The Minimum Wage Policy: Does It Solve the Poverty Issue?

This report critically evaluates the effectiveness of the minimum wage policy in the United States in addressing poverty and wealth inequality. It argues that while the policy has the potential to decrease the overall poverty rate, it does not solve the underlying issues contributing to the wealth gap, primarily because it does not create jobs and fails to address the needs of those unable to work. The report highlights that the policy often benefits higher-income families more than the poorest households, and it doesn't cover self-employed workers or those in the informal sector, where many poor individuals are employed. Furthermore, the minimum wage is often less than the living wage, making it insufficient to cover basic family expenses. The analysis also explores the impact of social, cultural, and political capital, as well as intergenerational poverty, on the policy's effectiveness. Statistical data suggests that the current minimum wage is inadequate to keep families out of poverty, reinforcing the argument that a more comprehensive approach is needed to tackle poverty effectively. Desklib offers further resources and solved assignments on this topic.

Running head: WEALTH AND POVERTY
Wealth and Poverty
Name of the Student
Name of the University
Author Note

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i. Introduction
The minimum wage salary of the United States refers to the set of policies used by the US labor
law along with a range of state as well as labor laws. According to this policy, employers are
entitled to pay the employees the highest minimum wage as prescribed by the federal state as
well as the local law. The thesis of this report is that “The minimum Wage Law does not sole the
poverty issue.” From the research it has been found that the mentioned policy, though possess
the potential to decrease the overall poverty rate of the nation, is not capable of reducing the
wealth gap. This is because this policy does not contribute in job creation. A good number of
individuals who are under the poverty line are either disabled or incapable of working. Since
these people do not fall under the quota of employment, this policy does not solve their issue.
ii. Problem description
The problem statement of this report includes whether the policy possesses the capability to
reduce or diminish the poverty issue of US. Considering the fact that this policy does not covers
the self employed workers, nor the employees who works in the large informal sectors where
majority of the poor individuals works, it is highly common for the poor to earn below the legal
minimum wage. Thus, this policy by itself does not possess the capability to diminish the
poverty gap. Considering the fact that minimum wage policy targets the individual employees
with low wages instead of families with low income, a large share of the higher income from
minimum wages flows to higher-income families. Researchers opined that since legal minimum
wage in USA are enforced only in the relatively high wage formal sector, the benefits of the
higher minimum wage often do not reach to the poor households1. For instance in Arizona,
1 Taylor, Lance, Armon Rezai, Rishabh Kumar, Nelson Barbosa, and Laura Carvalho. "Wage increases, transfers,
and the socially determined income distribution in the USA." Review of Keynesian Economics 5, no. 2 (2017): 259-
275.

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employees earning the minimum wage were most likely to be in households in the middle of the
income distribution, and few of the poorest households benefit from higher minimum wages.
Besides that the mentioned policy creates international poverty. The term international poverty
can be defined as the phenomenon where poor families remain poor for generations. Poor
families that receives minimum wage will eventually generate poverty for the next generation.
Finally, the fact that minimum wage is even lesser than living wage adds to the fact that the
minimum wage policy does not possess the potential to deal with the issue. The living wage can
be defined as the hourly wage that workers need to earn in order to cover the basic expanses of
their family. In USA, the average living wage of an individual is 15 USD per hour. Considering
the fact that the minimum wage of the nation is as less as 7.25 USD per hour, it can be clearly
understood that this policy is definitely not solving the issue of reducing poverty in USA.
iii. Policy Description
According to the US Labour department, the federal minimum wage for covered nonexempt
employees is 7.25 per hour effective form July 24, 2009. The Fair Labor Standard Act (FLSA)
contained the federal minimum wage provisions. Several states in US also possess minimum
wage law. In cases where an staff is subjected to both state as well as federal minimum wage law
, the employee is subjected to obtain the higher of the two minimum wages. However, the FLSA
does not provide wage payment collection procedures for a usual or promised wages of an
employee or commissions in exes of those required by the FLSA. The chief aim of the policy is
to reduce the poverty in the nation by providing the labours the minimum amount of money they
need to lead a healthy lifestyle. The objectives of this policy are to enhance the standard of living
of the workers, reduce inequality as well as to boost the morale of the employees. It has become

3WEALTH AND POVERTY
more crucial in a labor market which is characterized by a decline in trade unions as well as
growth of the low paid service sectors. In contrast, according to another group of researchers,
minimum wage is resulting in increment of poverty, unemployment as well as damaging the
businesses since excessively high minimum wages needs businesses to raise the price of the
product or services in order to accommodate the extra expanses of paying higher wage2. It ha
also been argued that the minimum wage policy possess the potential to enhance unemployment
since the firms will be unable to afford workers.
iv. Critical analysis
Social, cultural and political capital
Social capital is a broader aspect under which social groups and communities are able to
share their values, ideologies, share a sense of identity and share theirs norms and values. It is an
important aspect in creating human values, their lifestyle and identity as a community. As
mentioned in the research of Khamis (2013)3, poverty is not associated with lack of money, but it
2 Spoden, Amanda L., James H. Buszkiewicz, Adam Drewnowski, Mark C. Long, and Jennifer J. Otten. "Seattle’s
minimum wage ordinance did not affect supermarket food prices by food processing category." Public health
nutrition 21, no. 9 (2018): 1762-1770.
3 Khamis, Melanie. "Does the minimum wage have a higher impact on the informal than on the formal labour
market? Evidence from quasi-experiments." Applied Economics 45, no. 4 (2013): 477-495.
Khamis, Melanie. "Does the minimum wage have a higher impact on the informal than on the formal labour
market? Evidence from quasi-experiments." Applied Economics 45, no. 4 (2013): 477-495.
Mishel, Lawrence, John Schmitt, and Heidi Shierholz. "Wage inequality: A story of policy choices." In New Labor
Forum, vol. 23, no. 3, pp. 26-31. Sage CA: Los Angeles, CA: SAGE Publications, 2014.
Garnero, Andrea, Stephan Kampelmann, and François Rycx. "Minimum wage systems and earnings inequalities:
Does institutional diversity matter?." European Journal of Industrial Relations 21, no. 2 (2015): 115-130.

4WEALTH AND POVERTY
is associated with lack of capital within a society which increases the gap between rich and poor.
As per the documents of The National Bureau of Economic Research, the minimum wage policy
is unable to provide ample capital to poor societies where only one earning member is looking
after the fundamental needs of multiple people4. Further such societies struggle for their
fundamental rights related to education, health and other aspects, that also increases the number
of poor people in the society. Another researcher also mentioned that due to this widespread gap,
the probability of non-poor families becoming poor exceeds the number of poor families
escaping poverty5.
Cultural capital of one individual is the education, values, speech and intellect which he or she
receives using the social capitals present within a society. Whereas, these inequalities are also
increasing due to the improper use of political capitals as leaders of such communities are unable
to understand the wage related concern of the community increasing the gap between the rich
and poor in the society6. Therefore, social, political and cultural capital are interlinked as
researcher mentions that without proper political support, it is difficult to increase social capital
4 Mishel, Lawrence, John Schmitt, and Heidi Shierholz. "Wage inequality: A story of policy choices." In New Labor
Forum, vol. 23, no. 3, pp. 26-31. Sage CA: Los Angeles, CA: SAGE Publications, 2014.
5 Garnero, Andrea, Stephan Kampelmann, and François Rycx. "Minimum wage systems and earnings inequalities:
Does institutional diversity matter?." European Journal of Industrial Relations 21, no. 2 (2015): 115-130.
6 Stockhammer, Engelbert, and Ozlem Onaran. "Wage-led growth: theory, evidence, policy." Review of Keynesian
Economics 1, no. 1 (2013): 61-78.

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of a community which can help individual to upgrade their cultural capital required to earn more
and bridge the gap between rich and poor7.
Intergenerational poverty and minimum wages
Intergenerational poverty is the poverty condition which is transferred from one generation to
another chronologically affecting generations and affects the family with inadequate education,
nutrition, health and make them deprived of opportunities8. To overcome such situation, the
federal government implemented the minimum wage policy in public and private sector
employment of the country, however, the government is unable to control issues such as
intergenerational poverty and bridging the gap between rich and poor. This is because
generations of such families are deprived of the skill or education required for their upliftment or
escaping poverty9. Therefore, the next generation also lacks the education or skills which makes
them deprived from the social and cultural capitals10. The government is making policies and
schemes for the poor families so that they could be provided with health and education related
waiver to increase their abilities and skills to uplift themselves to escape the poverty line1.
However, due to lack of knowledge and awareness they are unable to access such schemes that
makes them stagnant in the poverty line. Besides these, researchers () also mentioned that
7 Sherraden, Michael, and Neil Gilbert. Assets and the poor: new American welfare policy. Routledge, 2016.
8 Mishel, Lawrence, Jared Bernstein, and John Schmitt. The state of working America: 1992-93. Routledge, 2016.
9 Esping-Andersen, Gosta. The three worlds of welfare capitalism. John Wiley & Sons, 2013.
10 Aged Care Financing Authority. 2018. "Aged Care Financing Authority | Ageing And Aged
Care". Agedcare.Health.Gov.Au. https://agedcare.health.gov.au/aged-care-reform/aged-care-financing-authority.

6WEALTH AND POVERTY
increased inequality in the wage structure decreases the chances of opportunities, empowerment,
structural strength, economic mobility so that the economic inequalities, racial inequalities could
be decreased4.
The policy and its ability to bridge the gap
As per the document published in a government document, minimum wage is unable to impact
the number of poor communities in developed as well as developing countries. The primary
reason of this is the lack of awareness and resources due to which poor communities who lack
skills, education as well as awareness regarding such programs are unable to escape poverty.
Further, majority of people under the poverty line are self-employed or works under any non-
registered facility due to which they are they did not receive legal minimum wage. As per
economist mentioned that, bridging such gaps with the minimum wage policy is very difficult as
due to application of minimum wages, economy pushes poor families out of the poverty line, as
well as pulls families from non-poverty group within the poverty line. This is an important
phenomenon as increased competition and fundamental needs creates gaps which can only be
filled by increasing the gap present within the society. Therefore, the minimum wage policy is
unable to help the poor communities to escape the poverty line3.
Statistical data of effect of minimum wages on poverty
The data for effect of minimum wages on eradication of poverty is collected from the press
release provided by the US senator Bernie Sanders, who is a US senator for Vermont. As per the
data provided by the senator, the minimum wages related policies are unable to eradicate poverty
and it is necessary to increase the minimum wage8. The data further includes that nearly 20% of
the population in USA is living under the poverty line and they are receiving $7.25 minimum

7WEALTH AND POVERTY
wage. As per the senator, this minimum wage should be termed as starvation wage as this wage
is unable to keep the family of the worker out of the poverty line and the wage should be
increased up to $15 per hour so that the worker could provide his or her family with their
fundamental needs. Further, the document also included a fact that minimum 40% of the US
workforce is comprised of the workers who receive less than $15 per hour wage, required to
eradicate poverty as $12 to $16 is the minimum wage using which the poverty rate is decreased
from 48% to 29%8. Further, due to less wages, majority of the workers are unable to utilize
facilities such as Medicare, SNAP, ACTC and EITC. Therefore, as per the data collected from
the press release provided by the US senator, it is evident that the minimum wage policy is
unable to eradicate poverty and requires increase in the amount so that majority of the workers
could be provided with governmental aids8.
Themes and concepts related to minimum wages and poverty
Opportunities and inequalities within employment are important in creating economic gaps
which is the basis of the minimum wage policy as it aims to reduce the economic gap between
rich and poor so that social, cultural and political capital could be evenly distributed among the
population under the poverty line. However, due to the lack in the governmental policies and
insufficient minimum wage, the populations are unable to escape poverty11. Further different
social aspect such as discrimination, racial inequalities and economic status also decreases the
number of opportunities required for the upliftment of the population. Therefore strengthening
the structural barriers and hinder the chances of such population to achieve their fundamental
needs related to food, shelter, education and healthcare12. Therefore, it is the responsibility of the
11 Savitz, Andrew. The triple bottom line: how today's best-run companies are achieving economic, social and
environmental success-and how you can too. John Wiley & Sons, 2013.
12 Karanikolos, Marina, Philipa Mladovsky, Jonathan Cylus, Sarah Thomson, Sanjay Basu, David Stuckler, Johan P.
Mackenbach, and Martin McKee. "Financial crisis, austerity, and health in Europe." The Lancet 381, no. 9874

8WEALTH AND POVERTY
government to reform the wage structure and implement awareness program for the people
below the poverty level so that with increase awareness, their abilities of overcoming the poverty
could be increased.
Changes in the minimum wage policy
The US government’s minimum wage policy requires several major reforms so that it could be
used for eradicating poverty which consists of more than 20% of the American population. As
per the data collected from the USA senator Bernie Sanders, more than 40% of the American
workforce is getting a minimum wage of $7.25 per hour which is unable to eradicate hunger or
starvation within the community8. Therefore, the first change which should be implemented in
the minimum wage policy is increasing the amount of minimum wage up to $15 or $16 per hour
so that poverty could be eradicated from the community and they could be provided with
opportunities to uplift themselves above the poverty line5.
C. impact of minimum wage policy on Inequality and mobility
According to researchers, minimum wage possesses the potential to enhance the income
inequality among the rich and the poor in US. It has been found that the mentioned policy shifts
the earning distribution towards the lower end with the help of three mechanisms13. The first
(2013): 1323-1331.
Savitz, Andrew. The triple bottom line: how today's best-run companies are achieving economic, social and
environmental success-and how you can too. John Wiley & Sons, 2013.
Karanikolos, Marina, Philipa Mladovsky, Jonathan Cylus, Sarah Thomson, Sanjay Basu, David Stuckler, Johan P.
Mackenbach, and Martin McKee. "Financial crisis, austerity, and health in Europe." The Lancet 381, no. 9874
(2013): 1323-1331.
13 Lukiyanova, A. L. "Minimum wage and minimum wages in Russia9." of Economic Theory Studies of the Russian
Economy Issues of Economic Policy Hot Topic (2018): 142.
Esping-Andersen, Gosta. The three worlds of welfare capitalism. John Wiley & Sons, 2013.
Aged Care Financing Authority. 2018. "Aged Care Financing Authority | Ageing And Aged
Care". Agedcare.Health.Gov.Au. https://agedcare.health.gov.au/aged-care-reform/aged-care-financing-authority.

9WEALTH AND POVERTY
mechanism includes he consumers of the products that are made by the minimum age
employees, the minimum wage enhances the production costs as well as the cost of the services.
Therefore, while the wage of the low wage employees is increasing, the purchasing power of
other individuals is decreasing and thus the equality is getting altered. Researchers argued that
the minimum wage possess the potential of diminishing the poverty gap between the reach and
poor with the help of second mechanism14. The second mechanism includes the corporations that
hire minimum wage workers, specially those organizations who involve stakeholders in this
process15. By increasing the wage of the employees, the organization will suffer a decrement in
the yearly profit due to the increment of the production cost. Lowered profit will eventually
result in the decrement of income of the stakeholders while increasing the wage of the low wage
workers. Thus this policy will be able to diminish the poverty gap between the rich and the poor.
However, Researchers argued that, more than 78.3 percent of the Small and Medium Enterprise
in USA are not following the mentioned policy16. Majority of the labors coming from poor
background work in those organization and they are not entitled to the minimum low salary
policy. On the other hand Multinational organizations as well as government organizations are
entitled to this policy. Considering the fact that majority of the workers n the mentioned
organizations are above poverty level, they enjoy the benefit of the policy along with other
14 Mishel, Lawrence, John Schmitt, and Heidi Shierholz. "Wage inequality: A story of policy choices." In New
Labor Forum, vol. 23, no. 3, pp. 26-31. Sage CA: Los Angeles, CA: SAGE Publications, 2014.
15 Chletsos, Michael, and Georgios P. Giotis. "The employment effect of minimum wage using 77 international
studies since 1992: A meta-analysis." (2015).
16 Béland, Daniel, Philip Rocco, and Alex Waddan. "Reassessing policy drift: Social policy change in the United
States." Social Policy & Administration 50, no. 2 (2016): 201-218.
Stockhammer, Engelbert, and Ozlem Onaran. "Wage-led growth: theory, evidence, policy." Review of Keynesian
Economics 1, no. 1 (2013): 61-78.
Sherraden, Michael, and Neil Gilbert. Assets and the poor: new American welfare policy. Routledge, 2016.
Mishel, Lawrence, Jared Bernstein, and John Schmitt. The state of working America: 1992-93. Routledge, 2016.

10WEALTH AND POVERTY
official benefits. Thus this policy enhances inequality by increasing the gap between the
employees in terms of yearly remuneration. Researchers stated that since the minimum wage
provided to the workers is much lower than that of the living wages, the mobility of the poverty
gap is getting hindered17.
Conclusion
From the above discussion, it can be concluded that implementation of the minimum
wage is not beneficial when it comes to reducing the poverty level of the employees. In order to
reduce the poverty gap , it is highly crucial for both the federal as well as local governments to
increase the amount of minimum wagers at least above the living wages. Moreover, steps should
be taken in order to ensure that all the small and medium organizations are subjected to
implement the mentioned policy so that the benefit of the same can reach to the poor.
17 Repetti, Toni, and Susan Roe. "Minimum wage change effects on restaurant pricing and
employment." International Journal of Contemporary Hospitality Management 30, no. 3 (2018): 1545-1562.

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Reference List
Béland, Daniel, Philip Rocco, and Alex Waddan. "Reassessing policy drift: Social policy change
in the United States." Social Policy & Administration 50, no. 2 (2016): 201-218.
Chletsos, Michael, and Georgios P. Giotis. "The employment effect of minimum wage using 77
international studies since 1992: A meta-analysis." (2015).
Esping-Andersen, Gosta. The three worlds of welfare capitalism. John Wiley & Sons, 2013.
Garnero, Andrea, Stephan Kampelmann, and François Rycx. "Minimum wage systems and
earnings inequalities: Does institutional diversity matter?." European Journal of Industrial
Relations 21, no. 2 (2015): 115-130.
Karanikolos, Marina, Philipa Mladovsky, Jonathan Cylus, Sarah Thomson, Sanjay Basu, David
Stuckler, Johan P. Mackenbach, and Martin McKee. "Financial crisis, austerity, and health in
Europe." The Lancet 381, no. 9874 (2013): 1323-1331.
Khamis, Melanie. "Does the minimum wage have a higher impact on the informal than on the
formal labour market? Evidence from quasi-experiments." Applied Economics 45, no. 4 (2013):
477-495.
Lukiyanova, A. L. "Minimum wage and minimum wages in Russia9." of Economic Theory
Studies of the Russian Economy Issues of Economic Policy Hot Topic (2018): 142.
Mishel, Lawrence, Jared Bernstein, and John Schmitt. The state of working America: 1992-93.
Routledge, 2016.

12WEALTH AND POVERTY
Mishel, Lawrence, John Schmitt, and Heidi Shierholz. "Wage inequality: A story of policy
choices." In New Labor Forum, vol. 23, no. 3, pp. 26-31. Sage CA: Los Angeles, CA: SAGE
Publications, 2014.
Mishel, Lawrence, John Schmitt, and Heidi Shierholz. "Wage inequality: A story of policy
choices." In New Labor Forum, vol. 23, no. 3, pp. 26-31. Sage CA: Los Angeles, CA: SAGE
Publications, 2014.
Repetti, Toni, and Susan Roe. "Minimum wage change effects on restaurant pricing and
employment." International Journal of Contemporary Hospitality Management 30, no. 3 (2018):
1545-1562.
Savitz, Andrew. The triple bottom line: how today's best-run companies are achieving economic,
social and environmental success-and how you can too. John Wiley & Sons, 2013.
Sherraden, Michael, and Neil Gilbert. Assets and the poor: new American welfare policy.
Routledge, 2016.
Spoden, Amanda L., James H. Buszkiewicz, Adam Drewnowski, Mark C. Long, and Jennifer J.
Otten. "Seattle’s minimum wage ordinance did not affect supermarket food prices by food
processing category." Public health nutrition 21, no. 9 (2018): 1762-1770.
Stockhammer, Engelbert, and Ozlem Onaran. "Wage-led growth: theory, evidence,
policy." Review of Keynesian Economics 1, no. 1 (2013): 61-78.
Taylor, Lance, Armon Rezai, Rishabh Kumar, Nelson Barbosa, and Laura Carvalho. "Wage
increases, transfers, and the socially determined income distribution in the USA." Review of
Keynesian Economics 5, no. 2 (2017): 259-275.

13WEALTH AND POVERTY