Raising the minimum wage in an effort to increase living standards is like taking water from one end of the bathtub and pouring it in the other in an effort to raise the overall water level.
Labor is an expense, just like raw materials. When the cost of doing business increases, the bottom line of the company suffers. In an effort to produce positive earnings and maintain profitability when the cost of doing business increases, companies either have to increase prices or cut costs. If the price of cotton increases, then a clothing company may have to increase the cost of its clothing — and pass on the price increase to consumers — or seek a cheaper cotton producer.
When prices increase, my dollar today will not buy as much as it did. If my wages increase by 10 percent, but the cost of living also increases by 10 percent, I am no better off than before the wage increase. Minimum-wage employees will be no better off than before, and the middle class will be hit with a cost-of-living increase.
Critics might say that businesses should absorb the new costs by cutting into their profits, and those at the top should take pay cuts to maintain current pricing. Businesses exist to make money, and those in the upper echelons of business like to make money for themselves and their companies. To say otherwise is naïve.
Reducing the number of people near the poverty line requires increasing the capacity of the private sector to create jobs and equipping people with the skills necessary for those jobs.