In one of the numerous speeches of the incumbent president, he stated that from a range of studies, modestly increasing the minimum wage reduces poverty without putting employment in jeopardy. This statement has been the bone of contention over the factual accuracy of the statement. All microeconomics scholars are fully aware that an increase in price reduces the demand, from the fundamental principle of supply-demand curve. I believe that raising the wages to a minimum amount that is above the poverty line is not a good idea (Bernstein, Carothers, Libby & Low,2015).
Back in 2009, the minimum wage was increased to $ 7.25 per hour. I am going to use this example to prove that I am not in support of raising the minimum wage. Raising the minimum wage from $7.25 per hour to $ 10.25, a 40% pay rise, will reduce only 900,000 people from poverty. The major question is why does this happen? Factually speaking, not all the people in the low minimum earnings brackets are in poverty. In fact, only a minority of them are still in poverty. 900,000 people lifted out of poverty is only about 1% of the people that need to be lifted out of poverty. $100 billion will be used to raise the minimum wages. That accounts for $1100 for each person lifted from poverty. The threshold for joining the poverty line is $24000 for a family of four (Cooper,2013). This means that any policy that costs more than $600 that makes no sense. Furthermore, an additional $100 billion to the wage bill will make the companies lay off some workers. This comes from the supply curve economic principle. The more the price, the less the demand. When labor costs are increased, the number of required employees are reduced. This leads to fewer jobs for the people and less than the intended 900,000 people will be raised out of poverty.
Another huge disadvantage of increasing the wage bill is increasing income tax liability. More taxes are required as one’s income progresses through the tax brackets. A bill to increase the minimum wages will result in the workers paying more taxes, which is another disadvantage. From the given explanations, raising the minimum wages through a bill is a terrible idea.
Bernstein, J., Carothers, A., Libby, S., & Low, G. L. (2015). RAISING THE MINIMUM WAGE.
Cooper, D. (2013). Raising the federal minimum wage to $10.10 would lift wages for millions and provide a modest economic boost. Washington: Economic Policy Institute.