Karl responded recently to a post by Barbara Kiviat who wondered “why should we care about the minimum wage?”. Karl’s general point is that the minimum wage is harming lot’s of families, and Barbara’s point is that we shouldn’t spend so much time on a policy that has little affect on the economy and doesn’t help low income families anyway. But if Barabara thinks both sides care too much about this issue, then shouldn’t she be arguing for Democrats take advantage of the Republican’s foolish obsession and trade a repeal of the minimum wage for a policy that actually benefits poor people?
I’ve argued before that the balance of new minimum wage evidence shows that the minimum wage causes unemployment, so I won’t rehash that evidence here (if you’re under the assumption Card/Krueger is the end of the debate, I’d encourage you to follow the link). But I do want to focus on the inefficiency of the minimum wage. This report from the CBO shows that showed the 2007 increase in the minimum wage cost employers $11 billion, of which $1.6 billion benefited poor families. In contrast, an expansion of the earned income tax credit (EITC) would have cost $2.4 billion, $1.4 billion of which would have gone to poor families. The EITC is cheaper and more targeted. Note that this is only the marginal cost of the most recent increase in the federal minimum wage, not the total cost of federal and state minimum wages, which would be much higher.
What the minimum wage does is effectively push the costs of a multi-billion dollar, illusory, anti-poverty program onto employers. It’s an inefficient way to help poor people, and a hidden tax on businsses that forces them to spend $4 so that the government doesn’t have to spend $1.
Considering how low Barbara believes it’s cost would be in terms of impact on poor people, she should want Democrats exchange a repeal of the minimum wage for a policy that actually helps poor people. After all, what do you do when someone values something more than it’s worth to you? Sell it and buy something better.
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Wednesday ~ October 27th, 2010 at 12:08 am
TequilaKid
Those who favour a minimum wage presumably deem the market wage insufficient. I think that is a very plausible statement.
Accordingly, perhaps we should examine the factors that make the market wage insufficient to feed a family. There are a number of them, principal among which seem to be (1) long-standing federal immigration policy that floods the US with unskilled workers from abroad; (2) repression of labour unions by employers and by government; and (3) sundry other measures undertaken to impoverish the poor and enrich the rich undertaken by mostly Republican administrations over the last three decades.
If there were universal health care in the US, pressure in favour of a minimum wage would no doubt diminish. Neoliberal policies of making the individual consumer cough up and make a plethora of superfluous consumption decisions, instead of providing more economical large-scale solutions — which is ultimately government’s function – are in my opinion largely to blame for the steady decline in the standard of living of the masses. This goes hand in hand with the obscene and growing concentration of income and wealth – I recently read that the top quintile of the US population owns 84% of the country’s wealth.
Wednesday ~ October 27th, 2010 at 8:30 am
RickRussellTX
Not sure I follow (1). It is exceedingly difficult to enter the US legally if you don’t have firm family connections or high-flying job skills.
Can minimum wage (or less) feed a family? Seems to depend a lot on local factors, since the cost of living in (for example) rural Louisiana is rather differ than the cost of living in urban Boston or NY or CA.
This seems like a meritorious opportunity for federalism, since a federally-enforced wage cannot capture these subtleties, let states make their own decisions and see how the economics fall out.
Wednesday ~ October 27th, 2010 at 10:17 am
Rebecca Burlingame
When this problem becomes exceedingly obvious: trying to find a minimum wage job in a small town can be next to impossible. A person may have worked all their adult lives and yet they know if they approach potential employers they will not even be taken seriously…the look on the face of the would-be boss gives it away. One only hopes the problem is not as acute in the city.
Wednesday ~ October 27th, 2010 at 12:03 pm
MarkusR
If you think minimum wage should go then you should voluntarily accept a lower paying job yourself. Because it is without a doubt, that you are paid excessively for whatever it is that you do.
Be a model and have that $10/h pay cut directed to hiring someone.
Wednesday ~ October 27th, 2010 at 2:11 pm
Lord
I think the basic rationale of the minimum wage is to distinguish between the level of self supporting and that of needing assistance. We have widespread programs offering free room, board, and medical care now that are already greater than the minimum wage called prisons. The problem with subsidizing low productivity work is much of the benefit can flow to employers rather than employees, so it helps to have a demarcation for when the work is actually contributing to society and when it is just another corporate welfare program.
Wednesday ~ October 27th, 2010 at 4:59 pm
Lord
“a hidden tax on businsses that forces them to spend $4 so that the government doesn’t have to spend $1″
There is a real misconception here. It doesn’t force them to spend anything, only not to spend when it isn’t worth $4. Those on the minimum wage are not being overpaid, their employers only employ them when they are worth that. They may need to invest in productivity improving training and technology to make that happen, but they are getting what they pay for. In no way do employers employ those whose value is less than that; that is not what a minimum wage does.
Thursday ~ October 28th, 2010 at 11:50 pm
James
“The minimum wage is cheaper and more targeted.” Writing error here i think
Friday ~ October 29th, 2010 at 6:28 am
Adam Ozimek
Thanks James.
Thursday ~ November 4th, 2010 at 12:28 pm
Chris Wegener
While I am in favor of raising the Earned Income Credit it faces the same stupid political realities that raising the minimum wage does. (Republicans will fight it tooth and nail at the behest of their wealthy patrons.) Further it allows companies to reduce their labor costs that the polity then needs to backfill with the EIC. This is the same problem of companys refusing to provide healthcare to their lower paid employees expecting the local community to provide the care. (Think Walmart.)
By raising the minimum wage you provide a minimum level of income that will allow individuals to support their families. Those who are priced out of the labor market (a small number if I read the reports you site correctly) are in need of public assistance and can be channeled into job training and other programs to improve their employability.
These arguments are of course lost on those who feel that “liberty and freedom” mean “liberty” to starve and “freedom” to be homeless.
Wednesday ~ February 13th, 2013 at 2:25 pm
M.F.
That CBO link is for a paper from 1986 — where’s the report about 2007?
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