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People in poverty will remain in poverty

Nicole Lasee, Entertainment Editor
March 27, 2013
Filed under Opinion

During the president’s State of the Union address Feb. 12, Obama proposed raising the federal minimum wage from $7.25 to $9 an hour. Obama attributed his minimum wage proposal to assist families living in poverty, but this attempt is a complete failure.

“The raise in minimum wage is poorly targeted as ‘anti-poverty’ assistance,” said Thomas Nesslein economics professor UW-Green Bay. “But people in poverty aren’t working and therefore it doesn’t matter what the wage is raised to.”

According to Nesslein, employer’s fear of increased minimum wage isn’t because they don’t want to pay their employees compensated wages but from their uncertainty for the economy. The questions on business owners’ minds all boil down to, how can their business model remain competitive and expand?

“In Wisconsin, minimum wage is $7.25,” said Christopher Naumann executive director of On Broadway Inc. “If you need to rebalance your business model to accommodate for an increase of this size then you probably have a poor business plan. This is more of an anti-bad business plan not meant to effect good small business.”

Businesses make up for the increased cost of labor by trying to sell more products, buying less products, getting lower quality products or changing to wholesale dealers. Other options directly affect their employees.

Examples of instated service cuts are abundant in the business world.

“Grocery stores are cutting baggers trying to figure out how they will make up the extra cost of employment,” Naumann said. “At Aldi’s, you pay a deposit to use a cart. Wal-Mart gets people in for their groceries, but catches their profit from other things, like tires, gadgets and televisions. Other grocery stores have to figure out how they will make up extra services for profit.”

For smaller businesses or businesses revolving around wants not needs, repercussions from such an increase may not be avoidable.

The minimum wage increase does not target those in poverty, according to Neisslein. Politically, the idea sells. Those working under minimum wage are likely to agree with the increase, and those working above it are likely to be frustrated. Neisslein said minimum wage increases move with inflation, however, and since it is a nation-wide raise, companies will all readjust together.

“Raising the cost of doing business is neither efficient nor economical,” Nesslein said. “Obama targeted the plan to help people in poverty, but the money is really going to those working in minimum wage jobs. These are new workers still in high school, not the provider for their family.”

Nesslein said a government funded program that should be given more attention is the earned income credit. This a refundable tax credit designed for lower income families to generate larger tax refunds.

“Earned income credit is the most effective anti-poverty program we have,” Nesslein said. “It is a refundable tax credit that increases with the number of children in the low income household.”

The minimum wage increase adds more problems to the already tightening workforce. By increasing the minimum wage, politicians increased the cost to keep laborers on staff.

“One out of 11 minimum wage workers are the head of the household in poverty,” Nesslein said. “It is politics. It’s for political gain. Less than 3 percent of the labor force gets minimum wage. Generally, it is teenagers and women working retail jobs. So raising the minimum wage doesn’t really help. Teenagers mostly live at home, not in poverty. Eighty percent of the gains go to homes not in poverty. It sells politically, but it needs to be targeted properly.”

Nesslein said change must be bigger to truly target those in poverty.

“Change the scope of minimum wage,” Nesslein said. “Make distribution more feasible-change employment-take into consideration the size of labor force.”

As history as shown us, this is not the end of minimum wage increases. Wages reflect inflation, and will continue to move with the economy. As it has been pointed out, however, the target group meant to benefit from the increase is not being reached.

The people in poverty will remain in poverty, the hiring process will become stricter and businesses are likely to cut corners to make up for lost funds.