The Effect of Minimum Wage Policy on Poverty Reduction
27 January 2013
Academic and Study Skills
P1A
Academic year 2012/2013
Semester 1, period 3
The effectiveness of the minimum wage policy as anti-poverty tool
1 Introduction
Minimum wage policies are widespread throughout the world. More than 90% of all countries have a minimum wage policy (International Labour Office, 2009, p. 34). Although the goals of mandating and maintaining a minimum wage, such as the reduction of poverty and the creation of income equality, are widely accepted around the world, there is a disagreement about the policy’s efficacy regarding these goals. Opponents of setting a minimum wage argue that it leads to unemployment, and it does not result in the reduction of poverty (Burkhauser & Sabia, 2007, p. 263). Meanwhile, employment plays an important role in poverty alleviation, because it secures income and empowerment for the poor (United Nations, 2005). However, proponents of the minimum wage policy appoint that the policy leads to decrease in poverty rates and the unemployment effect is not significant (Lustig and McLeod, 1997). That means, there is controversy over the use of minimum wage as an anti-poverty tool, and this makes the topic interesting to study.
This paper will evaluate the extent to which the minimum wage policy is an effective anti-poverty tool. The evaluation will be based on literary reviews of scientific articles and theoretical materials regarding the influence of minimum wage on employment and poverty. Such a focus is selected because studying the effect of minimum wage only on employment does not lead to a conclusion about the influence of minimum wage on poverty. Even if the unemployment effect is moderate, an increase in the minimum wage leads to net income losses for poor families (Neumark & Wascher, 1997, p. 1). In addition, criteria such as the effect of minimum wage on employment and poverty level will be used for evaluation of efficacy of minimum wage policy as anti-poverty tool.
The
Academic and Study Skills
P1A
Academic year 2012/2013
Semester 1, period 3
The effectiveness of the minimum wage policy as anti-poverty tool
1 Introduction
Minimum wage policies are widespread throughout the world. More than 90% of all countries have a minimum wage policy (International Labour Office, 2009, p. 34). Although the goals of mandating and maintaining a minimum wage, such as the reduction of poverty and the creation of income equality, are widely accepted around the world, there is a disagreement about the policy’s efficacy regarding these goals. Opponents of setting a minimum wage argue that it leads to unemployment, and it does not result in the reduction of poverty (Burkhauser & Sabia, 2007, p. 263). Meanwhile, employment plays an important role in poverty alleviation, because it secures income and empowerment for the poor (United Nations, 2005). However, proponents of the minimum wage policy appoint that the policy leads to decrease in poverty rates and the unemployment effect is not significant (Lustig and McLeod, 1997). That means, there is controversy over the use of minimum wage as an anti-poverty tool, and this makes the topic interesting to study.
This paper will evaluate the extent to which the minimum wage policy is an effective anti-poverty tool. The evaluation will be based on literary reviews of scientific articles and theoretical materials regarding the influence of minimum wage on employment and poverty. Such a focus is selected because studying the effect of minimum wage only on employment does not lead to a conclusion about the influence of minimum wage on poverty. Even if the unemployment effect is moderate, an increase in the minimum wage leads to net income losses for poor families (Neumark & Wascher, 1997, p. 1). In addition, criteria such as the effect of minimum wage on employment and poverty level will be used for evaluation of efficacy of minimum wage policy as anti-poverty tool.
The
References: Gindling, T. H., & Terrell, K. (2010). Minimum wages, globalization, and poverty in Honduras. World Development, 38(6), 908-918. doi:10419/33688 International Labor Office Mankiw, G. N. (2012). Principles of Economics. Income inequity and poverty. In J. Sabatino (Ed.), Principles of Macroeconomics (pp. 415-432). Retrieved from http://pdfbook.co.ke/downl oad.php Neumark, D., & Wascher, W. (1997, August). Do minimum wages fight poverty? (Working Paper No. 6127). Retrieved from National Bureau of Economic Research website: http://www.nber org/papers/w6127.pdf Pauw, K., & Leibbrandt, M Ropponen, O. (2011). Reconciling the evidence of Card and Krueger (1994) and Neumark and Wascher (2000). Journal of Applied Econometrics, 26, 1051-1057. doi: 10.1002/jae.1258 Saget, C