As workers call for higher salaries and wages, the Fed has released a research report that clearly shows that increasing minimum wages will not necessarily improve the poverty rates in the country. According to David Neumark, who is a visiting scholar at the San Francisco Fed, increasing minimum wage does not impact the lives of the poor, simply because very few of them actually receive their salaries. He added that the people who actually benefit from these increments — and those who many states and companies are considering — are the high income earners.
Neumark, who is a professor of economics and director of the Center for Economics and Public Policy at the University of California, Irvine, says that increasing minimum wages works against these low income earners. Increasing minimum wage means that the employers will incur more costs in paying wages and salaries. Thus, they may be required to cut down on the number of employees they have. If this is the case, a few people are earning decent wages while the rest don’t get anything at all, which results in increasing rather than reducing poverty.
“Setting a higher minimum wage seems like a natural way to help lift families out of poverty. However, minimum wages target individual workers with low wages rather than families with low incomes,” said Neumark. “Other policies that directly address low family income, such as the earned income tax credit, are more effective at reducing poverty.” These statements were rigorously opposed by those pushing for increased minimum wage, who claimed that the possibility that people would lose their jobs was ruled out, and the only effect that this boost would bring is elevating individuals out of poverty.
“The mainstream view, as illustrated by meta-surveys of the whole minimum wage research field, is that the job loss effects of raising the minimum wage are very, very small,” wrote Paul Sohn who is general counsel for the National Employment Law Project in an email to CNBC.com. A study by NELP shows that “the bulk of rigorous minimum wage studies show instead that raising the minimum wage boosts incomes for low-wage workers with only very small adverse impacts on employment.”
The Census Bureau revealed that the rate of poverty has not changed much in the past couple of years, although it was about 2.3 percent higher in 2014 than it was during the 2008 recession. It is for this reason that the supporters of higher minimum wages believe that raising it will play a part in generally helping to reduce poverty in the country, and most states are implementing this by having their minimum wage higher than that set by the national government of $7.25 in an effort to help the situation.
It is important to note that workers being paid below the minimum are reducing to 3.9 percent in 2014 from a shocking 6 percent in 2010, and only half of the three million being paid minimum wage are around 16 to 24 years old. Having these figures in mind, Neumark still insists that those getting minimum wage are not necessarily poor, since no workers in 57 percent of the families are poor, 46 percent of the poor get paid above $10 per hour, and 36 percent receiving more than $12 per hour.
Since the majority of the beneficiaries of minimum wage are teenagers, who do not really live in poverty, increasing it does not mean that poor families will benefit. Take an example of a family which has one breadwinner who earns more than $10 an hour. This will not really help them, unless a way is found where more members of that family will earn a similar amount.
“Mandating higher wages for low-wage workers does not necessarily do a good job of delivering benefits to poor families. Simple calculations suggest that a sizeable share of the benefits from raising the minimum wage would not go to poor families,” Neumark wrote. This means that elevating poverty levels would be successful if the earned income tax credit was increased.
In conclusion, it is evident that increasing the minimum wage will not help the poor if only one of them is working. The solution is in getting more of them to work, earning a decent wage, which will lower their taxes.
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