Advertiser Disclosure
X

Advertiser Disclosure: The credit card and banking offers that appear on this site are from credit card companies and banks from which MoneyCrashers.com receives compensation. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. MoneyCrashers.com does not include all banks, credit card companies or all available credit card offers, although best efforts are made to include a comprehensive list of offers regardless of compensation. Advertiser partners include American Express, Chase, U.S. Bank, and Barclaycard, among others.

  • Date

By

Dig Deeper

27,164FansLike
26,075FollowersFollow
43,752FollowersFollow

Become a Money Crasher!
Join our community.

Should the Minimum Wage Be Raised to $15? – Pros & Cons to Consider

The government’s role in the employer-employee relationship has been a source of contention for legislatures for centuries. Few would dispute that free markets and limited government have produced one of the greatest economic systems in history. However, at the same time, the ability of a single individual to achieve financial security has become increasingly difficult.

As the country transformed from a nation of farmers and small businesses to an industrial economy, broad sections of the population – new immigrants, minorities, the uneducated, the disabled – were left behind. Many labored long hours in sweatshops, generally in unsafe working conditions, while living in crowded, disease-ridden, substandard housing. In the late 19th century, the Progressive movement worked to improve these debilitating conditions of America’s industrial society.

The impact of the Great Depression and widespread deprivation led to the passage of America’s first federal minimum wage legislation in the 1930s. In 2016, the possibility of raising the federal minimum wage to $10 per hour or higher attracted national attention. And the combination of a Democratic president and Democratic majority in the U.S. Senate greatly increased the chances the $15-per-hour federal minimum wage long advocated by labor allies would become reality.

But even if the federal minimum wage does increase in 2021, the debate over whether raising the minimum wage is a good idea is not likely to be resolved any time soon. Here’s what you need to know to form your own decision.

History of Minimum Wage Legislation

During the first quarter of the 20th century, America experienced wave after wave of labor unrest. Trade unions warred with titans of industry who were supported by federal and state governments. The country’s judicial system reflected the prevailing belief that wage negotiation was a matter between companies and workers. Federal or state governments’ intervention into the employer-employee relationship was considered neither desirable nor legal under prevailing laws.

In 1905, the Supreme Court ruled in the case Lochner v. New York that a minimum wage law was unconstitutional, asserting that it gave citizens the equal right “to obtain from each other the best terms they can as the result of private bargaining.”

In other words, an agreement between two citizens privately negotiated was legal even if the terms appeared to the advantage of one party over the other. 1923, Adkins v. Children’s Hospital upheld this precedent and confirmed that minimum wage laws violated private employers’ rights to negotiate work freely.

While other countries – New Zealand, Australia, and the United Kingdom – passed minimum wage laws by the early 1900s, resistance to similar laws in the United States was intense. Political opposition to minimum wage laws reached absurdity in the 1936 Supreme Court decision Morehead v. New York, wherein the Court ruled in favor of an employer who forced workers to kick back a portion of their pay illegally.

The decision was considered so egregious that Republicans repudiated it at their national convention that same year.

The Fair Labor Standards Act (FLSA)

Economic conditions in the 1930s ignited new demands for government action. As the country struggled through the Great Depression, more than a third of all non-farm workers were jobless. Malnutrition and homelessness were common.

According to the U.S. Bureau of Labor Statistics (BLS), weekly wages fell each year from 1920 through 1932. Workers in various industries were affected differently, with public utility workers earning as much as 68.9 cents per hour while common laborers received 32 cents per hour.

Under President Franklin D. Roosevelt’s threat to remake the Supreme Court, the Court broke with their precedent in 1937, finding in the case of West Coast Hotel Company v. Parrish that minimum wage regulations on private employers did not violate due process and were a legitimate exercise of states’ power. President Roosevelt moved quickly to exploit this ruling and revise labor legislation.

The president introduced legislation to ban child labor and establish a 40-cent minimum wage and a 40-hour workweek. He immediately encountered fierce opposition from business leaders, Republicans, and southern Democrats, who claimed that the consequences of passing this legislation would be catastrophic.

Edward Cox, a Democratic Representative from Georgia, warned that the legislation would “destroy small industry.” Democratic Representative from Ohio Arthur Phillip Lamneck complained that the legislation was “utterly impractical and in operation would be much more destructive than constructive to the very purposes which it is designed to serve.”

Nevertheless, the Fair Labor Standards Act (FSLA) became law in 1938. it banned the employment of children under the age of 16 in hazardous industries, set a minimum hourly wage of 25 cents (equivalent to $4.19 in 2017 dollars), and established a maximum workweek of 44 hours.

The new legislation was challenged as unconstitutional, but the Supreme Court ruled in 1941 in United States v. Darby that Congress could regulate employment under the “Commerce” clause of the Constitution.

Subsequent Amendments to the FLSA

The minimum wage is established by Congress at its discretion and can only be changed by legislation. Since the FLSA’s passage, the minimum wage has been raised eight times by five Republican presidents and 14 times by seven Democratic presidents. The last raise occurred in July 2009 under President Obama to $7.25 per hour ($6.31 in 2017 dollars).

According to an analysis by the Center on Budget and Policy Priorities, the initial 25-cent minimum wage equaled about 35% of the average hourly wage for production and nonsupervisory workers in 1938, rising to 55% in 1948. Between 1948 and the election of Ronald Reagan, a noted opponent of the minimum wage, in 1980, the wage averaged 45% of the average hourly wage in the United States. Today, the percentage is only 36%.

In other words, those earning a minimum wage have fared worse when it comes to purchasing power than other workers.

Every attempt to raise the minimum wage has faced opposition. In 1945, the National Association of Manufacturing claimed, “The proposed jump from an hourly minimum of 40 to 65 cents at once, and 70 and 75 cents in the following years, is a reckless jolt to the economic system. Living standards, instead of being improved, would fall – probably to record lows.”

In 1975, Nobel Prize-winner Milton Friedman asserted, “The consequences of minimum wage laws have been almost wholly bad, to increase unemployment and to increase poverty. In my opinion, there is absolutely no positive objective achieved by minimum wages.”

Minimum Wage Debate Developments Since 2000 and the Prospect of a $15 Federal Minimum Wage

Since 2000, the term “minimum wage” has become synonymous with “job killer” in the minds of conservatives. During President Obama’s State of the Union speech in 2013, Republican Speaker of the House John Boehner could be seen mouthing the words “job killer” when the minimum wage was mentioned. The description was subsequently used by a Fortune magazine editor, a research director of a business-backed think tank, and the executive director of the National Federation of Independent Business.

By 2018, 45 states and the District of Columbia had enacted minimum wage laws. Thirty of these states have minimum wage levels above the federal wage of $7.25 per hour, 14 states have minimum wages at the federal standard, and two states have minimum wages below the federal standard. Workers within a single state are entitled to receive the higher of the federal or state minimum wage per hour. Five states – Alabama, Louisiana, Mississippi, South Carolina, Tennessee – have no minimum wage laws and are subject to the federal minimum of $7.25 per hour.

In January 2021, amid widespread economic fallout from a coronavirus pandemic that disproportionately affected low- and middle-income workers, Congressional Democrats proposed a $15-per-hour minimum wage as part of a sweeping COVID-19 stimulus legislation package supported by incoming President Joe Biden.

According to CNBC, the proposal would raise the federal minimum wage to $15 per hour by 2025 and tie future minimum wage increases to growth in the national median wage. Senator Bernie Sanders, chairman of the Senate Budget Committee, expressed optimism that the proposal could pass through the U.S. Senate with a simple-majority vote and become law. But President Biden is skeptical that the Senate’s rules allow such a maneuver and appears more willing to compromise or forgo the increase altogether.

In either case, proponents of a substantial increase in the federal minimum wage now have their first chance in years of achieving that goal.


Factors in the Minimum Wage Debate

Much of the debate about the minimum wage stems from philosophical differences over the following issues.

The Role of Government

The role of government in a capitalistic democracy is behind many opposing views of political issues. The differences extend back to the American Revolution and the founding of the country. Chafing under the rule of a foreign king, the founding fathers melded the inalienable rights of the individuals in a republic into a democracy that empowered citizens to determine the functions of government.

In the modern world, Democrats are labeled “liberals,” while Republicans are generally considered “conservatives.” While the labels have changed, both parties are rooted in the founding of the nation. John Adams’ Federalist Party favored a strong central government (much as today’s Democratic party does), while the faction associated with Thomas Jefferson’s Democratic-Republican Party advocated states’ rights and a decentralized government with limited powers (as today’s Republican party does).

The country’s founders viewed the government as the primary protector of human rights and liberty but regarded the overreach of government itself as the biggest threat. Despite their efforts to restrain bureaucratic abuse, the role of the federal government slowly expanded to manage the nation’s increasingly complex economy. Today, the two sides remain divided over the role of government:

Conservatives and strict Constitutionalists assert that the primary function of government is to protect individual rights, claiming that citizens are best off when they can pursue their own interests with as little government interference as possible. When people or businesses can succeed or fail on their own merits without government regulation or assistance, they argue, the whole society prospers.

Liberals and those who favor a loose interpretation of the Constitution contend that government should take an active role in addressing societal problems, especially those affecting the most vulnerable. They consider big corporations amoral and advocate regulations and restrictions to protect the nation’s general welfare.

Individual Responsibility

America was founded on the idea that each person matters, not their ancestors, religion, ethnicity, or country of origin. With the power of the individual comes an expectation of personal responsibility and accountability. This leads to the notion that what determines a person’s future is their efforts and abilities, and they must rise or fail on their achievements or lack thereof.

This focus on the power of the individual arose from the writings of Protestant reformer John Calvin, who taught that work was a calling from God, and one of its rewards was wealth. In the mid-19th century, American intellectuals championed the notion of “Individualism.” Ralph Waldo Emerson emphasized self-sufficiency, while Henry David Thoreau urged that citizens have a moral duty to follow their conscience, even in the face of government coercion.

These beliefs are the basis of what author James Truslow Adams later christened the “American Dream” in his book “The Epic of America.” He describes this dream as “a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”

With this dream in many Americans’ minds, it’s not surprising that an NPR/Kaiser/Kennedy poll found that 86% of those respondents who considered themselves doing well financially attributed their success to their own effort and abilities. In the same survey, 43% of those not doing well blamed their own failures.

Despite a shared belief in personal responsibility, people of both political parties increasingly question whether all members of society have an equal opportunity to compete in the American economy. They note that technological change, while good for the nation as a whole, renders some work obsolete, destroys jobs, and displaces workers who lack the necessary skills to compete.

As work is transferred to automation or moved to lower-wage locations, businesses have little incentive to retrain displaced workers or remain in an economically depressed area. Due to the subsequent lack of jobs and failures of the current welfare system, those affected find themselves in an endless cycle of generational poverty.

Those who argue for a combination of retraining assistance and a minimum wage sufficient for basic needs say these are necessary to retain the requirement of personal responsibility while providing a helping hand to the economically vulnerable members of society.

Faith in Free Enterprise

Mercantilism was the predominant economic system in the world from the 16th to the 18th centuries. Each government regulated trade and industry to maximize its country’s accumulation of gold resources vis-a-vis other countries. This system provided special privilege to a favored few by limiting foreign competition, controlling wages, and maintaining the existing social structure.

The American colonies, adversely affected by export restrictions and disincentives, high prices for imported goods, and heavy taxation, eagerly accepted the new capitalistic system proposed by Adam Smith. His theory favored private ownership of assets, rather than public property under the mercantile system, and the right of individuals to make economic decisions in their own interest without direction from the government.

Smith held that the natural desire of humans to promote their own interests, combined with the invisible hand of free competition, would spur economic growth to the benefit of all.

Most historians agree that the American economy today is evidence of the benefits of free enterprise. The extent of capitalism’s success leads many people to believe an unfettered system of supply and demand is a panacea for most, if not all, social problems. In this view, a minimum wage is an undesirable intervention of government into free enterprise.

Wages for a particular job depend on the balance between those hiring workers and those willing to work. When wages are high, more workers are attracted to the employer; when wages are low, fewer people will apply, turning to other occupations that pay a higher wage. In conservatives’ view, the role of government should be to assist those who lose jobs to seek employment in higher-demand occupations.

Opponents of the minimum wage argue that it simply delays an inevitable reckoning between supply and demand. Economist John Phelan of the conservative think tank Center of the American Experiment speaks for many when he says that a minimum wage is sustainable only if it comes from higher productivity, “not the wave of some magic legislative wand.”

Others recognize the benefits of free enterprise, but note, as Warren Buffett told President Obama, that “the [free] market isn’t so good at making sure that the wealth that’s produced is being distributed fairly or wisely.”


The “Working Poor”

What is poverty? Why do we consider one person poor and another not? The answer is especially important in the United States because federal aid is generally contingent on one’s income. Only those persons who have income at or below a specified level are eligible for such assistance as the Supplemental Nutrition Assistance Program (SNAP) or health insurance subsidies under the Affordable Care Act.

Determining the Poverty Threshold

Economists and government leaders have disagreed over what constitutes poverty ever since the original poverty thresholds – the theoretical amount of income that separates the poor and the non-poor – were initially set in 1965.

The original guidelines now known as the Official Poverty Measure (OPM) were based on Department of Agriculture estimates for the amounts and costs of food “designed for temporary or emergency use when funds are low.” They also assumed a maximum expenditure of 33% of after-tax income for food, with all other expenses being double the amount spent on food.

In subsequent years, the calculations were modified to use pre-tax, rather than after-tax, income and adjusted annually according to changes in the Consumer Price Index (CPI).

The OPM varies according to the number of adults and children in a family but remains consistent throughout the 48 contiguous states and the District of Colombia. For example, the threshold for a family of three in 2019 is $21,330. Critics of the OPM complain that:

  • The same threshold amount is used in each state even though the cost of living varies significantly from state to state and city to city. For example, a family living in Austin, Texas earning $110,000 would need an income of $165,085 to enjoy the same lifestyle in Los Angeles.
  • The calculation does not consider modern expenses (such as health care, taxes, or work expenses) or available in-kind benefits (such as employer-provided travel, food, or transportation).
  • The definition of a family – persons living in the same household who are related by birth, mating, or adoption – does not reflect the rising number of those who cohabitate, unmarried partners with children from previous relationships, or foster children.

Recognizing the inadequacy of the OPM calculation, the U.S. Census Bureau continually investigates alternative methods to identify the border between the poor and the non-poor. The Supplemental Poverty Measure was introduced in 2010 to reflect the needs of modern living better, but it has yet to replace the OPM.

The Extent of Poverty in America

With the controversy over the proper calculations needed to determine the poverty threshold figure, it’s not surprising that there are disagreements about the number of poor in America. Based on the OPM the Census Bureau estimates that the percent of the population living in poverty has ranged between 8.7% (in 2000) and 12.3% (in 1983) since 1966, with 9.3% in 2017.

Many argue that the Census Bureau grossly understates the percentage of poor in the country. In 2017, the Kaiser Family Foundation reviewed data from the Census Bureau and, considering the poverty line at 200% of OPM ($42,330 for a household of three), estimated that 28% of Americans were poor. The percentage of workers living in poverty varies from state to state, ranging from a low of 5% in New Hampshire to 17% in Louisiana, Mississippi, New Mexico, and West Virginia.

Who Are the “Working Poor”?

According to the BLS, about 1.8 million workers, out of the 80.4 million hourly paid workforce, earn wages at or below the federal minimum wage of $7.25 per hour. A typical minimum wage employee works 30 hours per week for 52 weeks and earns $11,310 annually, about 9.5% below the Health & Human Services 2019 Poverty Guidelines.

Other characteristics of minimum wage workers include:

  • Age. More than one-half (55.6%) are age 25 and older.
  • Gender. Almost two-thirds (62.8%) are women. Older women are twice as likely (32%) as men (19.1%) to be paid minimum wage.
  • Ethnicity. Three-quarters of minimum wage workers are white, followed by smaller, though similar, percentages of African-Americans and Hispanics. Asians account for less than 4% of the minimum wage worker population.
  • Work Hours. Almost two-thirds of minimum wage employees work less than 30 hours per week, the number of hours necessary to be considered a full-time employee and covered by employer-provided benefits such as group insurance and retirement benefits.

The Consequences of Poverty

Those who argue for an increased minimum wage say that it’s difficult to live on a minimum wage income. For this reason, minimum wage workers are sometimes referred to as “the working poor.” According to Ben Casselman, a former writer for The Wall Street Journal, people who work for minimum wage experience only slight increases in their income for years, usually as the result of an increase in the legal minimum wage.

The belief that people can quickly move up the economic ladder is false, especially for older people who have lost jobs.

Furthermore, those earning a minimum wage typically experience:

  • Lack of Housing. According to the National Low Income Housing Coalition, there is not a single state, county, or metropolitan area in the United States where a full-time minimum wage worker can afford a modest two-bedroom apartment.
  • Dependence on Social Safety Net Programs. The U.S. Government Accountability Office found that almost one-third of workers earning $12 per hour – well above the minimum wage level – are dependent on Medicaid to cover their health care needs. A similar percentage receive SNAP benefits. Only about 5% of minimum wage workers use other federal programs – such as Temporary Assistance for Needy Families, the Earned Income Tax Credit, and the Additional Child Tax Credit – due to the programs’ complex requirements, minimal benefits, and their assumed ineligibility.
  • Harm to Children. The National Center for Children in Poverty reports that one in five children lives in a family whose income is below the federal poverty threshold. The U.S. Department of Agriculture considers 15.7% of U.S. children to be “food-insecure,” meaning they lack consistent access to enough food for an active, healthy life, and more than one-quarter of these children do not receive recommended immunizations. A child who lives in a persistently poor environment for half of their lives or more is unlikely to graduate from high school or be consistently employed as an adult, according to a May 2017 study by the Urban Institute.

Low average income in a community ultimately leads to a declining tax base and deterioration of government services, from schools to police and fire services. Existing businesses close or move away as profit opportunities disappear and crime increases.

Despite good intentions, the poorly designed, underfunded public housing and financial assistance programs of the 1950s and 1960s further destabilized neighborhoods by destroying family units and increasing welfare dependency.


Arguments for a Minimum Wage Increase

Those who favor raising the minimum wage claim that the results will benefit the country as a whole for the following reasons.

1. It Will Reduce the Nation’s Poor Population

According to research led by University of Massachusetts economist Arindrajit Dube, there is a strong correlation between minimum wage levels and the percentage of the population living in poverty. Dube and his colleagues estimate that a 10% increase in the current $7.25 minimum wage would immediately reduce the poverty rate for non-elderly Americans from 17.5% of the population to 15.8%, followed by a further reduction to 15% in the second year.

Dube’s conclusions have been disputed. According to the Federal Reserve Bank of St. Louis, the opposing sides of the dispute are approximately equal. The Bank also warns about equating the beneficiaries of a higher minimum wage with the “working poor.”

They note that a 2014 Congressional Budget Office report estimated that a wage increase to $10.10 would create an expected $31 billion increase in earnings, but only 19% of those earnings would go to families below the poverty threshold.

A later analysis by the University of California, Berkeley of the consequences of a $15 per hour minimum wage in Fresno, California – one of the most impoverished areas in the state – found that the results of the increase would be generally positive:

  • An estimated 5.26 million workers (38% of the workforce) would have increased income, averaging an increase of $3,900 annually, equivalent to a 25.4% raise.
  • Almost 80% of workers employed in retail trade, restaurants, and health services would be affected, causing wage costs to rise by 2.8% across the state and 15.7% for restaurants.
  • A combination of lower employee turnover, automation, increased worker productivity, and an average annual price increase of 0.6% – well below the average yearly inflation rate of 1.8% for the past five years – would offset the costs of the pay raise. The authors note that restaurants would need to raise prices by 5.1% to recover their additional costs.
  • The overall economy would benefit from increased spending by those receiving higher pay, resulting in a slightly higher job growth rate.

Overall, the researchers found that the positive and negative effects on the California economy would offset each other, while the affected workers would benefit greatly. Whether this result can be extrapolated to the national economy is unknown.

2. It Would Decrease the National Wealth Disparity

The common perception is that raising the minimum wage will decrease the income disparity in America, which is approaching the levels previously reached during the Gilded Age of the late 1800s. In 2017, the average CEO of the top 350 firms earned $18.9 million per year versus the average worker’s pay of $60,576 – a whopping 312-to-1 differential. The gap between the two has significantly increased since the 20-to-1 ratio in 1965 and the 58-to-1 ratio in 1989.

Those who favor an increased minimum wage assert that government action is needed since workers have lost bargaining power with employers due to the erosion of labor unions and collective bargaining during the last three decades. Due to the lack of union counterbalance and the influence of corporate power over government, executive pay has exploded while middle-class compensation has stagnated.

Since 1992, the Gini Index – a measure of the deviation in the distribution of income or consumption within a population and a perfectly equal distribution – has steadily increased, meaning the wealthy’s share of the economic pie has steadily increased. The consequences of income inequality on society can be devastating and include increased political corruption, inefficient production, and social unrest.

Research published in the American Economic Journal: Applied Economics links the failure to raise the minimum wage in parallel with productivity increases over the past two decades with income inequality, especially for women. To alleviate the imbalance, the liberal-leaning Economic Policy Institute (EPI) advocates raising the minimum wage to $15 by 2024 while eliminating provisions that allow sub-minimum wages for workers who receive tips, workers with disabilities, and workers under the age of 20.

On the other side of the argument, Jared Meyer of the conservative Manhattan Institute disagrees that raises in the minimum wage will decrease income disparity, noting that the “real minimum wage is $0 an hour because employers always have the choice to let employees go, or not hire them at all.” Meyer prophesies that an increased minimum wage won’t level the playing field, but will actually remove the first few rungs of the career ladder.

3. It Will Reduce the Costs of Current Aid Programs

Proponents of a minimum wage increase note that low wages disproportionately benefit business owners and force employees to rely on federal safety net programs for necessary expenses.

The Center on Budget and Policy Priorities reported in 2018 that the majority of those receiving SNAP worked while they were receiving assistance. Effectively, the American taxpayer is subsidizing those businesses that pay their low-skilled employees less than a living wage.

A 2015 UC Berkeley study estimated that the extra costs to support working families are almost $153 billion each year. They note that more than half of combined state and federal public assistance goes to families with one or more working members.

If the minimum wage is increased, many of the working poor would be better able to provide for their families without assistance and, as a consequence, have more dignity in their lives. The EPI estimates that each dollar increase for the lowest-paid 30% of workers would reduce spending on government assistance programs by $5.2 billion, not including Medicaid benefits, which would also be eliminated.

4. It Would Increase the Annual Gross Domestic Product

A 2017 British study found that increasing the minimum wage stimulates consumer spending since low-wage workers are more likely than high-income workers to spend an increased income on goods and services than to save it

While critics charge that higher pay leads to greater unemployment, the researchers found the impact on unemployment to be insignificant, perhaps because the number of workers affected by the minimum wage is less than 10% of the workforce.

Some economists claim that the link between the minimum wage and economic growth is less clear-cut. Dr. Jospeh Sabia, an economist at San Diego State University, found that the results of an increase depend on the state of the economy when the wage is implemented:

  • During periods of economic expansion, an increase in the minimum wage is generally positive, with income gains for low-wage workers and incentives for additional skill development.
  • During recessions, an increase is more likely to raise unemployment as companies have little incentive to maintain a higher-cost workforce.

Dr. Sabia suggests that attempts to help low-wage workers during a recession with “means-tested, pro-work cash assistance programs and negative income tax schemes” would be more effective than raising the minimum wage.


Arguments Against a Minimum Wage Increase

Those opposed to an increase in the minimum wage claim that:

1. It Will Imperil Economic Renewal

Economist Joseph Schumpeter was the first to propose that capitalism is a force of “creative destruction” and that businesses and economies go through cycles of change. As men and companies seek to maximize their profits, there is constant pressure to cut costs and avoid waste.

The demand for increased efficiency produces continual change, rewarding the most skilled, efficient, and capable workers and companies to the benefit of all. An unfortunate byproduct of progress is often a hardship for those unable to adapt to new requirements.

Opponents of the minimum wage argue that it interferes with the efficiency of the capitalist process, potentially jeopardizing the benefits for the many to ameliorate the difficulties of the few. In the view of a free market purist, compensation differences are the appropriate outcome of a capitalistic system.

Capitalists claim that the increased worker productivity over the last half-century is predominately the result of capital investment, not increased physical effort or process improvements by individual employees. They question why workers should be entitled to a greater share of the resulting profits when the increased efficiency is the result of executive leadership and shareholder investment.

2. The Hardships of the Poor Are Exaggerated

Some question whether “real” poverty exists in the United States. In a 2011 paper, conservative research and educational institution The Heritage Foundation claimed that:

  • The majority of those defined as poor by the Census Bureau have air conditioning, microwaves, personal computers, video game systems, Internet, wide-screen plasma TVs, and one or more vehicles.
  • More than 80% of the impoverished report never being hungry at any time due to lack of money for food, while 96% of poor parents state that their children were never hungry because they could not afford food. The authors assert that there is no evidence of widespread significant undernutrition; in fact, overconsumption of food is a significant problem among the poor.
  • The average poor American has more living space than the typical non-poor person living in Sweden, France, or the United Kingdom. The vast majority live in apartments or homes that are in good repair, and more than 40% own their homes. The majority of the poor have an average of more than two rooms per person.

According to the authors, the major causes of poverty are the collapse of marriage in low-income communities and the growth of out-of-wedlock childbearing, combined with a lack of parental work. They suggest the solutions to poverty are work requirements as a condition of assistance and community and school programs to strengthen marriage in low-income areas.

3. A Small Percentage of Workers Will Be Affected

According to Scott Grannis, former Chief Economist at the Western Asset Management Company, workers who receive minimum wage or below account for less than 1% of all workers.

Furthermore, about 60% of those workers are employed by restaurants and other food service businesses where tips supplement hourly wages. Grannis claims it’s a fantasy to believe a rise in the minimum wage will have significant effects on those in poverty.

Proponents for a minimum wage increase disagree, claiming that those opposed to a higher rate ignore the ripple effect on the workforce as a whole. They cite a 2014 Brookings Institute study, which found that workers earning up to 150% of the minimum wage level would also receive higher pay. The study concludes that up to 35 million workers (29.4% of the workforce) would have higher wages as a result of a minimum wage increase.

Further, a 2017 EPI study held that a minimum wage increase to $15 per hour would affect 41 million American workers, generating $144 billion in additional wages.

4. It Discriminates Against Young Entry-Level Workers

The Heritage Foundation’s James Sherk claims that the majority of those working for minimum wage are not poor adults, but young, part-time workers who live at home and whose parents earn an average annual income of $53,000. Sherk calculated in 2013 that the three-quarters of older workers making the minimum wage have an average family income of $42,500. He asserts that raising the minimum wage will not help the poor because poverty is a result of a person’s lack of work, rather than their income level.

Meyer argues that minimum wage jobs were never intended to be careers, but rather opportunities to learn skills and gain experience for higher-paid employment later in life. Rather than “leveling the playing field,” he claims, raising the minimum wage will discourage businesses who might employ first-time, unskilled youths, who represent more than 50% of minimum-wage workers.

Supporters of a minimum wage increase say this is not the case. Robert Reich, former Secretary of Labor during the Clinton administration, claims, “If you look back at America 30 years ago, most of your minimum wage workers were teenagers, or they were women who didn’t have to work but actually had some spare time. Today, your typical low-wage or even minimum-wage worker is an adult over 25 years old. Twenty-five percent of those low-wage workers have children.” A review of BLS statistics over the years supports Reich’s position.

5. It Will Cause Business Closures & Higher Taxes

Most conservative organizations and some academics claim that raising the minimum wage will lead to business closings, higher unemployment, and increased taxes:

  • A 2015 analysis by economists Jonathan Meer and Jeremy West found that employers are likely to reduce the number of hires and hours worked as wages rise, turning to automation and off-shoring to maintain their competitive market position.
  • The Heritage Foundation held that 9 million jobs would be lost across the 50 states if the minimum wage is increased. They charge that “many businesses might respond to a $15 mandate by eliminating positions, cutting hours, and looking for new ways to implement labor-saving technology. Some companies might have to face shutting down or leaving America entirely to cope with the additional expenses.”
  • Paul Kupiec of the conservative American Enterprise Institute suggests that the loss of jobs will require increased income taxes to support the unemployed workers, and those who appear to be earning more will discover they actually have lower net income due to higher taxes. Their response, Kupiec says, will be to lower their productivity, creating a downward spiral where everyone loses economically.

Public Opinion About a Minimum Wage Increase

Despite the political conflict about the outcome of an increase in the minimum wage, 90% of respondents in the NPR/Kaiser/Kennedy poll agree that poverty in the United States is a problem, and 85% support raising the minimum wage (85%). Other results include:

  • Almost one-half (48%) of respondents believe poverty is due to a person’s lack of effort, while 45% claim it’s due to circumstances beyond an individual’s control.
  • Only 4 in 10 Americans believe a family or four with an annual income of $25,000 should be considered “poor,” while 3 in 10 consider an income of $25,000 enough to get by on in a year.
  • One-third of people currently making between 100% and 200% of the federal poverty level think it’s easier to get out of poverty today than it was 10 years ago, while 60% think it’s harder.
  • More than 90% of those earning less than 200% of the federal poverty level agree that the minimum wage should be increased, while 82% of those with higher incomes favor raising the minimum wage. However, less than 60% are willing to pay more taxes to help the poor.

Other polls have reported a similarly positive response to raising the minimum wage to $10, possibly escalating to $15 per hour over time, including:

  • A National Restaurant Association poll found that 71% of customers favored an increase to $10 per hour, even though the cost of food and service would be higher for the customer.
  • A Public Policy Polling 2016 poll found that 78% of those polled favored a minimum wage increase to a minimum of $10 per hour or more.
  • 2017 University of Maryland poll found that the majority of citizens, both Republicans and Democrats, favored raising the minimum hourly wage from $7.25 to $9.00 over a two-year period, with more than one-half willing to exceed $10 per hour.

Final Word

While I was in college in the 1960s, I spent my summers as a construction worker earning $1.25 per hour. Most of the men I worked beside for the same wage were 30 and 40 years old, uneducated, and married with children. While my weekly paycheck was adequate for beer, gasoline, and entertainment, I can’t imagine the difficulties a father or single mother must face, trapped in a life of minimum wages and dependent on others to meet basic family needs.

As a consequence, I – like the majority of Americans – would like to see the federal or individual states’ minimum wages raised to $10 per hour and linked to the CPI to protect our most vulnerable workers.

Brian Martucci
Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he's not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

Next Up on
Money Crashers

Latest on
Money Crashers

Sign Up For Our Newsletter

See why 218,388 people subscribe to our newsletter.

What Do You Want To Do
With Your Money?

Make
Money

Explore

Manage
Money

Explore

Save
Money

Explore

Borrow
Money

Explore

Protect
Money

Explore

Invest
Money

Explore