When the siding on your house has dry-rot, giving it a few heavy coats of paint might make it look better for a little while, but it won’t make the underlying issue go away. Raising minimum wage to alleviate poverty is the same kind of solution, one that looks good on a superficial level, but ends up not really fixing the problem, and here’s why.
Labor is a tradable commodity, and just like any commodity, labor can vary in value. It takes more skill to be a doctor than a store clerk, so their labor has a higher value. Minimum wage is the base price that the government has placed on unskilled labor.
Labor and its price are part of a giant economic system that also includes all the goods we buy. When the government artificially raises minimum wage, all the other parts of the economy are forced to shift to accommodate the change. Employers that provide minimum wage jobs, such as factories, restaurants, and stores, have to pay more for their labor, and so they must either raise the prices or hire fewer workers in order to maintain profitability. Unemployment goes up and consumers, which include minimum wage-earners, must now pay more for goods and services. Once prices finish adjusting, the larger paychecks for unskilled laborers will not end up stretching any further than they did before minimum wage was raised.
Also, when minimum wage is raised, skilled workers do not receive a boost to the price of their labor, but still experience the raised prices of goods and services. They can’t buy as much with their paychecks as they could before, which means their higher-value labor is now worth less than it used to be.
To raise a worker’s income, the only real solution is to raise the value of that worker’s labor, and that can’t be done through raising minimum wage.