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The only concrete proposal President Obama mentioned in his fifth State of the Union address on Tuesday was an increase in the federal minimum wage from $7.25 to $9.00 an hour. Unfortunately, this solution is counterproductive and does little to address the problem of poverty.

While this simple-sounding plan is appealing, it simply won’t work, Heritage Foundation expert James Sherk explains:

Labor economists have repeatedly studied the effects of minimum wage increases. They find no correlation between higher minimum wages and lower poverty. Raising the minimum wage to $9 an hour as the President suggests simply would not reduce poverty.

Here are four reasons increasing the minimum wage won’t resolve poverty:

  1. First, relatively few minimum wage workers are poor. The average minimum wage worker lives in a family making over $50,000 a year. Many minimum wage workers are teenagers or college students working part time—they are not trying to support themselves (or a family) with their income. Only one-ninth of the workers who would potentially benefit live in poverty. Raising the minimum wage will not affect many poor families.
  2. Second, higher minimum wages cost some workers their jobs. The true minimum wage remains $0 an hour. No business pays its employees more than they produce. A higher minimum wage would cause businesses to lay off every worker who does not add at least $9 an hour in value to their enterprise. The President’s proposed 25 percent minimum wage hike would unemploy about 5 percent of low-wage workers. (Some liberal economists disagree, but more recent research undercuts their arguments.)
  3. Raising the minimum wage makes these entry-level jobs harder to find. That makes it harder for less skilled workers to gain the skills necessary to get ahead. In effect it saws off the bottom rung of their career ladder. That is bad enough in normal economic times, let alone during an anemic recovery from a deep recession.
  4. Finally, the welfare state claws back raises that low-income families do receive. Low-income workers qualify for a host of means-tested federal benefits. These include food stamps, housing vouchers, Medicaid, and the Earned Income Tax Credit. As workers’ incomes rise they qualify for less and less aid—effectively an additional tax on their income. The Congressional Budget Office finds these reductions push many low-income workers’ marginal tax rates to nearly 100 percent.

Sherk points out that a person making minimum wage would likely forfeit some of the increase through reduced benefits.

Do you think raising minimum wage will reduce poverty rates?

Comments (26)

LaStar Richins - February 14, 2013

I also think that raising the minimum wage is a sneaky way for the government to raise revenue (basically on the backs of the poor) They may say it helps the poor but really it makes the poor pay more in taxes because he is earning more money. But the sneaky government will get more money!

Fred clarke - February 14, 2013

No It destroys entry level jobs and diminishes initiative for young people. How many paper boys, snow shovelers, lawn mowers, shoe shine boys and clean up kids have confused a hamburger job with finding a way to make money on there own.

Peter Heyler - February 14, 2013

There will ALWAYS be a level of poverty. If we raised the minimum wage to $100 per hour, those people making that $100/hour would eventually be at poverty level, since all other wages would have to be increased to reflect higher levels of responsibility and ability. That would lead to such inflation that everything would be the same as it is now, except at a 10X higher level of wages and costs.

Peter Woodcock - February 14, 2013

The only truism in business is that one man’s wage rise is another man’s job

Thomas - February 14, 2013

Here is something for him and his Keynesian friends to think about. Cut the minimum wage back to 5/hour. That is enough money for the quality work you get from most min wage workers (high schoolers and college kids) and it will employ MORE people that NEED work. It might also lower the cost of certain everyday items at the stores.

J Johansen - February 14, 2013

The minimum wage is already over TEN (10) DOLLARS an hour! You have to consider that if you make the minimum wage, you qualify for a tax credit and when you file your 1040, the IRS will send you a check.

The rebutal to raising the minimum wage is “raise it to $100 per hour.” Why is that too much? Any reason given, can be applied to $5, $7, $10, or whatever.

John Heil - February 14, 2013

minimum wage- increase may sound good BUT will not help the problems we face – deficit and balanced budget. most minimum wage earners work part time and some full time (usually teenagers) and not a family of four as the news media reports. This is not a critical issue. When both democrates and republicans agreed to the sequestration (i believe 5(d) and 5(r) which congress approved – who do you point the finger to. both sides agreed to this arrangement – now it is time to step up and take your medicine. can you imagine how many folks will be unemployed and not at minimum wage. The president does not seem to grasp this – probably too dificult for him to understand.

Fran - February 14, 2013

The only thing I can see raising the minimum wage does is to increase the unemployment rate and put more pressure on small business.

Joann Reitenour - February 14, 2013

Get that guy in the White House out of our country’s business. JR

Isir Abelon - February 14, 2013

Increase the minimum wage to $9.00 is another good tactics to get Into the minds of the current minimum wage earners. President Obama knows that the Republicans will opposed the increased because it doesnt work. Small business will not survived. you pay a Busboy, a Dishwasher, Hotel cleaner, Gardener, Cashier, Clerk, and many low labor jobs $9.00 per hours. Great.
This will poison the minds of the low paying laborer once again if the Republicans opposed it. I would say all Republicans should go along with it.

P - February 14, 2013

Every time the base wage is raised, the cost of groceries and other everyday essentials goes up also.
Doesn’t anyone get it??

Leiann Anderson - February 14, 2013

Raising minimum wage does nothing to help employees and everthing to harm employers. It’s a simple capitalist equation. A business owner will find ways to operate with fewer employees when the minimum wage rises.
My father taught me that “This is an issue promoted by politicians wearing cheap suits!” That’s my WWII veteran dad.

Steve Noble - February 14, 2013

Raise minimum wage = raising the number of unemployed and perhaps increase the ranks of those who have stopped looking for employment.

Nelson Whipple - February 14, 2013

Raising the minimum wage will create more dependents.
Starters can;t get started. Welfare is a lot easier. The slowest will be laid off. Business will shrink. The minimum wage is what should shrink and Hussein should go to a good one.

Marian Shimer - February 15, 2013

most people working for minimum wage are not the sole wage earner or are kids just starting working. Should be considered the entry level into the working world, not a career decision. Higher minimum wage will just result in either fewer being hired or increased prices of the services. Not a good idea

catherine Gollan - February 15, 2013

Raising minimum wages has often meant smaller businesses having to cut somewhere or raise their own rates, which causes a decrease in buying power. If businesses are doing well enough they can raise wages as they see fit. If they are forced by the government to increase their outlay without first increasing income, things often change to the detriment of one or more employees . My father was faced with this choice years ago.

Kenn Fawn - February 15, 2013

No. A 25% increase in the minimum wage only admits that true inflation over his term in office has compounded to about that level based on the devaluation of the dollar and increases in product prices paid for goods. Real inflation is not zero as the FED is trying to portray.

John Smith - February 15, 2013

Number 2 is the reason why I think that wage increase will increase the poverty instead of decrease it, because no job equals poverty.

Eric Jones - February 15, 2013

Raising the minimum wage only forces the companies of these employees to raise their prices to pay for the wage increase. This, of course, starts the cycle over again. The other situation faced by companies is lay offs. Higher wages for each employee means fewer employees.

SamBo - February 15, 2013

Comment to Thomas:

Right on: Now how about considering abolishing minimum wage and eliminating the requirement for waitresses, bell boys, and others to declair tips as income.

Paul - February 15, 2013

No…….. IT HASN’T worked in the past why would it work now?

Bill Senn - February 15, 2013

Government should support the traditional, nuclear family as the best way to reduce poverty. This model family structure statistically has the highest incomes, the best educated children, and the greatest stability. There are many opportunities here. They can range from ensuring that married couples are not penalized in the tax codes to curtailing of welfare for single parents. For example: How many single women would think twice about having a child if the government’s safety net were removed? We contentiously need to ask ourselves if these government safety nets are not parlaying good into evil by inadvertently enabling unwise behavior. A better solution to these social problems could be to push them down to state and local levels where legitimate, individual needs could be better assessed.

V Eiland - February 15, 2013

Can someone please tutor our President in American Government and Economics?

Cy - February 16, 2013

Yes– in other countries!

Holly Chapo - February 17, 2013

Milton Friedman made a compelling argument against any such thing. No, it will not reduce poverty. More jobs, education choice, support for the intact family, less regulation and lower taxes might be a better idea. Poor people need a hnad up not a hand out and the minimum wage is just that. But if jobs are lost because the minimum wage is raised, who does that help?

Jeff Mackie - July 12, 2016

There will ALWAYS be a level of poverty. If we raised the minimum wage to $100 per hour, those people making that $100/hour would eventually be at poverty level, since all other wages would have to be increased to reflect higher levels of responsibility and ability. That would lead to such inflation that everything would be the same as it is now, except at a 10X higher level of wages and costs.

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