Government Intervention to Help the Working Poor: There is a Better Option than Raising Minimum Wage

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Recommended: Positive and negative impacts of raising minimum wage

Small businesses are hurt by minimum wage hikes. This hypothetical situation describes how the minimum wage kills jobs. Consider a small community clothing store with 50 customers a day for 360 days at $20 spent per customer. Total revenue per year for the business is $360,000. This seems like a lot of money. How could a small hike in minimum wage hurt when the company makes this much money? Well we still need to deduct the costs of doing business. This clothing store has 10 employees all earning minimum wage (for this example is $8 per hour) working 2000 hours a year. This makes labor costs for this small business $160,000. Other expenses incurred by the business are: cost of goods that are sold, licenses, rent / mortgage, utilities, equipment, depreciation, insurance, and miscellaneous supplies come to $150,000 per year, leaving a profit of $50,000 for the owner and his or her family. An increase to the minimum wage of only $1 would raise labor costs by $20,000 (paying more for the same amount of labor) and reduce profit to $30,000. The owner must either reduce his personal expendable income, or raise prices, which in turn reduces the demand for the product, resulting in the loss of a worker or two due to the lower demand. Money for the increase of the minimum wage cost must come from somewhere, either out of the pockets of customers or the owner’s family, and the people who lose their job.
Minimum wage is not the answer to solving poverty. Redistribution of wealth by the federal government can be more effective and less destructive to businesses and low wage employees across this great nation, with the earned income tax credit. The earned income tax credit is a tax credit, direct payment, given to low i...

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