Addressing the Minimum Wage Conundrum: A Proposal

 
a katz / Shutterstock.com

a katz / Shutterstock.com

The minimum wage has been a prominent issue of late, with the Left arguing for significant increases thereof and the Right pointing to the likely catastrophic consequences of such an increase. Even absent a potential increase, economic difficulties still arguably exist at the low-income margin.

Below, in faux-interview format, is an overview of a potential alternative mechanism for implementing the “minimum wage” concept that, to my knowledge, has not been proposed before that I’ve dubbed “The Alternative Minimum Wage.” If it has, I am confident that the Ricochetti will promptly correct my ignorance.

What are we to do about the minimum wage?

Simply put: Despite its political durability, the minimum wage is economically destructive, pricing a significant fraction of those struggling to climb up to prosperity out of the labor market.

Why is minimum wage politically durable? Many perceive the minimum wage as necessary so that “everyone can earn a living;” that is, it should never be the case that a person be required to work, yet not earn enough through that work to feed himself and his family/dependents. This is well and good for those holding jobs in a market governed by a minimum wage, but does little to help those afflicted by the marginal unemployment induced by a price floor on labor. A person’s labor value is what it is. No amount of wishing will make them able to perform work that affords more value; only gains in experience and education can do that. But those out of work lack access to one of the key things offering some promise of such gains, and economic damage follows.

So, again: What are we to do about the minimum wage?

First, on the question of political durability: when it comes down to it, the “everyone needs to eat” motivation for the minimum wage is entirely valid. Demand for the basics of survival in society — food, housing, clothing, transportation, etc. — is inelastic at the lower margin. Even someone whose labor has a market value only of $3/hour still needs to feed himself, even if the return from his labors is insufficient to procure basic survival needs. This seems to me one of the things that gets liberals most upset when conservatives argue against raising the minimum wage, or against the minimum wage generally. The economic difficulty is quite real and — given prevailing sentiments about government provision of a “social safety net” — it’s not unreasonable to demand the matter be considered.

As I see it, the problem is that the current form of the minimum wage commits a category error in attempting a market-intervention solution that directly constrains employers and employees in terms of what wage rates are or are not permitted. I posit that, in fact, the proper approach to addressing this problem is in fact through non-marketmeans.

Once upon a time, private institutions such as churches or charities, might have served such a role, but today the public acceptance of a government-mediated safety nets has significantly diminished the role of such organizations. Thus, while I (and I assume many others) would prefer a non-governmental solution, I believe that only a government-mediated approach is likely to gain sufficient traction to actually be implemented in the present political environment.

Ok, ok, smart guy, get to it. What’s your solution?

I call my proposed solution to this problem the “Alternative Minimum Wage” or AMW (The allusion to the Alternative Minimum Tax is intentional, though I hope the AMW would have fewer negative consequences and be more positively regarded.) There are three key premises, already mentioned above, which are important to keep in mind in the following discussion:

  1. The concept of the minimum wage is politically durable and will be a part of the economic body politic for the foreseeable future.
  2. The minimum wage as currently instituted has intrinsic, toxic economic consequences at the low-income margin.
  3. The government on all levels is already heavily engaged with financial transfers to the citizenry in employment-related matters, will likely be thusly engaged for the foreseeable future, and enjoys general public support of such engagement. Accordingly, the proper question for the present is not “Should these transfers be taking place?” but instead “What is the least negative form that these transfers could take?”

The overall objectives of the AMW are to:

  1. Eliminate the artificial floor on the market rate for labor;
  2. By transferring the burden of providing a ‘living wage’ to a government mechanism;
  3. That doesn’t dramatically further entangle the labor market with government intervention;
  4. While providing incentives for a) Employees to work, to gain skills and to improve their market labor value and b) Employers to abide by the rules (mainly, to not defraud the system).

So how does it work?

At a high-level, there are two steps:

AMW ChartFirst, employers hire employees at whatever wage rate they wish and pay them for their hours worked. Second, employees take their pay stubs showing hourly pay and non-zero wage rate to the Alternative Minimum Wage Office for further compensation up to the AMW, as illustrated to the right.

The AMW Office would take the pay stub and map the “Employer-Paid Wage” (EPW) rate to a defined “Government Supplemental Wage” (GSW), likely through the use of a lookup table similar to the 1040 tax table, which they would then calculate based upon the hours worked and pay to the employee. The employee’s net pay is then the AMW.

The figure above illustrates how this would work: the straight blue line is the EPW, the dashed arrows represent the GSW at a few different EPW rates, and the green curve is the resulting AMW. As the EPW increases, the GSW decreases, eventually trending to zero. However, the GSW is structured so that the AMW is always a strictly increasing function with respect to the EPW, which provides important features as described below. (For details of the particular functional form of the AMW in this figure, see the Appendix at the end of the Google Doc linked below.

So, how does “living wage” get defined?

Federalism! I would advocate for a law at the federal level that allows each state to choose between retaining the minimum wage status quo or implementing the Alternative Minimum Wage (again, the AMW). Each state electing to implement the AMW would then be free either to define a state-wide Government Supplemental Wage (again, the GSW) schedule, or to devolve definition of the schedule to the county or municipal level if it so elects. The “living wage” is thus defined on a state or local level, which should permit, for example, New York to define a substantially higher “living wage” than Kansas.

At least one constraint would have to be placed on the AMW curve, though. As best I can figure, in order to satisfy Objective 4a (incentivizing employees to work and gain skills) the AMW would have to be a strictly increasing function, such that the marginal income on the AMW curve is always positive. This is a key aspect, as it would provide a consistent, direct financial incentive for one to improve the marketability of his labor and, consequently, increase his pay.

If we implement this, why should people bother to work instead of just staying on unemployment? What about things like SNAP?

These programs would also have to be modified, probably to include significant cutbacks in unemployment benefits and other transfer payment programs. For unemployment, I envision a significant reduction in the duration of the eligibility period — something like 6 to 12 weeks — to incentivize people to work for the government assistance. Other transfer payments would have to be eliminated or restructured to ensure positive marginal income at every point as the EPW increases.

Ok, so people are working, fine. But what’s to stop employers from paying 10 cents per hour and making the whole thing completely unaffordable?

This is one of the additional benefits of requiring a strictly increasing AMW function: the uniformly positive marginal income on the AMW curve means each employee has a consistent incentive to maximize the EPW for their hours worked. Therefore, they would be incentivized to change employers if that would provide them a higher EPW and — per standard microeconomics principles — the EPW labor price for each given job type would adjust to a supply/demand equilibrium. The AMW then “fills in the gap” for any workers whose equilibrium price of labor is below what the relevant jurisdiction considers a “living wage.”

Who would be eligible for this?

Everyone with a valid Social Security or Tax Identification Number.

Yes, everyone! Anyone who earns an hourly wage in the reimbursement range can go to the AMW office to get the GSW for their hours worked. If Bill Gates decides to work half-time at a McDonald’s for $4/hr, he is eligible to claim the GSW on those wages if he wishes. Attempting to carve out eligibility exceptions based upon net worth, other income, personal situation, or other factors would only complicate and confound implementation.

What about overtime? Is there a 40-hour-per-week limit?

Nope! Any hour of work is eligible for GSW compensation up to the AMW. One constraint that must be imposed, though, is that overtime pay would have to be reported with a multiplier on the wage rate, and not on the hours worked. For example, ten hours at time-and-a-half on a $4/hr EPW would be reimbursed as ten hours at $6/hr, not fifteen hours at $4/hr. This would be readily enough policed, as the records of GSW disbursements would include the total hours compensated for each taxpayer, allowing ready detection of instances where the hours reimbursed exceed forty in a given week.

What are the tax implications?

These would have to be hammered out, but I envision GSW and EPW would be taxed identically at all levels, federal, state and local. That way, as long as tax regimes are rationally constructed from the perspective of avoiding negative marginal net income, definition of an AMW curve that also avoids negative marginal gross income is more straightforward.

One of the big questions is of jurisdiction: if someone living on the eastern edge of California commutes to a job in Nevada, who pays the GSW and to whom does the employee pay tax on the GSW? While all sorts of games could be played to try to engineer the incentives, I think the most straightforward scheme is for the GSW to be paid by the jurisdiction of the employer, and for the tax on the GSW to be paid to the jurisdiction of the employer. I’m definitely not an expert in this area, though.

How would you pay for this?

In theory, the money would be freed up by a combination of reduced utilization and tightened eligibility criteria of other programs such as unemployment and SNAP. I haven’t attempted to run any of the numbers, so this theory could easily be flawed. As a first, rough approximation: if I understand correctly, a common unemployment compensation rate is 75% of the pay received at one’s last job. So, as long as the average equilibrium EPW is at least about 25% of the current minimum wage, the overall GSW outlay should be no more than the current unemployment benefits expenditures.

What about fraud? Couldn’t someone just …

Yep, of course there’s a fraud risk. Satisfying Objective 4b (having employers play by the rules) without obliterating Objective 3 (keeping government entanglement to a minimum) is probably the biggest challenge for any system like this. One wants to keep the system streamlined, while also putting in place appreciable disincentives to the low-hanging fruit modes of fraud.

Frankly, I don’t have any magic-bullet ideas, but here are two suggestions:

  1. Add a cost to the preparation/submission of the pay stub to the AMW Office, either by setting a price for the paper forms or for an electronic submission ($5/form, perhaps). The amount would need to be small enough relative to the the average expected EPW paycheck not to discourage employers from hiring at low equilibrium wage rates, but high enough that bulk submission of forms would be disincentivized.
  2. Require registration with the AMW Office on the part of any employee wishing to receive a GSW, using systems approximately similar to those for unemployment benefits, SNAP, etc. Alternatively, perhaps a model more similar to driver’s licenses would be appropriate. Regardless, the idea would be to require a periodic, infrequent, affirmative action of appreciable inconvenience on the part of the employee in order to be eligible to receive AMW benefits.

Ultimately, as long as there’s no reason to expect dramatically more fraud under an AMW regime than in the present arrangement, I don’t really care about a neatly fraud-proofed system. No matter the system, some people will find the cracks; the task is simply to make the effort of exploiting them sufficiently difficult so that the brightly-lit path of proper participation is the rational choice. I’d advocate for each state/locality to implement AMW an experiment with its own fraud-management approach, with more successful ideas spreading as their efficacy is demonstrated.

Any last words?

The core idea of the Alternative Minimum Wage is changing the paradigm from government paying people not to work, to instead paying people to work. Regardless of the direct fiscal effects of the GSW payments themselves, a sea change in the incentive structure that (hopefully) results in more people in the workforce should bear significant, positive societal returns.

What do you all think? Is this a decent idea, or am I blind to some glaring flaws, loopholes, or political poison? I’ll keep track of revisions to my thinking based on comments in a Google Doc.

Published in Culture, Domestic Policy, Economics
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  1. Yeah...ok. Inactive
    Yeah...ok.
    @Yeahok

    The minimum wage is hooey. Do not agree to the assertion that being a productive employee 40 hours a week should yield enough income to accomplish some other task (e.g. food, shelter, beer, diapers etc).

    Eliminating minimum wage is my windmill today.

    • #1
  2. BrentB67 Inactive
    BrentB67
    @BrentB67

    Great. Another program that confiscates the private property and earnings of individual citizens, adds debt burden to our posterity, and transfers the funds to other individuals.

    The problem isn’t that we have poor managers of the federal welfare state The problem is its existence.

    • #2
  3. Salvatore Padula Inactive
    Salvatore Padula
    @SalvatorePadula

    Your AMW proposal seems to be very similar to the tax credit system employed by Britain to subsidize low-wage employment. Until last week, when George Osborne bowed to the political unpopularity of doing so, the Conservative government had sought to eliminate the program as part of its welfare reductions.

    • #3
  4. Eric Hines Inactive
    Eric Hines
    @EricHines

    One thing that is routinely not addressed in discussions of minimum wage laws is the question of who owns a man’s body and the product of that man’s labor.

    If we accept the premise of our founding documents that the man owns his own body and that same man owns the product of his labor, then minimum wage laws provide their own internal contradiction (I’ll ignore, here, the explicitly racist rationale for originally making minimum wage a national thing and the functionally racist outcome of today’s minimum wage laws): they prohibit one man–a prospective employee–from offering his labor at a rate satisfactory to him, they prohibit another man–a prospective employer–from offering the product of his labor at a rate satisfactory to him, and they prohibit the two from negotiating between themselves to arrive at a mutually agreeable rate of exchange for those two items.  Minimum wage laws, in their essence, say men are just too stupid to arrive at their own arrangements; we need our Betters to dictate these outcomes to us.  Those Betters are asserting a measure of ownership over each man’s body and over the product of his labor.

    Of course, there will be folks at the margin for whom a mutually agreed labor exchange rate won’t provide enough wherewithal for the employee to survive–to buy his daily bread.  There are a couple of things about this.  The “survivable wage” mantra is, in the main, a false claim.  Most (not all, to be sure) minimum wage (here, I mean more broadly lowest wage, not merely legal minimum) workers are not in the (or a single) minimum wage job for survival; they’re in it as first-time workers picking up some extra money, gaining work experience, building work ethic, and so on, and/or they’re in it to supplement an already existing family income.

    The other thing concerns those for whom such a job is their sole means of support, and it’s not enough.  Regarding this, Skinn suggests what I take to be one of his underlying assumptions:

    Once upon a time, private institutions such as churches or charities might have served such a role, but today the public acceptance of a government-mediated ‘safety net’ has significantly diminished the role of such organizations.

    This is a false premise as Skinn, using it as an excuse for a government-mediated solution, seems to take the current situation as uncorrectable back to private economy solutions.  For those in a low/minimum wage job whose income is insufficient for survival, local resources–church, charity, community–are the first and usually sufficient lines of support.  Certainly it will be hard to return to that from the current welfare regime, but hard means possible.  And, it’s what much of the last three elections have been about, with considerable progress (albeit strongly incomplete) made, and it’s what the next several elections will be about.

    (2) transferring the burden of providing a ‘living wage’ to a government mechanism that (3) doesn’t dramatically further entangle the labor market with government intervention….

    Government–not just the present administration, but government in general–is incapable of doing anything as efficiently as a free market, private economy.  It’s one of the reasons our Founders designed a government structure that had the central government outward looking and left internal affairs to the member States–each to see to its own affairs as its citizens saw fit, with each State government closer to its citizens and so more controllable by them.  “Doesn’t dramatically further entangle…” also doesn’t unwind the existing government intervention, and so again leaves the thing fatally flawed.

    …providing incentives (a) for employees to work, to gain skills and to improve their market labor value and (b) for employers to abide by the rules….

    This is just cynical.  It assumes folks prefer freeloading, don’t want to better themselves and, employer or employee, prefer to cheat.  Some will evince these failings, but it’s been my observation that these are in a tiny minority; most want to do better–and that includes playing by the rules.  Especially if the rules are kept simple, with a paucity of exceptions.

    1 Employers hire employees at whatever wage rate they wish and pay them for their hours worked.

    2 Employees take their pay stubs showing hourly pay and non-zero wage rate to the “Alternative Minimum Wage Office” for further compensation up to the AMW, as illustrated below.

    In other words, no mutual negotiation.  Too, where is the incentive for the employer to pay anything at all other than a non-zero nominal penny, so the employee can take his paystub down to the Government Man and collect his government increment?  After all, both employer and employee have been defined as too cynical to act “properly” on their own.  Indeed, the proper response for the employer–his fiduciary duty both to himself and to his shareholders and partners–is to maximize his company’s profits, which must include minimizing his company’s costs–to pay as little as possible.  There is, after all, Uncle Sugar to pick up the slack.

    Eric Hines

    • #4
  5. Could be Anyone Inactive
    Could be Anyone
    @CouldBeAnyone

    The earned income tax credit already exists and more or less does this. A minimalist solution to this issue that would garner the support necessary from the left would be to eliminate the federal minimum wage. Such a dilution of federal power might garner enough support as it allows the left to take the chance of showing whether their minimum wage is superior.

    Ultimately the issue is that the left created a left wing style state over a century by adding on regulation, program, and law piecemeal with cultural backing and then blamed the prior and non existing system as justification for continuing on with their scheme. As conservatives we need to win back the culture and repeal, not replace, the leftist welfare state. The state has no reason for regulating wages, it’s a contractual phenomena and there are no rights to getting sustenance. When you repeal those laws and lower the taxes then people will be able to give more and that is truly moral, whereas the state is simply compelling people to help others by giving it to the state (it’s both amoral and is inefficient since you have the government as the middleman).

    Edit: Hines pretty much explained my points in detail…. and beat me to the punch.

    • #5
  6. I Walton Member
    I Walton
    @IWalton

    The minimum wage could  be eliminated; all price controls eventually must end.  Now that liberals are going crazy and raising it to levels where it really matters, ending it should happen more rapidly.  If we institute this alternative we’d have to eliminate all welfare to pull people off the dole.   However, we always lose when we try to fix government programs by making them less harmful.    First we lose the philosophical argument, then we lose control of a system that will prove popular with employers and welfare beneficiaries, alike.   There would be no going back and the incentives will be to raise the parity wage over time.

    • #6
  7. Brian Skinn Inactive
    Brian Skinn
    @BrianSkinn

    Eric Hines: This is a false premise as Skinn, using it as an excuse for a government-mediated solution, seems to take the current situation as uncorrectable back to private economy solutions.

    Not quite. I don’t envision this as a permanent solution, merely as an initial, politically viable step back toward a more economically sane system:

    Brian Skinn: Thus, while I (and I assume many others) would prefer a non-governmental solution, practically speaking I believe that only a government-mediated approach is likely to gain sufficient traction to actually be implemented in the present political environment.

    With or without AMW, if the social/political environment were to shift such that a transition back to fully-private mechanisms were popular, I would fully support it.

    • #7
  8. Brian Skinn Inactive
    Brian Skinn
    @BrianSkinn

    Eric Hines: The “survivable wage” mantra is, in the main, a false claim.  Most (not all, to be sure) minimum wage (here, I mean more broadly lowest wage, not merely legal minimum) workers are not in the (or a single) minimum wage job for survival; they’re in it as first-time workers picking up some extra money, gaining work experience, building work ethic, and so on, and/or they’re in it to supplement an already existing family income.

    Completely true.

    But, this is not the perception (it appears, anyways) that the public has of the issue. Regardless of the actual statistics of how many people truly rely on minimum wage to survive, the (presumably stubborn?) perception is that the number is appreciable.

    • #8
  9. Brian Skinn Inactive
    Brian Skinn
    @BrianSkinn

    Eric Hines: This is just cynical.  It assumes folks prefer freeloading, don’t want to better themselves and, employer or employee, prefer to cheat.  Some will evince these failings, but it’s been my observation that these are in a tiny minority; most want to do better–and that includes playing by the rules.  Especially if the rules are kept simple, with a paucity of exceptions.

    I appear to have worded this part poorly. My intent was not to impugn the employees’ integrity, but instead to highlight the perverse incentives of many present transfer payment programs, where hard cutoffs of benefits lead to locally negative marginal income (e.g., where getting that $0.50/hr raise means lost eligibility for SNAP, leading to a net loss of income).

    Eric Hines: Employers hire employees at whatever wage rate they wish and pay them for their hours worked.

    definitely worded this part poorly.  Instead of “they wish,” please read instead “to which they mutually agree”.

    • #9
  10. Brian Skinn Inactive
    Brian Skinn
    @BrianSkinn

    Could be Anyone: The earned income tax credit already exists and more or less does this.

    Good point.

    Is anyone on the Right using this as the core of an argument to eliminate the minimum wage? If they did, do you think it would be well-enough received politically to enable repeal of the minimum wage?

    • #10
  11. Brian Skinn Inactive
    Brian Skinn
    @BrianSkinn

    I Walton: However, we always lose when we try to fix government programs by making them less harmful.    First we lose the philosophical argument, then we lose control of a system that will prove popular with employers and welfare beneficiaries, alike.   There would be no going back and the incentives will be to raise the parity wage over time.

    I know — this makes me leery of adding anything new, too.  That’s why any implementing jurisdiction would have to make a strict substitution for a statutory minimum wage.

    Of course, is there any realistic chance of an implementing law being passed that would impose this requirement strictly? Probably not…

    • #11
  12. Casey Inactive
    Casey
    @Casey

    This seems to suffer from the same flaw that our current minimum wage circumstance suffers from.  That is, a confusion about money and value.

    A thing is worth what it is worth.  The numbers assigned to that worth are essentially arbitrary.  Using your graph, if an employee is worth $11, then I, the employer, would need to pay $5 to attract the $11 employee.

    Today, in our current system, we might say that $11 value is now called $15.  In this case we’ve pegged the number 15 to value X and held it constant.  Every other price must adjust until balance is achieved.  At that point 15=11.

    In a market, it just adjusts to $11.

    All these schemes do is build a Rube Goldberg contraption around the $11.

    • #12
  13. Eric Hines Inactive
    Eric Hines
    @EricHines

    Brian Skinn:

    Could be Anyone: The earned income tax credit already exists and more or less does this.

    Good point.

    Is anyone on the Right using this as the core of an argument to eliminate the minimum wage? If they did, do you think it would be well-enough received politically to enable repeal of the minimum wage?

    Rubio, whose overall tax reform proposal has much to recommend it and would be a net improvement over the current code (as would any of the Republican candidates’ more or less clearly outlined tax reforms, each with its own flaws) has the flaw of an expanded EIC.

    James Pethokoukis wants an EIC, too.

    Eric Hines

    • #13
  14. Brian McMenomy Inactive
    Brian McMenomy
    @BrianMcMenomy

    Brian Skinn:

    Could be Anyone: The earned income tax credit already exists and more or less does this.

    Good point.

    Is anyone on the Right using this as the core of an argument to eliminate the minimum wage? If they did, do you think it would be well-enough received politically to enable repeal of the minimum wage?

    Not specifically to eliminate the minimum wage, but pushed as an alternative to an increase in the minimum wage.  See Arthur Brooks in “The Conservative Heart”.

    • #14
  15. Merina Smith Inactive
    Merina Smith
    @MerinaSmith

    There should be an exception for teen-aged, first-time workers.  They wouldn’t need to collect the AMW, but it seems like that would be pretty easy to do.  The rare teen-ager who is supporting him or herself could file for the benefits.

    • #15
  16. BrentB67 Inactive
    BrentB67
    @BrentB67

    Eric Hines:

    Brian Skinn:

    Could be Anyone: The earned income tax credit already exists and more or less does this.

    Good point.

    Is anyone on the Right using this as the core of an argument to eliminate the minimum wage? If they did, do you think it would be well-enough received politically to enable repeal of the minimum wage?

    Rubio, whose overall tax reform proposal has much to recommend it and would be a net improvement over the current code (as would any of the Republican candidates’ more or less clearly outlined tax reforms, each with its own flaws) has the flaw of an expanded EIC.

    James Pethokoukis wants an EIC, too.

    Eric Hines

    That alone should be a sufficient indictment of Rubio’s plan.

    • #16
  17. JRez Inactive
    JRez
    @JRez

    Um…so, under this scenario, the Govt would “gross up” the ASW with the GSW in order to . . . . wait for it . . . . TAX the now-higher earned wage with its glorious “progressive” Federal Income Tax scheme?  Even if the GSW money distribution system and the IRS money confiscation recovery system magically functioned at zero cost [a laughable assumption if it weren’t so tragically flawed], why stop at $15 when we could GSW the wage up to $30 and tax away even more?  Certainly there’s a point at which this thing would miraculously self-fund!

    If I were a glutton for punishment, I’d go on to ask “what entity pays the employer’s share of the ‘Payroll Taxes’ on the G$W delta?” but I don’t really want the answer, so consider it unasked.

    Ponzi would be proud.

    • #17
  18. Eric Hines Inactive
    Eric Hines
    @EricHines

    BrentB67:

    Eric Hines:

    Brian Skinn:

    Could be Anyone: The earned income tax credit already exists and more or less does this.

    Good point.

    Is anyone on the Right using this as the core of an argument to eliminate the minimum wage? If they did, do you think it would be well-enough received politically to enable repeal of the minimum wage?

    Rubio, whose overall tax reform proposal has much to recommend it and would be a net improvement over the current code (as would any of the Republican candidates’ more or less clearly outlined tax reforms, each with its own flaws) has the flaw of an expanded EIC.

    James Pethokoukis wants an EIC, too.

    Eric Hines

    That alone should be a sufficient indictment of Rubio’s plan.

    Perfect is the enemy of good enough.  Don’t mistake an interim step with a final step.  There are no final steps.

    Eric Hines

    • #18
  19. Eric Hines Inactive
    Eric Hines
    @EricHines

    Merina Smith:There should be an exception for teen-aged, first-time workers. They wouldn’t need to collect the AMW, but it seems like that would be pretty easy to do. The rare teen-ager who is supporting him or herself could file for the benefits.

    No exceptions.  That includes no government mandated minimum wage at all.  Using the tax code for social engineering is not what funding government is for.  Beyond that, carving out exceptions is how we got the mendacious code we have today.  There’s always just one more essential necessity to be carved out.

    Eric Hines

    • #19
  20. BrentB67 Inactive
    BrentB67
    @BrentB67

    Eric, interim steps are fine if they are steps forward in the case of Rubio’s EITC, progressive tax scheme I do not think that is the case.

    • #20
  21. Eric Hines Inactive
    Eric Hines
    @EricHines

    BrentB67:Eric, interim steps are fine if they are steps forward in the case of Rubio’s EITC, progressive tax scheme I do not think that is the case.

    I agree with you regarding the EITC; as I’ve already noted, it’s a flaw.  But his EITC is only one component of his tax proposal which, on the whole, is a net improvement over what we have now.

    Eric Hines

    • #21
  22. PHCheese Inactive
    PHCheese
    @PHCheese

    And what is wrong with the free market. It cost no one anything.

    • #22
  23. Duane Oyen Member
    Duane Oyen
    @DuaneOyen

    Salvatore Padula:Your AMW proposal seems to be very similar to the tax credit system employed by Britain to subsidize low-wage employment. Until last week, when George Osborne bowed to the political unpopularity of doing so, the Conservative government had sought to eliminate the program as part of its welfare reductions.

    This is very much like the Lee-Rubio refundable tax credit, and AEI’s Michael Strain’s wage subsidy.  It is really the best way- and least market-intrusive- to resolve the current problem, because the market sets the wage rate, and it builds on the good sense of the EITC.  More motiviation should come from tying/limiting SNAP, Sect 8, Medicaid, etc., and other assistance to the workfare provisions.

    Wage subsidies, absolutely linked to other reforms, really are the best solution to employment participation, financial assistance, and underemployment.

    • #23
  24. Duane Oyen Member
    Duane Oyen
    @DuaneOyen

    Eric Hines:

    Merina Smith:There should be an exception for teen-aged, first-time workers. They wouldn’t need to collect the AMW, but it seems like that would be pretty easy to do. The rare teen-ager who is supporting him or herself could file for the benefits.

    No exceptions. That includes no government mandated minimum wage at all. Using the tax code for social engineering is not what funding government is for. Beyond that, carving out exceptions is how we got the mendacious code we have today. There’s always just one more essential necessity to be carved out.

    Eric Hines

    Ayn Rand is dead, and so is the Reason Foundation’s/Mark Levin’s version of government.  People- the electorate- will get the government they demand, no matter what the ascetics yell.  Read this about attitudes toward risk and rewards.

    The first thing we need to do is to ensure that the check for the meal is served (as opposed to ever-larger deficits giving the impression of “free stuff”), and that programs follow free market principles to the maximum possible, given the situation.  We have ObamaCare now because Republican purists pretended that the demand would go away if we closed our eyes and ears really tight.

    • #24
  25. Eric Hines Inactive
    Eric Hines
    @EricHines

    Duane Oyen: It is really the best way- and least market-intrusive- to resolve the current problem, because the market sets the wage rate, and it builds on the good sense of the EITC.

    No, the best way–and the least market intrusive way–to resolve the current problem is to not intrude in the market.

    An EITC, at the very least, interferes with the free bargaining between the two men: it’ll make up for the difference between what they agree and what the work offered actually is worth, thereby destroying the incentive to fully negotiate.

    It can’t be considered in isolation, either.  All the rest of the existing welfare programs also distort the negotiation incentives.  The welfare cliff is real and devastating.  Perhaps by design; there’s votes in them thar dependencies.

    Eric Hines

    • #25
  26. JRez Inactive
    JRez
    @JRez

    Eric Hines: An EITC, at the very least, interferes with the free bargaining between the two men: it’ll make up for the difference between what they agree and what the work offered actually is worth, thereby destroying the incentive to fully negotiate.

    Indeed.  Add to that, the EITC for the recipient in this case is funded in part by extracting taxes on some portion of what man #3 (an otherwise disinterested party) and his employer (yet another disinterested party) thought they had negotiated as fair and reasonable compensation for man#3’s labor.

    With 94MM+ American’s supposedly out of work, the demand for higher entry level wages seems completely counter intuitive to market forces. You would think under the circumstances that “Labor” would in essence be the Auctioneer in a grand Dutch Auction at this point, lowering bids until a buyer (Employer) is found.

    • #26
  27. Duane Oyen Member
    Duane Oyen
    @DuaneOyen

    Eric Hines:

    Duane Oyen: It is really the best way- and least market-intrusive- to resolve the current problem, because the market sets the wage rate, and it builds on the good sense of the EITC.

    No, the best way–and the least market intrusive way–to resolve the current problem is to not intrude in the market.

    An EITC, at the very least, interferes with the free bargaining between the two men: it’ll make up for the difference between what they agree and what the work offered actually is worth, thereby destroying the incentive to fully negotiate.

    It can’t be considered in isolation, either. All the rest of the existing welfare programs also distort the negotiation incentives. The welfare cliff is real and devastating. Perhaps by design; there’s votes in them thar dependencies.

    Eric Hines

    Eric, you won’t find a soul here who does not agree that theoretically the very best solution is to let the unfettered marketplace as described by Adam Smith resolve every issue.

    That has never happened, though, since the Articles of Confederation, so the point is utterly useless.  We have to live in the world as it is, not as we wish it to be.  Show me how Reagan made things happen as you describe.  He did not- nor did he waste his time trying- either in California or Washington.

    • #27
  28. Eric Hines Inactive
    Eric Hines
    @EricHines

    Duane Oyen: the point is utterly useless.

    You can give up.  I choose not to.

    Eric Hines

    • #28
  29. EThompson Member
    EThompson
    @

    Eric Hines:

    Duane Oyen: the point is utterly useless.

    You can give up. I choose not to.

    Eric Hines

    I’m with you Eric. Minimum wages are not only harmful because they force business owners to pay too much for unskilled labor but most importantly they encourage people to rely upon McJobs to raise themselves and their families.

    I have worked many McJobs in my life as a teenager.

    • #29
  30. Casey Inactive
    Casey
    @Casey

    EThompson:

    Eric Hines:

    Duane Oyen: the point is utterly useless.

    You can give up. I choose not to.

    Eric Hines

    I’m with you Eric. Minimum wages are not only harmful because they force business owners to pay too much for unskilled labor

    This is not true. At least not after the very short term. They pay the same. This is important to understand because if we make the claim you make then we are left explaining why the facts don’t back us up.

    If we put a peg in hourly labor and say this cannot change then everything else adjusts around that peg until we reach equilibrium. Meaning it is all a big show.

    • #30
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