Poverty and Minimum Wage

I read a study recently about poverty.  It claimed that the legal definition of "poverty level" does not match the legal definition of "poverty" in the U.S.  Specifically, for the government to consider a U.S. citizen or family to be under the poverty level, the household must be making less than somewhere around $20,000 a year (I think the actual figure is within a thousand of $23,000).  The study looked at cost of living all around the U.S.  Because cost of living is different in different places, the poverty level should also be different.  Using the legal definition of "poverty," the study found that the actual poverty rate averages over $30,000 a year.  There were a few places where it was as low as $25,000 a year, but there were many places where it was very close to $40,000 a year.  Given the legal definition of "poverty rate," which is used by many government welfare agencies, there as almost a $20,000 gap where people who  need government welfare cannot get it.  Imagine the dilemma of the guy who is making $19,000 a year, gets all of the food for his family through food stamps, and is paying only half the normal rent in subsidized housing.  What happens when his boss offers him a promotion that adds $5,000 a year to his salary?  If he accepts, he will make $24,000 a year.  Unfortunately, this will not cover his $30,000 a year expenses.  Further, loosing the food stamps takes out $3,000 a year from his income, and loosing qualification for subsidized housing takes out another $5,000 a year.  If he does not take the promotion, he stays at $19,000 a year, but food stamps give him $3,000 for food, and the housing subsidy gives him $5,000 for his family's apartment.  Before the raise, his gross income is actually $27,000, only $3,000 short.  After the raise, his gross income is $24,000.  He would be $6,000 short this way.  The only way he can take a promotion is if his salary is increased by more than $8,000 a year (plus the additional taxes, which he will now have to pay with his increased income).  What are the chances that he will eventually be offered a raise big enough to justify accepting it?  Approximately nothing.  Most employers do not even offer a $3,000 raise for a single promotion.  This guy will probably be stuck barely in poverty ($3,000 short) for the rest of his life, because any raise that would help him progress out of poverty will disqualify him for welfare and cause him and his family to starve and be thrown out on the street.  I guess the American Dream only exists for those who are already rich or the lucky few geniuses who can pull off a massively successful invention and manage to keep the rights long enough to get paid.

This gap between the legal definitions of "poverty" and "poverty level" is not the only gap that causes a major problem.  There is a similar gap between Federal Minimum Wage and the legal definition of "poverty level."  Current Federal Minimum Wage is $7.25 an hour.  Now, the legal work week is only 40 hours, according to Federal Labor Law.  There are only four professions which can legally be required to work more than this (other businesses can ask their employees to work more hours, but if the employees refuse, they cannot do anything that could be construed as punishment or retaliation).  There are also only 52 weeks in a year.  Doing the math, we find that Federal Minimum Wage enforces a yearly wage of only $15,080, for a full, legal work week.  This is only 75% of the Federal definition of "poverty level."  The Federal government itself is practically encouraging entry level businesses to keep their employees in poverty.  Worse, the actual poverty level is closer to $30,000 a year, which means that in reality, the government is allowing businesses to pay only half what a person needs to survive.  This is encouraging an 80 hour work week, with the additional overhead of working for more than one employer.  Further, most minimum wage jobs only schedule employees half time, to avoid paying benefits.  This means that the government is actually encouraging an 80 work week, split between four jobs.  Note that each job has extra overhead for taxes, administration of the businesses, and often extra travel time.  This is absurd.  How stupid do law makers have to be to miss this problem?

So, there are a few possible solutions.  The worst is to increase the legal work week to 80 hours and remove laws requiring benefits.  This would solve all of the problems for the businesses (besides extra hiring costs to replace dead employees).  This also happens to be 16 hours a day, 5 days a week.  The 40 hour Federal limit was placed to solve this problem, and it would be inhuman to change it back.  Also, if benefits are removed, the poverty level should be raised another $5,000.  The second solution is to fix the government definition of "poverty level."  This will allow more people to get on welfare, which will help to mitigate the problem.  Unfortunately, this will cost a lot of money, and if the government cannot get up the nerve to tax large businesses more, it will result in economic disaster.  Note that this solution should be used, but it will not fix the problem by itself.  The third solution is to raise minimum wage such that working full-time in any job will pay enough to stay out of poverty.  This will still not help people that cannot find jobs or that cannot find 40 hours of work each week, but it will take a huge number of people out of poverty.  The ideal solution would be both of the last two.  Fixing the definitions problem will make welfare work for everyone who needs it.  Fixing minimum wage will get a huge number of people off of welfare, which will balance the effect of fixing the definitions.  In this system, the guy above will already be out of poverty, if he is working full-time.  If he is not, he will be able to remain on welfare until he is entirely out of poverty.  This will allow him to accept the promotion without endangering himself and his family.

Now, there will certainly be some negative repercussions to this.  Businesses that base their profit margin on underpaying employees will probably fail (we will loose a lot of fast food places; is that really a bad thing?).  Initially unemployment will increase, which will increase the burden on welfare.  Ultimately though, this problem must be addressed.  If we do not start taking welfare money from the businesses that are causing it to be required, our government will eventually default on its debts, which will destroy its ability to borrow money.  This will force a massive lightening of government, which will probably result in a depression like the world has never seen before.  We might as well start now, where it will actually fix some major problems, instead of waiting until we are on the verge of government collapse.