SALARIES / MAR. 07, 2014
version 2, draft 2

Should the Minimum Wage Really be Raised?

The argument over the minimum wage is heated, and has raged for the last few months since Obama proposed increasing it from $7.25 per hour to $10.10. The President intended it as a way to help the American public get out from under debt and poverty, but will it really have that effect? Is raising the minimum wage the smart thing to do?

Why to Raise It

It is estimated that nearly 28 million workers would be directly affected by the increase in the minimum wage proposed by the President. Roughly $35 billion of additional salary will be taken home by these 27.8 million workers, and it would be spent (rather than saved). This spending could lead to a $22 billion growth, which could in turn lead to another 85,000 new jobs.

The EPI released a report in 2013 examining the effects of a minimum wage raise in 5 U.S. states. The report looked at the possibility that the government would increase wages to $10.10, and how it could affect the economy of the United States.  According to this report, there could be approximately 140,000 new jobs created by the wage hike.

Considering that the minimum wage workers of today earn far less than what is necessary to support a family of two, the truth is that raising the minimum wage could have positive effects on the quality of life among low-income Americans.

But, is it all sunshine and roses?

Why Not to Raise It 

One of the downsides of the minimum wage increase could be a hesitation among employers to hire new employees. Considering that they would have to pay a higher salary to the employees that they already have plus the newly-hired employees, employers looking to keep a wide profit margin could very well opt for downsizing their staff instead of hiring.

The purpose of this minimum wage increase is to help the low-income families that earn nowhere near enough to have a good quality of life, but the EPI reports that only 13% of those affected by the wage hike are actually low-income Americans. With only 60% of low-income Americans of working age actually holding a job, those opposed to the wage hike claim that the increase in salary wouldn't affect poverty significantly.

The EITC: A Viable Solution?

The Earned Income Tax Credit could be the solution to helping low-income American families improve their lives without the need for a wage hike.

The EITC is a tax break created with these low income families in mind. With a few select reforms to the EITC - such as lowering the age of eligibility for workers without children - the EITC could very well be the solution.

Warren Buffet - billionaire investor - gave an interview on CNBC in which he stated that he believed it would be more effective than raising the minimum wage. Seeing as a large percentage of the low income families in the country don't have a job, the EITC would actually provide an incentive for people to get a job. The benefits of the EITC would go directly to only the working poor, which could lead to drastic improvements in the quality of life for low-income Americans.

It is certainly not an easy question to answer. There are both pros and cons to raising the minimum wage. If it is raised many people will be better off, but the question is how many? It may even create more jobs, again at the same time it may cause employers to downsize rather than hire more employees. So is the Earned Income Tax Credit a good compromise where everyone wins? Your comments below please…

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