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Poverty and Minimum Wage

The impact of increasing Minimum Wage on the economy and reducing Poverty

Sarah Fadel

AP Literature 1

Mr. Janosch

30 November 2018
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Poverty and Minimum Wage

It’s the holiday season and many people are in their warm and cozy homes celebrating

with their families while some are living on the cold, uncomfortable sidewalks. ​Unfortunately,

there are an estimated of 3 billion people living in poverty on less than $2.50 a day worldwide

and 1.3 billion people living in extreme poverty on less than $1.25 a day (“11 Facts About

Global Poverty”).​ One of the reasons is due to the low federal minimum wage. Apparently, in the

United States, many citizens are living in poverty, largely due to unsustainable living incomes,

therefore, the government should contribute by increasing the minimum wage so poverty can be

reduced/combated.

Increasing the federal minimum wage isn’t a bad idea at all. Putting more money into the

pockets of low-income workers will allow them to purchase more necessities to survive, helping

to boost the economy as well as reduce poverty. There are many positive effects on increasing

the minimum wage that outweigh the negative effects. For example, the people of poor

backgrounds will be able to receive the educational skills needed for the workforce. Next, higher

risks of illness and premature deaths associated with poverty would go low along with food

insecurity. Children from low-income families would less likely die at birth or in infancy and

suffer chronic diseases or have a disability. Similarly, individuals/ families living in poverty

would be able to have a greater life expectancy through equal access and opportunities for an

active and healthy lifestyle.

David Neumark, a Chancellor’s Professor and Director of the Center for Economics and

Public Policy in Irvine, analyzed the impact minimum wage takes hold on those unfortunate

people. As he was employed at the Federal Reserve Bank of San Francisco, he collected data on
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the struggle of people with the federal minimum wage of $7.25. He confirmed that a single

working adult with two children earning that wage and working full-time would remain poor.

He/She will earn about “ $14,500 a year, well below the U.S. poverty threshold of $19,073 for a

family of this size.” Neumark claims that when wage increases, poor peoples’ incomes will rise,

lifting them out of poverty. He referred it as “a natural way”. Although it may not provide

benefits to poor families, it’s proven that a $12 wage will benefit 15% of poor families and 35%

to those below the poverty line (Neumark).​ Poverty has had a long history in the United States

and has caused damage to people throughout our history so it’s about time to set higher wages

and keep on increasing them as the years pass by.

Increasing the minimum wage can ensure Americans earn a living. This will raise the

living conditions of low wage workers as the spendings will go on living expenses. There is

evidence that workers improve maternal and infant health, reduces the number of

low-birth-weight infants, and leads to improved educational performance among youth in

low-income households. This includes higher academic test scores, higher high school

graduation rates, and higher college attendance rates (Cahill and Quinn). ​But, there are few

negative outcomes of receiving higher pay. One is reducing employment by 36 percent with a

$15 minimum wage, in the fast-food industry. When costs increase, it will cause owners to lay

off workers, as Venezuelan did. About 40% of stores had to close and some jobs were lost

(Hoar).​ This issue of poverty and the minimum wage has caused huge problems in our society.

The economy impacts the dispute of minimum wage on poverty by offering more money

to the hands of the poor and allowing them to spend it. It gives the owner the power to raise

prices by 38 percent, as stated in a Heritage Foundation study. It showed that 6.7% of the
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increase in earnings go to workers in poverty (Hoar). If prices of products rise, then consumers

will pay more. Although consumers might consume less and total sales may decline affecting the

demand for labor, they still play a role in the economy. At higher wages, jobs become more

interesting to workers, thus leading to higher employee morale which results in lower turnover

and higher productivity. This will save an employer's hiring and training costs (Cahill and

Quinn). The economy will increase and the government will benefit, using our money for

important projects. At the end of the day, people in need are happy with extra money in their

pockets.

Among all issues, the issue of poverty and the minimum wage was taken to the Supreme

Court. Birmingham is the largest city in Alabama that have more total residents living in poverty

than anywhere else in the state and its home to the largest black population. The Mayor of

Birmingham and Alabama, William Bell, tried to help the citizens by stamping his signature to

Birmingham Ordinance No. 16-28. This guaranteed Lewis, Adams, and all other wage earners in

the city $10.10 per hour. Later, Alabama Governor Robert Bentley signed the Minimum Wage

and Right-to-Work Act into law. On the other hand, Lewis and Adams stated claims that the

Minimum Wage Act had the purpose and effect of discriminating against Birmingham’s black

citizens in violation of the Equal Protection Clause of the Fourteenth Amendment. ​The Act

denied 37% of Birmingham’s black wage workers a higher hourly wage compared to only 27%

of white wage workers. Also, black wage workers in Birmingham make on average, $1.41 less

per hour than white wage workers and $2.12 less per hour statewide. Given these numbers, the

Minimum Wage Act “bears more heavily on one race than another” (“In the United States Court

of Appeals”). T​his act prevents a group of people from accessing tools, resources, and education
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in order to improve their lifestyle.

Furthermore, into the violation of the Equal Protection Clause of the Fourteenth

Amendment, the minimum wage policy was “racialized” because the “Birmingham

African-American community strongly favored” it rather than the whites. ​This is reflected in the

racial composition of its city council. The Minimum Wage Act denied Birmingham’s black

citizens' economic opportunities and their right to vote due to their race. They earn less than or

equal to $10.10 per hour while white people earned more due to a more educational experience.

They declare the Minimum Wage Act unconstitutional by a 5-4 decision and deemed them a

violation of freedom of contract (Cahill and Quinn). ​The main purpose was it violated the

political-process doctrine by transferring control from the majority-black Birmingham City

Council to the majority-white Alabama Legislature. In other words, Alabama use of state power

to deny local black majorities authority over economic decision-making is wrong. This source

put the attorney general role in check as it states “the attorney general is given sole authority to

direct and control all litigation concerning the interests of the state, and is empowered to

“institute and prosecute, in the name of the state, all civil actions and other proceedings

necessary to protect the rights and interests of the state”( “In the United States Court of

Appeals”). Here, the author quotes this statement to show its powerful message that the state is

given full protection of its rights and interests. Overall, the Fourteenth Amendment provides

citizens with equal protection even people of color, on the political process doctrine and their

natural rights.

Despite the negative aspects of increasing the minimum wage, its proven to successfully

reduce poverty as its primary focus is on the hourly earnings of individuals. Another indicator is
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EITC which stands for Earned Income Tax Credit and it focuses on the total income of families

(Cahill and Quinn). Since the 1970s, they have offered the subsidy to earnings for low-income

families. It’s a way to assist them; those with children, as money, is their big problem. David

Neumark introduces the specific guidelines from EITC to prove that it is more effective to

combat poverty than minimum wage.​ For example, he pointed out that “families with two

children receive a 40% subsidy to their labor market earnings, up to a maximum of $5,548”​. This

puts a rise in their incomes and helps families manage their lifestyle so there’s more of them in

homes rather than on the sidewalks. ​EITC reduced poverty by 2.88 percentage points as proven

by Stevens and Page. ​Moreover, the government offers WIC programs to assure poor students

receive free school nutritious programs to raise their achievements (Stevens and Page). In

another study of Census Bureau, Stevens and Page conducted research about SNAP in 2015,

stating it provides food vouchers to low-income individuals and families, helping reduce poverty

by 1.44 percentage points. These solutions are actually reducing poverty, over time, with the

interference of the government. Although we have all these solutions, increasing the minimum

wage would be the most successful.

Since most Americans still live below the federal poverty line, the government should

design better policies such as increasing the minimum wage in order to lift them out of poverty.

This will certainly help boost the economy, as well. By setting higher pay, it will contribute with

their financial well-being and make a difference to their lifestyles. In conclusion, more people

would be able to stay indoors with families during the holidays rather than inside a cardboard

box suffering.
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Works Cited

Cahill, Kevin E., and Quinn, Joseph F. “ The Relative Effectiveness of the Minimum Wage

And the Earned Income Tax Credit as Anti- Poverty Tools”.

17 April 2017. Religions(MDPI). Web. 28 November 2018

<​https://www.mdpi.com/2077-1444/8/4/69/htm​>.

“11 Facts About Global Poverty”. DoSomething.org/ Volunteer for Social Change. Web. 28

November 2018.

< ​https://www.dosomething.org/us/facts/11-facts-about-global-poverty​>.

Hoar, William P. “Minimum-Wage Hikes Maximize Economic Woes”. 22 October 2018. Power

Search. Web. 27 November 2018

<​http://go.galegroup.com/ps/retrieve.do?tabID=T003&resultListType=RESULT_LIST&

searchResultsType=SingleTab&searchType=BasicSearchForm&currentPosition=1&docI

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_73_shb&inPS=true​> .

“In the United States Court of Appeals”. 25 July 2018. D.C. Docket. Web. 28 November 2018

<​http://media.ca11.uscourts.gov/opinions/pub/files/201711009.pdf​>.

Neumark, David. “Reducing Poverty via Minimum Wages, Alternatives”.

28 December 2015. Federal Reserve Bank of San Francisco. Web. 27 November 2018.

<​https://www.frbsf.org/economic-research/publications/economic-letter/2015/december/r

educing-poverty-via-minimum-wages-tax-credit/​> .

Stevens, Ann Huff, and Page, Marianne. “ How to Reduce Poverty in the United States”. 2015.
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UC Davis Center for Poverty Research. Web. 27 November 2018.

<​https://poverty.ucdavis.edu/post/how-reduce-poverty-united-states​> .