Blast from the Past

With minimum wages in the news, one of my old posts on the subject has been getting a lot of hits lately. Unfortunately that post is quite long and the key points come near the end — past the point where I suspect a lot of people might stop reading. So here I’m excerpting what I consider the main ideas:

1. If we’re going to transfer income to low-wage workers, it’s both fundamentally unfair and politically unwise to put the entire burden of that transfer on a relatively small segment of the population (namely the owners and customers of businesses that employ a lot of low-wage workers). The right thing, given that we’re going to make this transfer, is to fund it as broadly as possible — say through an increase in the Earned Income Tax Credit, which comes out of general tax revenues.

2. I used the phrase “fundamentally unfair and politically unwise”. I’ll expand on both points, starting with fairness. When we collectively want a whole lot of 18-year olds to form an army, do we put the entire burden of that desire on people who happen to be 18 years old, by conscripting them at zero wage? Or do we think it’s fairer for those of us who enjoy the protections of that army to bear the cost through the tax system? When we collectively want to convert farmland to parkland, do we put the entire burden of that desire on people who happen to own farms, by taking their land without compensation? Or do we think it’s fairer for potential park-goers to pay for that land through the tax system? When we collectively want to raise the wages of unskilled workers, should we put the entire burden of that desire on those who happen to employ unskilled workers? Or is it fairer for those who have collectively made this decision to share the burden?

3. Here’s, to me, the main point: The owner of your local McDonald’s employs, say, 6 low-skilled workers, who are (at least slightly) better off because he’s there to employ them. What have you done for low-skilled workers lately? Let’s suppose your best answer is “nothing”. Then, if we’re going to try to do something additional for low-wage workers, shouldn’t it be your turn, rather than the McDonald guy’s turn, to make a contribution?

4. An analogy: Some people voluntarily go out on Sundays and pick up trash in the park. If we collectively decide that we need more trash pickup, do we turn to the people who have been doing this by choice and demand that they do more? Or do we decide that maybe the rest of us should pitch in as well (either by getting out there ourselves or paying others to)? Some people voluntarily pay wages to unskilled workers. If we collectively decide that we need more wages paid to unskilled workers, should we turn to the people who have been paying wages by choice and demand that they pay more? Or should we decide that maybe the rest of us should pitch in as well (say via the Earned Income Tax Credit)?

5. Fairness tells me that the cost of a widely-supported program should not be dumped on a small segment of society, and moreover that it especially should not be dumped on that small segment of society that has already helped to alleviate the perceived problem (i.e. those who have already been providing jobs for unskilled workers) — just as the burden of increased park cleanup should not fall on a small segment of society and especially not on those who have been contributing to cleanup all along. Political wisdom tells me the same thing. It’s very easy to support programs that other people will have to pay for. But voters, like everyone else, should bear the costs of their own decisions. Letting people vote for expensive programs that “somebody else” will finance is a good recipe for getting people to vote irresponsibly.

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54 Responses to “Blast from the Past”


  1. 1 1 Josh

    I totally agree with everything you say. But I think the point you miss – and the reason you won’t convince people who don’t agree with you – is that the people who support minimum wages feel very deeply that the people you describes as low skilled workers are actually doing work that’s worth at least $15 (or whatever rate they’re arguing for). Which means that they feel their low wage reflects nothing but exploitation by their employers. Therefore in their eyes, placing all the burden on the employers is perfectly reasonable and in fact, a very good punishment for their exploitation. In this view, asking the rest of us to pay for their exploitation is actually self-evidently wrong.

    Like I said – I agree with you and don’t believe that low skilled workers are being exploited. But I bet you most people arguing for an increased minimum wage do feel that way and until you address that concern, you’re unlikely to change their mind. I bet you could write a good post describing why you think low wage workers are unlikely to be worth substantially more than they’re getting paid, and therefore unlikely to be getting exploited…

  2. 2 2 Jeff Semel

    Just as those who pay a tax do not necessarily bear the full burden of that tax, those who receive the Earned Income Credit do not necessarily enjoy its full benefit. At least part of the benefit of the Earned Income Credit is transferred to the employer in the form of lower wages. Unless, perhaps, a minimum wage is in place to keep that benefit where it belongs.

  3. 3 3 Jeff Semel

    P.S. Just noticed that Laszlo made this same point in a comment on your old post.

  4. 4 4 Harold

    I quote from my comment in that post:

    “The paper Krugman cites says the reason why minimum wage has little effect on employment is because adjustments are made as follows: reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners; and small price increases.”

    Thus the claim that the costs are transferred mainly to prices is unlikely to be true. Reductions in turnover may be a good thing – I think minimum wage jobs tend to have very high turnovers. Improvements in organisational efficiency are presumably a good thing. The first two adjustments seem to occur with little or no cost. Reductions in wages of higher earners – presumably this has a very similar effect of a tax, higher earners pay the price either way. This leaves us with only a very small price increase.

  5. 5 5 Dave B

    I don’t think that the analogy with the voluntary trash collectors quite works. The trash collectors are presumably (at least to some extent) shouldering the burden for the common good. The employers on the other hand are presumably not providing jobs for the common good, but because they get something out of it – namely the work that they want done.

    I don’t disagree with your overall argument however.

  6. 6 6 Kirk

    Comment 1 and the post do a lot to convince me that we should eliminate BOTH the minimum wage and the EIC. The mere idea that an argument like comment 1 is valid (and it is) highlights the absurdity of government involvement.

  7. 7 7 Daniel

    @1 and 5,

    I think we should replace both the minimum wage and the EITC with a minimum income system (Or at least I believe we should run an experiment with say 100 people in the experimental group and 100 people in the control group). Most economists assume that this would lower labor supply at the bottom end and they’re probably right but at least some evidence suggests that the effects are quite small. See mincome. The problem is that it was only a 4 year study, so we don’t know the longterm effects of setting an income floor. I generally agree with Steve that the burden of helping the poor should not fall on those that choose to employ them, but as commenter 1 points out, they definitely shouldn’t be rewarded for it. That’s why I think we owe it to ourselves to test alternative welfare systems (similar to mincome). Since the extra income is not dependent on employment (at least in theory) this would not be subsidizing employers, neither would it be forcing them to shoulder the burden of helping the poor. If the effects on longterm labor supply prove to be quite small, I’d agree to dismantle much of the government’s bureaucracy in favor of just transferring money directly to the poor.

  8. 8 8 Daniel

    Also, Steve, what charity do you use to transfer money to Africa (you said in a previous post that you’d rather spend your money helping the poor in Africa than helping the poor in the US)? This is a serious and not a sarcastic question. I’m asking because I often want to donate but haven’t spent the time or effort to research which charity programs provide the greatest impact and waste the least, in the transfer. I know it can sometimes be quite tricky since many nonprofits eat a lot of the donations to pay their own employees. Do you have any suggestions? Let me know if you’d rather me pm this question.

  9. 9 9 darfferrara

    If you think that “we” can collectively make a decision to transfer money to a group, I don’t know why “we” can’t collectively decide to take it from anyone that “we” wish, regardless of what you consider fair.

    For clarification, I don’t think that there is any reasonable way for a collective “we” to make a decision (Arrow’s Theorem, and all that).

  10. 10 10 ESM

    I don’t agree with SL’s argument at all here. Employers aren’t hiring minimum wage workers out of the goodness of their hearts; employers are benefiting from the relationship, as are the employees themselves.

    If society wants to supplement the incomes of low-wage workers with various things like a negative income tax, I’m all for it (up to a point of course). Perhaps the employers receive an indirect benefit from such a supplement, but it’s arguably non-existent. In fact, the social safety net we have put in place probably puts upward pressure on wages, since it has become a viable option to sit at home and do nothing, or at least work fewer hours than one would need to without subsidies.

    The best argument against the minimum wage is that it prevents win-win contractual relationships from happening. Isn’t it interesting that there is a minimum wage of $7.25 (and much higher in some states), yet unpaid internships are legal? Hell, you actually have to pay money to be allowed to work in college or graduate school.

  11. 11 11 RPLong

    Point #3 is simply excellent!

  12. 12 12 Draco

    @Daniel #7

    There is a very good case to be made for a guaranteed jobs program vs. unemployment compensation or welfare payments. Warren Mosler has been promoting this for years, as has Randall Wray and some others. The federal government becomes the employer of last resort, guaranteeing a job at a rate of pay that affords a sufficient means to maintain a tolerable standard of living. This becomes one of the main “automatic stabilizers” that kicks in to ameliorate recessions. When the economy picks up, people go from picking up litter or cutting fire breaks for the Feds back to more productive labor (as determined by the semi-free market). I think it’s a very reasonable solution that is likely to have fewer ill effects than what we are currently doing, which is encouraging people to get a low pay job for a few months and then quit or get themselves fired and get paid to sit on the couch and watch TV.

  13. 13 13 Andy B

    Re point 3, in the previous post you argue that if I buy McDonalds hamburgers then it is in fact me, and not the owner, that bears the burden.

  14. 14 14 Harold

    If there is no minimum wage, then employers should pay the product of labor – lets call this the actual wage. However, there is some cost to employees in switching jobs, and it takes time for the employer to fill vacancies. If the employer offers the actual wage, they will find that they always have vacancies. They must therefore either run understaffed, or pay above the actual wage. Either will have a cost, so it is likely that they will operate at least to some extent understaffed. Imposing a minimum wage may therefore result in higher employment.

  15. 15 15 miko

    @Daniel#8

    http://www.givewell.org/

    they do some good work on this stuff

  16. 16 16 Steve Landsburg

    Andy B:

    in the previous post you argue that if I buy McDonalds hamburgers then it is in fact me, and not the owner, that bears the burden.

    In the previous post, I was accepting for the sake of argument Krugman’s assertion that a minimum wage will have a negligible effect on employment, in which case it follows that all of the burden is passed to the consumers in both the short run and the long run. Without that assumption, the burden is shared between consumers and producers in the short run, and falls more heavily on consumers in the long run.

  17. 17 17 Jimbino

    Your point 5 concerning Fairness is most interesting.

    If the problem is global warming, it is the childfree who have been aiding the solution by not breeding. It is the breeders, however, who are heavily subsidized by funds stolen from the childfree through our skewed tax code.

    But what makes that even worse as opposed to, say, welfare or negative income tax for the disabled or homeless, is that the breeder is prodded to stay home and breed even more, exacerbating the problem.

  18. 18 18 nobody.really

    I largely share Landsburg’s views, and much of the other views stated here.

    1. If society wants people to have higher wages, society should bear the cost.

    2. If an employer is “exploiting” workers to pad his own profits, society recoups a share of those padded profits in the form of taxes. But if society-wide exploitation drives down wages for everyone in an industry, society should expect to recoup those benefits through lower prices. Either way, the benefits to society should help offset the costs society might choose to bear for an EITC or mincome.

    3. However, for many people, opposition to government spending is a religion. These people help drive government into adopting policies that conceal their true costs – such as minimum wage laws. Face it: increasing explicit wealth transfers to poor people is a non-starter in the Republican-controlled House. Thus, I can agree with everything said here and still favor increasing the minimum wage, because that’s a politically viable policy option, whereas an expanded EITC isn’t.

  19. 19 19 Daniel

    @ Draco,

    There may be some merit to this, but I still would like to test how a minimum income welfare system would fare. The problem with many welfare systems of our times (EITC excluded) is that you lose a dollar or more of benefits for each dollar that you lose. I think this encourages people to stay at the bottom since there is no benefit to their work. If instead they were returning something like 33% of their minimum income it would reduce the incentive to remain in the welfare system. I think most people want to work and contribute, I just think our system has so many disincentives to work built in, and the alternative of a minimum income system would reduce some these incentives.

    The reason I’m more hesitant about your system is that it would require a large bureaucratic overhead to run, and maintain and find worthwhile things for them to do. And how would you say when the labor market turned and start cutting them off from a job? You’d still leave a lot of desperate people. Whereas the system I’m proposing could be built into the existing structure of the IRS, would require minimum upkeep, and would allow those at the bottom to decide where best to allocate their own resources.

  20. 20 20 Ahmed

    >> What have you done for low-skilled workers lately? <<

    I ate at McDonalds. I also shopped at Walmart.

  21. 21 21 Daniel

    @miko,

    Thanks for the great link. I’ll look into this!

  22. 22 22 Kirk

    Someone pointed out to me that the relatively small number of people (employees and customers of businesses that employ large numbers of low wage workers) is pretty much everybody.

    Am I missing something?

  23. 23 23 henri hein

    @Daniel,

    Also check out http://www.worldbicyclerelief.org/. It’s specifically providing bicycles, but I’m a fan of their work.

    http://travelingatomist.blogspot.com/2013/09/buy-bicycle-for-african.html

  24. 24 24 Henri Hein

    @Harold #14:

    This sounds so thin it seems you must be mischievous.

  25. 25 25 Kirk

    As a Super Tax Genius I can also say that the EIC, as stupid as it sounds, acts as a maximum wage for many employees.

    In 2012 for a single parent of two children this was #17,100 and there are many people who target that income.

  26. 26 26 Floccina

    I agree with you but to play teh devil’s advocate…

    1. If we’re going to transfer income to low-wage workers, it’s both fundamentally unfair and politically unwise to put the entire burden of that transfer on a relatively small segment of the population (namely the owners and customers of businesses that employ a lot of low-wage workers). The right thing, given that we’re going to make this transfer, is to fund it as broadly as possible — say through an increase in the Earned Income Tax Credit, which comes out of general tax revenues.

    Some might say that it is much better for poor people to think that they are earning their income (minmumn wage) rather that understanding that they are receiving welfare like with the EITC. In my experience it is the low income worker who complains the most about the welfare system but the EITC might make them understand that they are welfare recipients and change them into people actively seeking more handouts.

    My Sicilian grandmother used to tell us how they would cook a little old meat fat in a pan to make the neighbors think that they had meat to eat when they didn’t. They would never have taken charity. My how things have changed.

    I am a big outspoken advocate of a basic income guarantee to eliminate the minimum wage, TANF, SNAP, SS, SSDI etc. (I woudl even means test gov schools) but I do worry about this problem. Perhaps someone can think of a way to make people proud to be not on EITC.

  27. 27 27 Floccina

    Jeff Semel
    Just as those who pay a tax do not necessarily bear the full burden of that tax, those who receive the Earned Income Credit do not necessarily enjoy its full benefit. At least part of the benefit of the Earned Income Credit is transferred to the employer in the form of lower wages. Unless, perhaps, a minimum wage is in place to keep that benefit where it belongs.

    I often read people write to that effect; that the subsidies that go to the employee are also subsidies to the employer, but I cannot see a mechanism that would make that true. Perhaps you can explain.

  28. 28 28 Keshav Srinivasan

    Steve, let me ask you this: is there any conceivable government policy such that the economic incidence will fall on the producers rather than on the consumers or workers?

  29. 29 29 Daniel

    @ Floccina 27,

    I think the idea is, that the EIC shifts the labor supply curve to the right, since now more workers are willing to work at lower direct wages. Depending on the elasticity of the labor demand curve determines how much of credit the employer captures from the EIC. Sorry if this is incorrect, my quick and dirty explanation on the run.

  30. 30 30 Daniel

    @ Floccina,

    For example if the labor demand curve is vertical then it has a minimal effect on employment and all of the wage increase will go to the employer, right?

  31. 31 31 Steve Landsburg

    Keshav:

    Steve, let me ask you this: is there any conceivable government policy such that the economic incidence will fall on the producers rather than on the consumers or workers?

    I don’t understand the distinction between “producers” and “workers”.

    If you’re asking whether there’s any conceivable policy such that the economic effects fall on the owners of firms, the answer is sure: Execute everyone who owns a firm.

  32. 32 32 RichardR

    I agree with a lot of the arguments made. However there are couple of parts of point 1 with which I disagree. Firstly it is claimed that the cost of the minimum wage falls “on a relatively small segment of the population”. However I don’t think this is true because I think most people are customers of stores, like fast food outlets, that might hire people on “low” wages. Secondly it is argued that it is right to “fund it as broadly as possible — say through an increase in the Earned Income Tax Credit, which comes out of general tax revenues”. However in reality the vast majority of tax revenues come from a small section of the population. In the UK the richest 1% pay 30% of income tax. My guess would be that in America the richest pay a huge share of tax revenues too. Therefore funding increases in low paid workers’ wages from general taxation might mean that the burden falls on a smaller section of society than funding it through minimum wage laws.

  33. 33 33 Hamish Atkinson

    All of us are customers of firms that pay minimum wage employees, especially people on minimum wage. In fact, I would guess that people on minimum wages spend a larger proportion of their income at (for example) Walmart or McDonalds than the median taxpayer.

    Thus, as a method of improving the real income of unskilled workers, the minimum wage is inefficient. It causes a feedback loop that increases the prices of the things unskilled workers buy, which makes it necessary to pay a higher minimum wage.

    It is important to keep the prices of the items the poorest spend their income on as cheap as possible, as this reduces the cost of the social transfer required to avoid poverty (and enables the rest of us to live cheaply if we choose to forgo luxuries, perhaps to spend our money on a college education, or start a business).

  34. 34 34 Eri

    As a small business owner, I wish I could afford to pay my employees and myself 5x the minimum wage. But in this economic climate, that would bury my business. They work hard and they deserve every bit of what I can afford. But if minimum wage were to go up to $15 an hour, I would have to let some of them go and the ones left would have to work harder to keep up. Prices on my products and services would go up potentially causing me to lose some customers. This would put my business and the rest of my employees jobs in jeopardy. Just because someone is an entrepreneur and has some ambition does mean they are made of money. If you don’t like what your getting paid, gain a skill or two and work at a job longer than 6 months. When my workers have a skill that can’t easily be replaced, they become more valuable to me. I will pay more to keep them on my staff and away from my competition. Its pretty simple.

  35. 35 35 Jeff Semel

    @Floccina 27

    I often read people write to that effect; that the subsidies that go to the employee are also subsidies to the employer, but I cannot see a mechanism that would make that true. Perhaps you can explain.

    Daniel (29 and 30) is right. The incidence of a tax (or subsidy) depends on the elasticity of supply and demand.

    David Friedman posted a very accessible
    explanation on his blog. Easy to read for those of us who were not econ majors.

    I appreciate the attitude of your Sicilian grandmother.

  36. 36 36 Dan

    The analogy in the post is not very good. The owners share in the benefits of worker productivity, unless the workers fully capture all the surplus. A better analogy would be people who have a fetish for collecting garbage on the streets and asking them to do it on days inconvenient for them.

  37. 37 37 nobody.really

    [I]s there any conceivable government policy such that the economic incidence will fall on the producers rather than on the consumers or workers?

    Consider a tax on one type of good/service but not on substitutes. If government imposed a tax on Coke, but not Pepsi, owners of Coke would be constrained from passing through this tax to consumers for fear of driving them to buy Pepsi. And they’d be reluctant to cut the compensation of workers lest they also drive them to quit and go work for Pepsi. With such a tax, owners would likely take the majority of the hit.

    I hope you recognize that such a tax seems unfair. Typically the goal of taxation is to spread the burden of financing government services broadly. And the more broadly a tax burden is spread, the more of the cost will be passed through to consumers as a part of the cost of doing business – because it IS a general cost of doing business. In public finance terms, this pass-through property is not a bug, it’s a feature.

    Nevertheless, uneven tax burdens do arise in practice. When one jurisdiction imposes a sales tax which is larger than a neighboring jurisdiction’s tax, firms operating near the border of the jurisdiction with the lower sales tax may end up eating the difference for fear of driving consumers to the other jurisdiction’s firms. Thus, a higher gas tax in NY than NJ may prompt consumers to fill up in NJ – unless the NY gas stations eat the price difference. A higher tax on yachts in the US might prompt yacht makers to eat the tax for fear people would simply buy their yacht elsewhere and sail them to the US. If Walmart successfully engages in illegal union-busting activities, but rival firms don’t, those rival firms may need to eat any increased labor costs that result. The fact that many jurisdictions don’t collect sales tax on internet sales means than firms competing with Amazon – a growing list – must eat the cost of sales tax or die. Many opt for die.

    Government also imposes fines on firms on a non-uniform basis. BP will pay a $4.5 billion fine for the Deep Water Horizon screw-up, but will likely not be able to pass through those costs to consumers unless it has sufficient market power. (Presumably BP already derived its compensation in the form of lower operating costs it incurred while cutting safety corners.)

    And consider once again the idea of the minimum wage. Imagine that you’re a mom & pop fast-food competing with McDonald’s. Instead of investing in the kind of automation that McDonald’s has, you chose to simply higher more labor working at minimum wage. A hike in the minimum wage would raise your operating costs more than it raises McDonald’s’s. (What’s the possessive form of the noun “McDonald’s”?) In this case, you’d be prompted to eat the increased labor costs rather than pass them through to consumers, for fear of driving people to your competitor.

  38. 38 38 Harold

    #16 “I was accepting for the sake of argument Krugman’s assertion that a minimum wage will have a negligible effect on employment, in which case it follows that all of the burden is passed to the consumers.”

    Interesting study from the UK. The authors say that since minimum wage increases income, but does not reduce employment, there cost must go somewhere. They found no significant effect on prices, but a significant reduction in profitability. They also looked for an increase in closing down, as reduced profitability should cause some to close all else being equal. They did not find any such increase.

    http://164.36.50.178/lowpay/research/pdf/NMW_profits_and_prices.pdf

    They speculate that this apparent paradox could be explained by firms making excess profits – e.g. they were exploiting their workers, which brings us neatly back to comment #1.

    They found no evidence of price increases.

  39. 39 39 Al V.

    A married couple with one child, filing jointly, and both working 40 hours per week at minimum wage have a gross income of $30,160. They would receive an EITC of $612, boosting their income to $30,772.

    Eliminate the minimum wage, and what would their income fall to? A drop of 20% in their hourly wage drops their income to $24,128, and increases EITC to $1,576, for a total income of $25,704.

    If we are going to rely on EITC to lift people out of poverty, we will need to adjust the EITC significantly.

    Also note that this hypothetical family is not considered poor by the Federal Government, which sets the poverty level at $19,530 for a family of three. That would be both adults in the family working 26 hours per week at minimum wage.

  40. 40 40 Ken

    Josh,

    the people who support minimum wages feel very deeply that the people you describes as low skilled workers are actually doing work that’s worth at least $15

    In fact, we know that people who support minimum wage laws absolutely do not “feel” (nor think) this. If they did, they would start their own business and pay these low skill workers $15/hour. Otherwise, they believe there is $6.75/hour per minimum wage worker being left on the table.

  41. 41 41 Ken

    Floccina,

    Some might say that it is much better for poor people to think that they are earning their income (minmumn wage) rather that understanding that they are receiving welfare like with the EITC.

    So you advocate lying to citizens, particularly low-skilled/low-wage citizens? Do you or do you not believe in truth in advertising? If people are in fact receiving welfare, shouldn’t they know about it?

  42. 42 42 Patrick R. Sullivan

    Kevin Erdmann has been putting up a series of posts on the minimum wages effects; http://idiosyncraticwhisk.blogspot.com/

    ——–quote——-
    This first graph is for the entire labor force, expressed as a percentage of the labor force. What we see is that as the minimum wage was increased from $5.15 to $7.25, the number of workers at or below minimum wage increased from 1.2% to a peak of 2.8%, falling to 2.4% by the end of 2011.

    If the forecast from past MW episodes is accurate, then, over that time, we should expect that 1.4% of workers have become unemployed as a result of the MW hike and an additional 2% have left the labor force.

    I don’t find this surprising, considering the latest string of MW hikes lifted the nominal wage price floor by 40%.

    ….If this is accurate, then, not only are there tremendous deadweight losses, but, for every dollar gained in wages nearly $5 in wages have been lost by the job losers.
    ———endquote———-

  43. 43 43 Harold

    #42. I don’t know if Erdmann’s analysis is any good or not. I do know that there are a great many papers published in peer reviewed journals, and also meta-analyses of scores of papers, that do not come to the same conclusion.

  44. 44 44 Chicago Methods

    #43. There is one paper – one – from NBER that talks about the possible benefits from minimum wage. On the contrary, there are at least 3 that I’ve seen from NBER saying the exact opposite (ranging from: At worst, MW generates more poverty for low-skilled workers to, at best, it does nothing at all) – and an additional one which critiques and dismisses the paper that talked about the possible benefits.

    In the “Great many papers in peer reviewed journals” category, the papers emphasizing the negative effects of minimum wage wins.

  45. 45 45 iceman

    Daniel – I was not familiar with this “mincome” experiment you cited as an example of net societal benefits from transfers (as opposed to just people helping people)…have to say I was a bit underwhelmed by findings like ‘there are fewer work-related injuries when fewer people are working.” More substantively, I see a categorical difference between a mincome and say Draco’s guaranteed jobs, and I find it very hard to see how (in practice for sure) yours could better facilitate improving the incentive issues of welfare. And what of the psychological costs of being able-bodied and unproductive? Social stigmas (used to) serve an important function.

  46. 46 46 Advo

    Abolishing the minimum wage and relying on the Earned Income Tax Credit would give substantial undeserved benefits to employers.

    1. Higher compensation expands the available labor pool. Tacking an EITC on the market wage means that the employer has more potential workers to choose from than in the absence of the EITC.

    2. Higher compensation reduces employee turnover. The EITC saves the employer training costs and improves the overall level of experience of his workforce.

  47. 47 47 Harold

    #44 – You cite 3:1 – that is four papers. I think a much larger study would be needed to conclude anything. For me, meta analysis is the relevant approach,n as it enables the findings of papers of sufficient quality to be combined. As far as I know, meta analysis has found the effect on employment clustering around zero.

  48. 48 48 Ken B
  49. 49 49 Common Sense

    I’d posted something similar before. I’d suggest spinning it to ague with liberals using their own worldview, to suggest that the minimum wage is trying to let some of the wealthy off the hook. *If* the government is going to be involved in helping the poor (which is a separate debate, we need to take one battle at a time), then it is better for the funds to come from the general tax pool. In essence a government forced minimum wage is equivalent to a tax on those willing to hire low skilled employees, which is merely given directly to the employees rather than passing through government’s hands first. That tax then doesn’t fall much on those that mostly employ high wage lawyers, financial experts, doctors, engineers, etc.

    It doesn’t fall much on those that use robots instead of cheap labor. Such a tax falls less on big companies with economies of scale than it would on small mom and pop stores that may not be able to pay as much since they pay higher wholesale prices for what they sell. It hurts new businesses trying to start to compete with those big companies (who might pay low wages at first while getting customers and later reward their employees with more pay), so it helps protect existing companies from competition.

    Separately we can argue for private sector charity instead of failed government approaches to help the poor.

  50. 50 50 Draco

    @CommonSense #49

    Private charity won’t do. No role for calculating elitists, and no compulsion involved. Voluntary arrangements are to be shunned if important smart people can come up with a theoretical way to squeeze more goodies out of those who have more than their fair share – preferably with a little compulsion to boot. The knock-on effect of the compulsion is that it gets people (especially those who have more than their fair share) used to being ordered around by agents of the State. That leads to greater societal gains down the line.

  51. 51 51 Advo

    Private charity will indeed not do. It has never, anywhere, in the history of the world been sufficient.

  52. 52 52 iceman

    “Sufficient” for what objective, eliminating all want? Best not to compare ‘real-world’ outcomes with utopian visions. The massive Great Society arguably made things worse (= a tragic waste of resources). It’s all people helping people, the difference is whether they get to consider how best to do that. Some believe there’s a crucial difference in the incentives to get it right. Are we really that afraid people simply don’t care?

  53. 53 53 nobody.really

    Are we really that afraid people simply don’t care?

    Don’t care enough to sacrifice? Uh … yes.

    The classic example of public vs. private charity: Prior to Social Security, the elderly had the lowest standard of living of any age group. Since Social Security, they have acquired the highest standard of living. Social Security may or may not be wise policy, but it would be hard to say that it was merely a pale substitute for private charity.

    To be sure, this is a complicated argument because there are many exogenous factors. Over time society has grown richer, so we might expect ALL classes to become better off to some extent, with or without government transfers. Wages have stagnated while the cost of housing/education/heath care has increased, so we might expect some deterioration in the living standards of the working class, with or without government transfers. As women have acquired greater education over time, they have become more affluent and less likely to have kids; as a result, kids may be disproportionately likely to be born into a poor household than an affluent one, with or without government transfers. Etc.

    Allegedly people in God-fearing Red States report giving a higher percentage of their income to charities. After all, it’s only right that a good Christian demonstrate his virtue though generosity. Yet these same people are disinclined to vote for government programs to care for the poor, promote education, fight disease, reduce crime, discourage divorce, etc. In contrast, people in those cold-hearted Blue States report giving a small percentage of their income to charities, but vote for government programs. As a result, the Blue States lack bragging rights about generosity, and must console themselves with merely having better outcomes regarding poverty, education, disease, crime, divorce, etc.

    That is, people in Red States believe that the focus of charity is the GIVER; people in Blue States believe the focus of charity is the RECEIVER. Each side gets what it values.

  54. 54 54 iceman

    Charity involves caring for the poor, not the other things you mention (let’s set aside the effectiveness of govt-run schools). You always want to lump in infectious disease?? I’m quite confident “red” people tend to view fighting crime as a primary function of govt…and one it tends to do less effectively when focusing instead on usurping charitable functions.
    I guess I don’t presume to tell other people what their motivations are (like absolving their conscience by voting on dictates to others rather than giving and getting involved directly?), that’s seems like your own baggage. I can just say when I give it’s because I hope to make an actual difference for the receiver.

    Soc sec is a classic example (and parallel to health care) – granted there was a need to take measures to boost confidence in the 1930s, but this also involves identifiable people who need help…so why not just help them, rather than concocting an all-encompassing compulsory system? Its designers have freely acknowledged the reason was to create a guise that everyone had a stake in the system so all would feel compelled to support it *politically*. I.e., we really are too afraid to trust that people will help those who need it if we do it openly and honestly (and on budget?). That seems like a sad statement any way you cut it.
    [BTW it’s not even immediately obvious why that particular demographic group should have the highest standard of living? But also hard to see how that could be the product of reliance on soc sec.]

    19 – “If instead they were returning something like 33% of their minimum income it would reduce the incentive to remain in the welfare system.”

    I don’t get this…if a mincome is a floor irrespective of productivity, what’s the point of grossing it up & pretending to tax it, and how does this improve the incentive to approach & cross the threshold?

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