BY TANNER FORMAN — Income inequality in the United States is the highest that it has been since 1928. As a result, the Government has been exploring ways to reduce the income inequality gap and to reduce poverty throughout the nation. Recently, the Government has explored the idea of increasing the federal minimum wage from $7.25 to $10.10 as a means to reduce income inequality. An increase in the federal minimum wage would certainly have its benefits but it may also have unintended consequences that may widen the income inequality gap instead of reducing it.
BENEFITS TO RAISING THE MINIMUM WAGE
Proponents of raising the minimum wage assert that an increase in the minimum wage would reduce the number of Americans in poverty, would benefit the US economy, and would reduce income inequality. A recent study conducted by the Congressional Budget Office (“CBO”) found that an increase in the minimum wage would reduce the number of impoverished Americans by 900,000. Additionally, increasing the minimum wage could increase productivity which could cause an increase in GDP. An increase in the minimum wage could help reduce the income inequality gap by increasing the income of millions of Americans who currently earn the minimum wage as well as Americans who make more than the minimum wage but less than $10.10 per hour.
CONSEQUENCES OF RAISING THE MINIMUM WAGE
Those in opposition of raising the minimum wage believe that an increase in the minimum wage would lead to a loss in jobs, would cause an increase in the price of goods and services, and would not substantially affect the poverty rate or income inequality. The same CBO study referenced above found that an increase in the minimum wage could eliminate 500,000 jobs. Additionally, an increase in wages could cause companies to pass those added costs on to consumers in the form of price increases. Opponents believe that increasing the minimum wage would not substantially affect the poverty rate because reducing the number of impoverished Americans by 900,000 would only reduce the national poverty rate by 1 percent. Also, opponents believe that there are better ways to reduce income inequality such as improving access to education, creating more jobs, and increasing financial literacy throughout America.
In conclusion, it is evident that the income inequality gap continues to widen and that America must take the necessary steps to reduce inequality and provide a level playing field for its citizens. It is unclear whether an increase in the minimum wage would be a step in the right direction towards reducing the income inequality gap and reducing poverty. It seems as though it would be worth raising the minimum wage no matter how small the reduction in the poverty rate and no matter how insignificant the change to the income inequality gap so long as some Americans are benefiting from the increase. However, if the increase in the minimum wage causes a decrease in purchasing power and a loss of jobs, then the increase could increase the poverty rate and income inequality gap. America needs to address its growing problem of income inequality, and it is likely that the Government will need to supplement an increase in the minimum wage with other programs or ideas if it is to truly benefit the Americans who need it most.
