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Would Subsidizing Jobs Be More Conservative than the Minimum Wage?
One of the problems of working is that I often I miss interesting posts and comments on Ricochet. One of them was @katebraestrup’s Free Money! No Strings Attached from April which discussed the guaranteed basic income as an alternative to the welfare state. I’ve been thinking about welfare reform — specifically, about the new pushes for minimum wage — but wonder if there isn’t an approach that might be more in-keeping with conservative views. Mind you, everything that follows I’ve phrased in relative terms; I’m offering what I hope is a least-worst alternative, not an ideal one. So, let’s begin with what I regard as the inherent dishonesty of the minimum wage:
- It presupposes that any occupation, if plied for eight hours a day (why not six or ten) provides social value equal to a living wage.
- Since the costs of the minimum wage are generally passed onto consumers, it represents a hidden tax on those buying goods and services from companies hire minimum wage employees.
- Companies subject to minimum wage requirements often compete with foreign competitors who are, of course, not subject to our laws. This makes the minimum wage an internal tariff on domestic labor.
- The minimum wage also acts as a tariff on labor as compared to automation. Thus, apart from the supply/demand effects (higher price lowers demand, i.e., jobs), an increase in the minimum wage increases the incentive to automate jobs.
- It provides an incentive to hirer illegal immigrants.
But real and harmful as these effects are on workers and consumers, this overlooks the harm minimum wage laws cause employers. First, the laws imply that employers are too tight-fisted to treat their employees fairly without government intervention. Second, it imposes all the burdens of implementing a minimum wage on the employer (whether to raise prices, whose job to eliminate, cajoling supervisors and middle managers to stay on without a raise to help absorb the wage increase, etc.).
So, instead of setting a wage floor, what if we subsidize job creation? To keep numbers very simple, if the employer pays $12.50 an hour ($500 a week), he or she receives a tax credit of $10 an hour. Cost-wise, this is a comparable to Kate’s suggestion of paying $20,000/year to everyone, except: (a) Nobody gets paid without working and (b) The work has to produce a value of at least $2.50 an hour plus the employer’s overhead and ROI.
Such a system could get the attention of a big demographic the Right has been struggling with: when you’re living at the margin, there is a strong incentive to listen to those telling you the system’s rigged so the government needs to look out for you as opposed to those telling you that jobs don’t grow on trees. Subsidizing employers to pay a minimum wage might clear enough space to get some of these messages across:
- If you want more of something (job) you should pay people to produce it. If you raise the price of something (jobs via the minimum wage) you get less of it.
- Income isn’t a birthright. You must earn income by providing something a greater value to others.
- The creation of real jobs requires real creativity. (No president as ever “created” a private sector job, except jobs needed to comply with federal regulations.) Someone has to figure out what people value and how to get it to them at a price they’ll pay. The tax credit recognizes the social value of this creativity.
- The subsidy is a transparent tax and wealth transfer, rather than a hidden tax like the minimum wage.
To top it off, this could help us do away with most of welfare (we’d keep social security to deal with those who cannot work; easier said than done, I know).
I realize those creative enough to create jobs could also find ways to milk a new system, so there’s a risk of fraud and abuse. But my question is one of direction rather than details. Could this be a better path for conservatives to work on, rather than just trying to cut entitlements?
Published in Domestic Policy
I think it is important for conservatives to stop politically qualifying responses. There is right and wrong. When we tread into what is realistic or politically possible we inevitably surrender to the wrong answer.
It is always easy to promise some benefit, program, subsidy, or set aside, and call it realistic or politically feasible. That doesn’t make it any less harmful.
Nobody ever promised that being conservative and/or doing the right thing is easy, only that it is worth it.
Talking about what is politically possible is a valid discussion point. I think Reagan said that he’d rather get 80% of what he was after than nothing at all.
Mind you, I am more sympathetic to your viewpoint. Mainstream Republican tactics have been atrocious as of late, and government keeps growing (as it did under Reagan, just slower).
If we don’t deal with what is politically possible then we are just spitting into the wind.
I don’t discount that. 1950s boom represented a time when you could afford a mortgage, cars, education for kids, and nest-egg off of paycheck. And even lots of those people never saw the end pension promise once corporations began to swallow each other whole. Truth is, I’m not even sure where our currency value is totally located. This was the chief complaint of the Free Silver and Bimetallism advocates of the late 19th century. Our last “Panic” ran into the Great War, and since then: the dollar, our debt, inflation has been irrevocably entangled in nation building.
These concepts bum me out, so I tend to work from the model that I feel I can control–which is spend and endorse locally.
This part confuses me a bit. $10 an hour per employee is some serious cash when summed over the entire country. What will keep the Feds from raising corporate taxes to cover the shortfall in tax revenues – effectively wiping out any benefit to the employer?
Nobody so far has pointed out what I think is the most morally reprehensible part of the minimum wage, which is also shared by your proposal: that it strips low skill workers of their ability to negotiate a wage less than the federally mandated minimum. Or, in your case, less than the wage required to seek the rent provided by the federal government. This harms these low skill workers because choosing to work for less money is simply the only leverage they have to bring to a negotiating table.
Note also, that the assumption that “The work has to produce a value of at least $2.50 an hour plus the employer’s overhead and ROI” is incorrect, because you are leaving out the cost of seeking the rent from the federal government (creating a job that would otherwise not exist, search costs to fill the unnecessary job, additional paperwork to collect the subsidy, etc). which when aggregated over the entire economy is probably several times larger than the amount of money distributed.
Finally, I think that the creation of jobs just for the sake of handing them out to people is not something that needs to be incentivized. There is plenty of real work to do, and doing real, productive work is where the dignity of working comes from. Where is the dignity in being paid $12.50/hr to dig a ditch and fill it back in so your employer can collect corporate welfare?
I see a lot of people hiring their friends and relatives for $10/hour and pocketing the free government money.
This specific program was tried in the early 1990s. The tax credits don’t work, and to some extent backfire. It was one of the few welfare policies implemented randomly specifically so it could be studied. First, the employers don’t want to go through the paperwork to claim the credits. Second, they figure anyone who needs the tax credit must have something wrong with them (otherwise they wouldn’t need the tax credit). While not determined in the study itself, there’s also the problem that the tax credit is long-removed from the actual work, so it causes cash-flow problems.
The idea, however, is not without merit. The same studies indicated that if you pay people to work, and don’t pay them not to work, that people work more. This led to work requirements and the development of the Earned Income Tax Credit -both of which have been demonstrated to work fairly well.
As a result, the better solution would be something like a monthly EITC -direct wage subsidies to the worker. It’s cheaper and better than the existing welfare state, and plausibly would serve more people, better, and further encourage them to work and improve their skills to get promoted and eventually leave the welfare system entirely.
Move on to what? That’s the real question. A whole lot of males (probably a majority) have no interest in sitting in an office pushing numbers around on a spreadsheet (work which will be subject to increased automation in the future as well).
The days of any form of work suitable for large swaths of people may be numbered. From what I’ve read, truck driving is the number one occupation among males in this country. At some point in the not-so-distant future, that will be gone due to automation. Uber is pioneering driverless cars. Some people believe that white collar work is even more susceptible to automation than much blue-collar work. Sure, this will spawn different work in the future, but that work is likely to involve higher level cognitive skills, something that is probably not within the abilities of much of the population and not within the interest of others. It’s hard to see what may come in the future, but it’s likely that overall, smaller numbers of people will do increasingly well and larger numbers of people will struggle. That’s not a recipe for domestic tranquility the way society is currently configured.
The hope is the elimination of welfare would completely cover the cost. Although my fantasy would be to impose a surtax on entertainment professionals, who exploit the “privilege” of their attractive appearance and talent for windfall profits.
But I’ve been intentionally vague about the scope of the credit. Should it only be for hourly employees? Should the self employed receive the credit directly? Should it phase out, so highly paid employees aren’t offset with credits? (Although this would create a disincentive to give raises.) Fiscal realities (like political realities) are important, and might sink the concept. But at this point, I trying to explore whether this might be a better direction and help shift the narrative to sensible economic concepts.
Even if it required a tax increase, this subsidy would show people what it really cost to main a wage floor, rather than the completely hidden tax of the current minimum wage.
Technically, my proposal leaves everyone free to negotiate any wage they want, but below $12.50 an hour the wage would be entirely unsubsidized. I don’t know if this makes it any less reprehensible.
One of the few arguments for the minimum wage I find plausible is that compensates for the lack of bargaining power for those on the lowest rung. Because taking a lower wage is their only leverage, employees play beggar thy neighbor until none of them are making a living wage. If you’re too poor to move or look for better work, you’re stuck with whatever your current boss will pay you.
I’ll admit the internet, however, has greatly lowered the cost of finding another job (if you have access).
This ties to Joe P’s last point, so let me clarify. You have to pay $12.50 an hour and you have to pay taxes for this credit to create any benefit. Assuming you had other income to shelter, paying someone to dig and fill ditches would cost you a net $2.50 an hour plus overhead. So doing work that has no value is a money losing proposition.
I suppose you might hire your ne’er do well niece or nephew for whom you would otherwise set up a trust fund in order to earn the tax credit to shelter other income. But you would have to treat them as employees and they would have to pay FICA withholding at a minimum. Seems like a lot of trouble for a (net) $15,000 tax credit, but I know some who might do it.
BTW, the first $10 an hour would not be a deductible expense, because you’d already be receiving the credit.
And this all largely remains fantasy until the Agrarian Economies of the South finally get clean of the extralegal low-labor costs.
A lovely theory, slain by ugly data. Oh well.
I’d be interested in how those credit programs work. Companies don’t seem to have trouble deducting their wage expense in tax returns, and companies with hourly employees already have the hour data, so I’m having trouble seeing why it would be such an obstacle. If your company pays quarterly estimated taxes, the maximum delay is the estimated tax payment date.
These credits are for all hourly employees, so no stigma should attach to the credit.
To compete, the extralegal low-labor costs would have to fall to close to $2.50 an hour. That might help them get clean.
I think they are counting on 2.50 a day wages.
Im sorry, I feel like I just Debbie-Downered this awesome thread. The main reason I stopped considering myself a Liberal, is that Conservatives posit solutions while Liberals posit blame. Please continue educating me in economic systems and logical growth. (I mean that sincerely)
I have a friend whose stated goal in life is to disemploy everybody with the word analyst in their title.
As conservatives, we need to resist the impulse to engage in the kind of large scale economic engineering the left so loves.
We need to embrace the idea that the economy is a complex system that we cannot hope to understand, and that grand interventions always, always bring unintended consequences and almost never result in the benefits you hoped for.
Therefore, conservative welfare policy should aim to help those who are truly in need, while always being focused on having the least possible command footprint on the economy.
To that end, it would be better to simply eliminate the minimum wage, and then rely on welfare for those most in need to make up the difference. Thus, the kid trying to get a job for the first time can accept any wage, and so long as the family he is in is above the poverty threshold there will be no subsidy whatsoever. A single parent forced into a $3.00/hr job could then seek welfare from the government to help bring the overall income above the poverty line, at no point would the business who hired them know or care about those details.
Then we can look at strategies for moving individuals and families off of government assistance through work training, relocation assistance, or whatever else is needed to break the cycle of dependency.
Oh, and this should be a state government program – there should be NO federal welfare programs. Interfering in the economy is dangerous, and the scope should be as small as possible. If a policy turns out to have dangerous side effects, we would rather have one state discover it and the rest learn from the mistake than have it crater the entire US economy.
How could we remodel infrastructure into Conservative ideology. The thing is, for 13 years, we were at War, but we have never behaved as cavalierly as a Nation, like we did during Iraq. We didn’t sacrifice anything. It was all on the back of our Volunteer Military–and all that weird outsourced soldiers of fortune, Blackwater operations. Traditionally, War’s tumult offers a prosperous boon–due to rationing and increased taxes–but Bush lowered taxes during the war, excuse me, War(s).
Im not trying to justify the raising of taxes, but shouldn’t we sacrifice together s a nation when we are at War? And why do we not talk about those Wars being a huge abscess on our revenue and debt?
We don’t think about it this way, but we have a similar problem to the EU with open borders (among the 50 states) and state level assistance programs. If a state’s program starts to be successful, it attracts people who need assistance from other states. This creates an incentive for other states to scale back their assistance and free ride off the successful state.
At the limit, the most effective assistance program for an individual state would be a free one-way bus ticket to any other state of the person’s choosing.
You make some good points. But it has been studied, policy diffusion has developed a stable following. The race to bottom hypothesis, driven by fear of welfare migration finds only very mixed evidence of both welfare migration (not much occurs) and the race to the bottom. Policymakers do pay attention to borders and their neighbors, but they tend to not downwardly adjust welfare.
It’s good to know that people don’t behave like economists like to suppose. Just engaging in a little hyperbole (if that’s not an oxymoron).
It is a clever and important thought. It was sorta studied at the city/county level for voting but the concern about geography and policy diffusion between states really only took off in the 90s.
Maybe slightly.
The minimum wage only compensates those who lack bargaining power on the lowest rung who are still able to get jobs. The people who get priced out of the market entirely get no compensation at all aside from the stigma of being perpetually unemployable, which is devastating.
I appreciated this post, but it reminded me of how much more I need to read up on economics and domestic policy. Does anyone have any book ideas or thinkers that I should follow or listen or read?
Anyone a fan of Dr. Thomas Sowell and think I could get away with just reading his works?
In the 1990’s Alberta reformed its very generous welfare system, knocking about half of all recipients off of welfare. The left was apoplectic, and predicted increased violence, homeless people in the streets, etc. When that didn’t happen, they fell back on the ‘race to the bottom’ thesis, claiming that since BC had more generous welfare benefits after the change, the poor had simply fled there and we offloaded our burden on our neighbors. But BC’s welfare rolls didn’t increase.
A couple of years later, the University of Calgary did a comprehensive survey of former recipients, to find out exactly what had happened. A few went on other social programs, a handful left the province, but the large majority of people disqualified from welfare simply went back to work.
You should listen to EconTalk. An excellent podcast about economics that has been around for nearly 10 years or so. I think Sowell has been on it once; many people from George Mason have.