Over in the comments at Steve Waldman’s, Morgan Warstler has an interesting proposal for a replacement for the minimum wage and unemployment insurance:
Using a clone of Paypal and Ebay platforms, the US govt. should establish a Guaranteed Wage of $240 per week. Anyone who wants to work registers, receives a Debit Card,and each Friday has their GI deposited.
All recipients have their labor weeks auctioned online. Bidding begins at $40 per week ($1 per hour). Bid increases by .50 cents per hour ($20 increments).
Recipients keep 50% of the top bid, if they take it. If they opt for a lesser bid outside certain boundaries there are penalties (fraud measure).
Recipients cannot be made to work outside a radius of a couple miles.
Bidders must deposit money into system before they bid. They must accurately describe the job. Feedback will be given both ways. If you are familiar with Ebay, you understand what this accomplishes.
There are no taxes paid, there are basic workplace protection requirments. Umbrella insurance is sold on site for folks bringing labor into their home.
Expect 30M to register so approx $345B is our cost assuming 30M are auctioned at $1 (The govt. is picking up $5.50 and bidders are in for $1)
At an avg. bid of $4 per hour, avg. worker is making $8, and the govt. is spending $250B a year.
There is no more UI. There is no more minimum wage. That’s why there are 30M in program.
It is an intriguing proposal, and I see something like this as more likely if the fears of robot labor market dominance come true and many workers end up zero marginal product. But here are some problems I see with this program:
1. If weekly online ebay-like employment markets like this are efficient, then why don’t they exist yet? Is the extra $5.50 in marginal product really all that is stopping them? Here is one similar market for what are mostly errands. Perhaps we are already on a path towards the obsolescence of this complaint. Although maybe labor market regulations make this impossible to do on a significant scale.
2. Are workers required to put themselves up for auction or can they just receive the minimum guaranteed income and say “no thanks” to auctioning their labor? If it is the latter, then I think we will see many workers choose the $5.50 and do nothing. If you can receive $5.5 an hour from the government for doing nothing, or $6 for working 40 hours a week, then you’re exchanging 40 hours for an extra $20 a week. Not a very good deal.
On the other end of the low-paid spectrum, workers who are worth $10 an hour will receive $10.50 ($5.50 + 50% x $10), which means they can get $220 a week for doing nothing or $420 for working 40 hours. Some will probably choose to work, and some will choose not to. But I think many would find $220 plus some extra pay from black market labor (likely at more than a marginal $5.50 an hour) to be a pretty good deal. Those that don’t will be receiving a very small subsidy of $0.50 an hour.
Thus workers with labor worth $10 or more will have only a small subsidy from this, and those with labor worth less will find it pretty tempting to not work. Under either scenario I don’t see much work flowing through this market.
If the point is that everyone will be required to put themselves on auction and surely everyone will be bought at a minimum cost of $40, then I think this logic is incorrect. A review system will be in place, and any worker who does not wish to be hired again will find ways to make sure that doesn’t happen very quickly.
3. Do workers and laborers have the incentives to provide accurate rankings? If an employer finds a good worker and they elect to give them an accurate rating then they will have to pay more for them the next week. If they rank them poorly, perhaps accusing them of being negligent or criminal, then they should get them cheaper. The reverse is true for a worker who finds a good employer.
4. How much does employee choice matter in this framework? The setup of employers purchasing employees at an auction ignores worker preferences over what work they do. Morgan says if job seekers “opt for a lesser bid outside certain boundaries there are penalties”, and it’s unclear to me how you do this without meaningfully ignoring job seeker preferences. This also provides a potential explanation for question #1: the predominant labor market arrangement for cheap labor is for employers to post a wage, job seekers to apply, and employers to choose among them. Aren’t there reasons we’ve evolved to this equilibrium?
Overall Morgan says with this program we can get rid of unemployment insurance and the minimum wage, but I see this more as lifetime unemployment insurance combined with a government funded minimum wage. Still, with the threat of hordes of ZMP workers looming in the future, things like this are worth thinking about and we need more ideas like Morgan’s.
H/T Pascal Gobry