Does the Minimum Wage Prevent Poverty?

1,022,976 Views
May 19, 2017

Does the minimum wage help Americans who are in financial straits? No. In fact, it makes their lives worse. Learn why in this short video.

This video is part of a collaborative business and economics project with Job Creators Network and Information Station. To learn more, visit informationstation.org.

 

Raising the minimum wage hurts young and unskilled workers most. Youth unemployment increased after the last big federal minimum wage hike.

  • Young workers are often the most vulnerable in job market because they usually have the fewest job skills.View Source
  • Research found that youth (under age 25) unemployment rose 2.8% after the last federal minimum wage hike from $5.15 to $7.25 between 2007 and 2009.View Source
  • WATCH: “What’s the Right Minimum Wage?” – David HendersonView Source
  • Related reading: “Sense and Non-Sense on the Minimum Wage” – Cato InstituteView Source
  • Related reading: “Common Sense Economics” – Jim GwartneyView Source

From 2006 to 2009, increases in the minimum wage accounted for 43% of unemployment among young and low-skilled workers.

  • During the Great Recession from 2006 to 2009, the increases in the minimum wage accounted for 43% of unemployment among young and low-skilled workers.View Source
  • Young workers are often the most vulnerable on the job market because they usually have the fewest job skills.View Source
  • WATCH: “What’s the Right Minimum Wage?” – David HendersonView Source
  • Related reading: “Sense and Non-Sense on the Minimum Wage” – Cato InstituteView Source
  • Related reading: “Basic Economics” – Thomas SowellView Source

A higher minimum wage does not prevent poverty. In fact, it can lead to higher dropout rates among poor youth, perpetuating poverty.

  • Poor youth are the most sensitive to the desire to increase family earnings through working, and higher wages make unskilled jobs more lucrative. The result is incentivizing more people to drop out of school, hurting their long-term earning potential.View Source
  • Young workers are often the most vulnerable on the job market because they usually have the fewest job skills.View Source
  • WATCH: “What’s the Right Minimum Wage?” – David HendersonView Source
  • Related reading: “Sense and Non-Sense on the Minimum Wage” – Cato InstituteView Source
  • Related reading: “Economics in One Lesson” – Henry HazlittView Source

If your goal is to make sure everyone who wants a job can get one, you should oppose any minimum wage.

  • In 1987, The New York Times editorial board declared that “the right minimum wage [is] $0.0,” citing “a virtual consensus” among economists that “[r]aising the minimum wage by a substantial amount would price working poor people out of the job market.”View Source
  • The large majority of data-driven economic studies confirm that argument.View Source
  • Read economist David R. Henderson on the negative effects of the minimum wage.View Source
  • WATCH: “What’s the Right Minimum Wage?” – David HendersonView Source

Does the minimum wage prevent poverty? Not at all. The government imposing a fixed minimum wage increases unemployment.

  • The large majority of data-driven economic studies demonstrate that increases in the minimum wage also increase unemployment. When wages increase, people are often willing to work even though employers can’t afford to hire them, leading to a demand-side inequality causing higher unemployment.View Source
  • Read economist David R. Henderson on the negative effects of the minimum wage.View Source
  • WATCH: “What’s the Right Minimum Wage?” – David HendersonView Source
  • Related reading: “Sense and Non-Sense on the Minimum Wage” – Cato InstituteView Source
  • Related reading: “Basic Economics” – Thomas SowellView Source

We don’t like to see anyone living in poverty, but making employers pay their employees a higher minimum wage of more than $10 an hour really won’t solve the poverty problem.

That’s because most people who earn minimum wage don’t live in poverty in the first place. They actually live in homes where at least one or two other people work… like a teenager whose parents have jobs.

Or they are retirees who have savings accounts and Social Security as their main income. In fact, only about 1 in 10 minimum wage workers lives in a household that the government would consider poor.

Does it make sense to try to solve the right problem the wrong way?

A well informed public is the best defense against bad public policy.

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