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In his State of the Union Address, President Obama spoke about using an executive order to increase the minimum wage from $7.25 per hour to $10.10 per hour for federal contractors. This is in an effort to close what he calls the “opportunity gap” for lower-skilled laborers.

This executive order begs the larger question:  Would a minimum wage applied to all industries be the great equalizer? Can it increase opportunities for the poor?

In other words, can this policy speed up the path to prosperity?

Caring for the Poor

I am in agreement with President Obama that a society characterized by a high degree of flourishing is one that is rich with opportunities. These types of societies enable all people, not just the rich and well-connected, to use their creativity to serve the common good.

This is not only a mere intellectual point of agreement we share. It’s biblical. We have a biblical mandate to care for the poor and enable them to be creative, to realize their God-given purpose, and to use that purpose in their own unique way to contribute to the greater good of humanity.

Societies that hamstring the poor do so at a great cost. It is a cost not just borne by the poor themselves, but carried by the rest of the world because we are deprived of their creativity, of their gifts. The net result is to stifle flourishing and upward mobility.

Can the Minimum Wage Help?

The minimum wage increase to $10.10 is being proposed as a means to the end of generating more opportunities for the least advantaged among us.  As Christians, we must discern whether this is an effective means to our stated end.

It is clear that minimum wage proponents want to better the living conditions and quality of life for the poor. But in considering this step, we need to ask some key questions:

  • If it does work, by how much more should we increase the minimum wage?
  • What are the costs?

To answer these questions, let’s think about a hypothetical, yet plausible, scenario.

Should We Increase the Minimum Wage?

Suppose we have a family of two parents who support two children living in the home. Both parents earn the current minimum wage of $7.25 per hour. Working 50 weeks at 35 hours per week, they would earn around $22,000 per year, after taxes but without any federal benefits or subsidies.

If that same family works the same amount of hours under the newly-proposed minimum wage, they would earn a little over $30,000 per year. This puts them above the federally-designated poverty line, but $30,000 for a family of four still brings difficult tradeoffs for that family to meet their needs.

If this is an effective policy, why wouldn’t we raise the minimum wage to even higher levels? Why not pay $25 per hour? Based on this analysis, we could predict that all minimum wage recipients would be much better off.

Hurting Those We’re Trying to Help

But without looking at the long-term, often unintended consequences we won’t see the full picture. If we force employers to pay a wage rate above the value employees bring to their company, employers will be forced to cut employees and raise prices.

  • Raising the costs of employing workers means that firms often have to raise their prices to cover the difference. The increased price of goods and services disproportionately harms the poor because they don’t have the excess disposable income to absorb the rising costs of buying things they need.

So the very good intentions behind the minimum wage policies often harm the very people we are trying to help. Instead of closing the opportunity gap, we widen it by cutting off opportunities for the poorest among us.

What Can We Do?

To close the opportunity gap we should increase the ability of business owners, whether they are small or large, to help those around them. God calls us to help the poor by coming into community with them and forming relationships. In IFWE’s upcoming book, For the Least of These: A Biblical Answer to Poverty, Dato Dr. Kim Tan writes about investors and entrepreneurs coming together in communal networks to address poverty.

There is also a role for the church to play in helping the poor along the path to prosperity. In his chapter for our book, Dr.  Mark Isaac outlines how the church and the market can work together to alleviate poverty. Following the model of the early church laid out in Acts, people in the church can come together to help the poor in their midst overcome the opportunity gap.

If we want to care for the poor, and enable them to use their gifts to serve others, we must empower the people who stand ready and willing to employ them and not hamper those efforts. Only then are the poor able to get on that ladder of economic progress and escape the trappings of poverty.

What do you think? Should we raise the minimum wage? Leave your comments here

For the Least of These: A Biblical Answer to Poverty, will be available in early 2014. Poverty-book

Dr. Anne Bradley

About Dr. Anne Bradley

Anne Bradley, Ph.D. is Vice President of Economic Initiatives at the Institute for Faith, Work & Economics. Anne received her Ph.D. in Economics from George Mason University. She is a visiting professor at Georgetown University and has previously taught at George Mason University and at Charles University in Prague. Read More...

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  • Jacob Lupfer

    Just out of curiosity, do you support a minimum wage at all? Or would it be better if we let The Market set wages at whatever The Market will bear? Is the Bible calling us to help the poor by eliminating the minimum wage altogether?

    • Anne Bradley

      Jacob, thanks for your thoughtful question. I think we have to remember that the Bible is not an economics textbook so as much as I would like it we can’t go for specific answers to policy questions but we can unearth the principles that our policies should respect. These principles come from our God-given creation and the calls of Christ.

      I think what matters most here is what incentives does the minimum wage establish? If we knew it could increase the quality of life for the least skilled among us and didn’t bring any costs I would say it would not violate any biblical principles.

      Since we know those things are not true we are much better off letting the market reward productivity and in countries with lots of prosperity we tend to see that the lower skilled do much better than in countries like Ethiopia where the poor are literally trapped into poverty with no chance of escape.

      What we find over time is that as people get more productive in general, the lowest wages paid get higher and higher so our aim as Christians should be more focused on enabling the gifts, talents and effectiveness of the poor.

      If we spent more time getting into relationships at the local level and gave job training and vocational training to the poor we would go a long way to reducing the problems the minimum wage is ineffectively trying to address.

  • merw49

    Of course we should raise the minimum wage. You leave out a major component: the fact that the American taxpayer is supporting the companies – in some cases, multi-billion dollar companies – who are paying low wages by forcing those employees onto food stamps and other govt. subsidies. If we raise the minimum wage to $10.10 per hour, families will in fact have more money to spend into the economy. However, we should realize that raising the minimum wage in itself is not enough; we should talk about flex hours and daycare, student loans and fair taxation as a part of this package. But raising the minimum wage is a start. And, it does not cost jobs – that is a myth perpetrated by the corporations.

    • Anne Bradley

      Merw49, thanks for your comment. I think it is dangerous to assume that companies who might have what seems like a lot of cash lying around still don’t face opportunity costs when making hiring decisions.

      Because we live in a world of scarcity we know that all of our choices bear costs. What we find with the minimum wage is that it hurts the very people we are trying to help and as such we must find another way. Increasing the minimum wage means that employer has to make another tradeoff somewhere else, and if they are a billion-dollar company as you suggest, we aren’t just talking about raising a few people’s wages we are talking about raising the wages of hundreds of employees which means big costs.

      This tends to show up in two ways: we either replace the low skilled labor with machines (instead of giving your order at the drive thru to a person you will soon be typing it on an ipad) and/or the costs of the products these companies sell goes up.

      The increase in prices and the offset jobs hurt the poor, not the rich.
      So while the minimum wage sounds like a great idea if we look at the real costs, it is very dangerous.

  • Jacob Lupfer

    So you don’t want to raise the minimum wage. Do you want to lower it, or eliminate it altogether?

  • Andy

    Great thoughts. Rather than simply cutting employees, and raising prices, why would one solution not be for business owners and key executives to take pay-cuts?

    • Anne Bradley

      Andy, this is a great thought and seems like a reasonable suggestion but the question then becomes who would mandate this and how would we know what the maximum pay should be for a CEO. I think it’s common perception to think that CEO’s sit in their fancy offices all day, go the gym and have two-martini lunches.

      But this isn’t totally true. The pressure of competition is fierce and so to
      successfully lead a company CEO’s are paid for taking significant risks, some of which pay off and some of which don’t. But when they take risks that lead to innovations that make our lives better, we all benefit.

      The fact that Bill Gates and Steve Jobs started their companies in their garages is a long way off from the fancy boardrooms they would later know. They had to start somewhere and experiment and innovative so that ultimately they could give us products that made our lives better which in turn allows their companies to amass that much capital, and these benefits are available to the poor not just the rich.

      I think the other issue I might have with this is that it might solve a symptom, in the short term if all CEO’s gave themselves voluntary pay cuts we could potentially pay lower-skilled workers more but it’s not sustainable and it doesn’t lead to long-term innovation and growth. What we want for the poor is for them to be able to be better skilled and increase their productivity with those skills so that they can earn more.

      I think the CEO pay cut doesn’t solve the fundamental problem of
      raising the skill levels of the least advantaged. What we want for the
      poor is for more of them to have an idea, like Gates or Jobs and be able to
      turn that into something that serves humanity.

      • http://flamingfundamentalist.blogspot.com/ Curt Day

        Anne,
        The issue isn’t whether CEO’s have a life of luxury and ease. Nor is the solution found in unrealistic expectations of more of the poor arising out of financial hopelessness by coming up with ideas like Gates or Jobs–should note that neither of them were born poor. The question is, will we opt for a more just and moral economic system? And if not, will we be willing to admit that the current system is unsustainable? Our system cannot continue because it has tax payers subsidizing employers who pay poverty wages. It also has those with the most wealth trying to avoid paying taxes. The combination of these two are putting all of us more at risk by ever increasing an ominous national debt.

        In addition, not all work that serves humanity is adequately rewarded in the market. At the same time, not all that serves the market serves humanity.

        • Anne Bradley

          Curt,

          Entrepreneurial innovation is not an unrealistic expectation. We are the richest we have ever been in human history.

          Even the poorest Americans have access to luxuries that were not even imaginable by kings and queens just a few hundred years ago.

          We want the conditions for the poor to get even better. The profound increase in quality of life is nothing to scoff at, nor should we stop here. The poor will continue to fare better and better if we support an environment that allows them to put their God-given creativity to work. The problem with poverty is not just that folks have to struggle to survive day in and day out, but they don’t have a chance to exercise their human ingenuity and skill through
          work.

          As far as poverty wages go, we all start in the workforce at low wage levels because we have low levels of skill, education and productivity. As those things increase, so does our pay. If we mandate wages that are above the value brought in by the employee, we hurt the very people we attempt to help by knocking them off the ladder of job growth and opportunity.

          What we can do is help people find their calling and then help them get the skills and education which will enable them to escape the trappings of poverty.

      • Andy

        Thank you Anne for taking the time to thoughtfully respond. Very helpful!

  • http://flamingfundamentalist.blogspot.com/ Curt Day

    Our current system provides a dilemma. That is because on the one hand it tells us that both increasing the minimum wage will increase unemployment while the current minimum and other low wages require that many such workers apply for gov’t assistance. Thus, the taxpayers are subsidizing the pay for all who pay poverty wages. Thus, both those who live in poverty and wealthy businesses have become double beneficiaries of welfare.

    The other hand is that such a system is not sustainable because it increases our debt in a time where many, both individuals and corporations, are looking to pay as small a tax bill as possible.

    Martin Luther King Jr said that it isn’t enough to give to charity, one must examine the system that puts so many in poverty. And yet examining our current system with it being both blatantly unsustainable and harmful to so many is rarely, if at all, mentioned when discussions on the minimum wage arise. It is a wonder how the experts can keep a straight face during these discussions.

  • Pete Smith

    If we agree that govt may mandate a minimum wage, may it also mandate a maximum wage? In answer to the blog post’s title question, No, raising the minimum wage will not close the opportunity gap. It’s not about income. The opportunity gap comes from many factors among which is the deficit of human capital among the poor. I live in one of the worst school districts in Pennsylvania. That has long-term impacts. Simply raising the minimum wage will not help my neighbors. Many of the youth in my community cannot see past their early twenties – they expect to be in jail or dead. They need much more than a higher minimum wage.