Understanding the Minimum Wage and Poverty Line

Introduction

The debate on the minimum wage in the United States has faced maximum coverage in the recent past. Most people argue that increasing the minimum wage may not lead to a loss of employment opportunities. Ideally, the minimum wage is associated with an increase in economic growth as it ensures that the labor force has more money to utilize in catering for their various expenditures. An increase in minimum wage increases the demand for products and services, and this is associated with the growth of businesses. In 2016, the government of the United States introduced an increase in the minimum wage across 13 states, which was meant to experiment the impact of increased minimum wage if it were to be implemented across the entire country. This increase was implemented for the lowest-paid workers. The economic impacts of increasing the minimum wage have been manifested with controversy. On the positive side, the quality of life among hundreds of thousands of workers will be enhanced as those living in poverty and below the poverty line will more income to spend. Generally, increasing the minimum wage helps the people move out of poverty and lower the government expense in financing social programs to enhance the lives of the people. With about 14.5 percent of the citizens in the United States, equivalent to over 45 million people living below the poverty line, the implication is that there is a need to increase the minimum wage. However, the suggestion is that this increase should be raised to sustainable levels because an increase in the minimum wage may be associated with economic issues such as unemployment as companies lay off workers and inflation as the money supply increases with less buying power.

Measuring Minimum Wage

The poverty line is utilized as a measure of the level at which the minimum wage may be increased. According to the definition provided by the federal government as of 2016, the poverty line is experienced when a family of four earns $24,300 per year. This amount includes the annual consumption and total wealth of that family. The increase in the minimum wage may play an integral role in ensuring that wage inequality is significantly reduced while bringing millions of employees out of poverty. Moreover, the minimum wage is associated with increased employee motivation and eliminates potential unequal salaries. The general economy is bound to grow in terms of productivity. According to the efficiency wage theory, an increase in the minimum wage is critical in increasing the incentives of the workers to put more effort, which implies that higher wages have the potential of increasing the productivity of labor. On the same note, organizations that pay a high level of wages put more emphasis on ensuring that the productivity of labor is increased. The increased labor productivity leads to an increase in the efficiency and effectiveness of an economy. The notion behind the efficiency wage theory focuses on the fact that organizations are bound to reap benefits if they pay higher wages to their workers relative to their marginal revenue product. The assertion is that when a firm pays its employees higher wages, there is a potential increase in their productivity. Employees who receive relatively higher wages portray a greater level of devotion and loyalty towards the realization of organizational goals of their company.