wage.

Arguments have been made both, for and against the increase of the minimum wage. Here’s my take on it:

The government tends to gross less if the government controls and sets prices- so if a higher minimum wage is set, this translates to restricted economic growth. PLUS, unemployment will skyrocket because now the employer at Burt’s and Bees can’t afford to give Mike and Greg both $10.10, they can only afford to hire Greg. But if there was an unrestricted wage market they can hire Mike and Greg both for $5 each. So actually the attempt at alleviating poverty by increasing the minimum wage is actually just another way to create poverty… right?

Surprise! The actual wage market actually happens to be more complex than oversimplified models concocted by students of economics.

Studies such as that done by David Card and Alan Krueger has shown that employment actually increases with higher minimum wage. Why? Well, it turns out that the minimum wage is usually set very close to where the market sets it. Also, well waged workers tend to spend more of their pay wages, which leads to higher economic activity and therefore the creation of more jobs. Higher wages also mean less turnover which leads to less costs of training and hiring. Nevertheless, hirer wages are associated with higher prices of goods, which means that businesses that really on low wage workers will probably start charging more for the services and items they sell. However, the larger question is whether raising the minimum wage decreases poverty which in the long run it actually does. Yes, hiking the minimum wage does lead to inflation and slower job creation at some point but I would like to think that the world’s richest country would rather have less people in poverty.

To me this argument comes down to not how much the employers are worse off, it’s a matter of how much better off low wage workers can get. Saying that the minimum wage is a job killer or saying that it is the solution to economic inequality is disingenuous, however when it comes to reducing poverty without effecting employment- higher minimum wages seems to be atleast the cheapest option. And in a personal argument, a higher minimum wage leads to happier and more productive employees-that’s hard to quantify but it is also what pushes companies to retain employees for years and years and grow sustainably.


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