Raising the minimum wage will not solve poverty, e21 argued in an editorial on July 9. E21 presented data to show that of the 47 million Americans living in poverty, only 1.6 percent earn the minimum wage or less. The number of poor people who depend on a minimum wage earner is relatively small. In 2013, only 1 percent of the American population earned a wage at or below $7.25 an hour. The overlap between the two groups was about 750,000 last year because many minimum wage earners are secondary or tertiary earners in a family.
Of course, as New York Times correspondent Josh Barro tweeted, some who make more than $7.25 an hour would get a raise if the hourly minimum wage were raised to $10.10. In their February 2014 report on the minimum wage, the Congressional Budget Office found that 900,000 people would be lifted above the poverty threshold if the minimum wage was raised to $10.10 an hour. This figure includes dependents that rely on workers.
With 47 million Americans living in poverty, a decrease of 900,000 translates into a decline of less than 2 percent. Even so, there are several reasons to believe CBO overestimates this figure.
With the higher minimum wage, some minimum wage workers would be lifted into unemployment rather than out of poverty, as their employers might no longer find it worth paying their wages. CBO's February report estimated that as many as 1 million workers could lose their jobs if the minimum wage rose to $10.10 an hour.
Some workers who had been living just above the poverty line might see their incomes drop below the poverty threshold, or vanish altogether. This is because some non-poor people on the minimum wage might lose their jobs, resulting in lower family income.
The CBO estimate that 900,000 people would be lifted out of poverty accounted for the effects of job loss, but some of the economic assumptions used in the CBO calculations would likely understate the true job loss that would result.
Even if millions were lifted out of poverty and no jobs were lost, a minimum wage hike might not be worth the economic cost. In April, CBO estimated that the Minimum Wage Fairness Act, which would gradually raise the minimum wage to $10.10, would increase private sector costs by $15 billion in 2017. These costs would be passed on to consumers as higher prices, disproportionately hurting low-income families who devote a greater share of their income to consumption.
A minimum wage increase would raise income for some workers, while others might well lose their jobs and wages altogether. When the $15 billion economic cost in 2017 is added to the calculation, employers might react in ways that would increase poverty--such as reducing hiring or raising prices. Even with a wage increase, some impoverished workers may not rise above the poverty line. As we wrote on Tuesday, "Real problems, such as poverty, require real solutions, such as improving the education system so people are better prepared to earn high-wage jobs." Well-intentioned advocates hoping to lift the fortunes of low-skill workers would do well to seek solutions beyond the minimum wage.
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