Politics Of Minimum Wage

The Editorial Board at the WSJ has a real man bites dog story that led us to recognize another side to the minimum wage dispute.  In Revolt Of The Tipped Masses the editors describe the conflict between the Washington DC City Council and the workers they are allegedly trying to help.  Here is the part that turned on the light for us:

Before the measure passed in June, many restaurant workers wore buttons asking patrons to “save our tips” and “vote no on 77.” When Washingtonians passed the measure anyway, the workers pushed for repeal. Though restaurants pay a $3.89 hourly wage to tipped workers, “we choose these jobs because we make far more than the standard minimum wage” from tips, bartender Valerie Graham told the City Council.

As Valarie says, especially in an elite establishment in a big city like DC folks can be making a tidy sum on tips.  A high minimum wage effectively eliminates tips.

Sidebar One: Many of them are not declaring the full amount of tips to the IRS.  It is not relevant to us here but it does increase the incentive to fight City Council.  Partially taxed higher amount is way better than fully taxed lower amount.  End Sidebar One.

Sidebar Two: We are heading for China later this year.  One thing every person emphasizes is that there is no tipping in China.  End Sidebar Two.

What we recognized is that there are two groups of workers adversely affected by minimum wage legislation.  We always emphasize the folks who will lose their jobs and it is a bigger deal to lose your job than to take a pay cut.  The pay cut is a pretty big deal too.  Remember what Valarie said: “We chose these jobs…”  She is a person worth listening to.

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A Significant Step?

Bernie Sanders has proposed as stop Bezos bill to get employers to fire employees on public assistance.  We have already weighed in on the what is Bernie thinking side.  Catherine Rampell describes the bill:

The bill, introduced Wednesday by Sen. Bernie Sanders, I-Vt., and Rep. Ro Khanna, D-Calif., would establish a “corporate welfare tax” on firms with at least 500 employees. Companies would pay a tax equal to 100 percent of the value of safety-net benefits their employees receive, including Medicaid, housing subsidies, food stamps and subsidized school lunches.

It is an astoundingly bad idea.  The shocking part is Catherine’s conclusion as to why she doesn’t support the bill:

As economists repeat ad nauseam: Incentives matter. No number of strident news conferences vilifying billionaires and big corporations will ever change that. [Emphasis added]

Catherine now on record as saying incentives matter.  It is just a small step from embracing markets.  Her conversion, however, is incomplete on the issue of incentives.  In the previous paragraph she says:

If you want to help workers, there are lots of alternatives less likely to backfire than this. Raise the minimum wage. Eliminate noncompete clauses. Increase other kinds of benefits (such as paid family leave). Make it easier for workers to unionize. Of course, these proposals need to be designed carefully, too, to make sure they help more workers than they hurt.

She hasn’t yet internalized incentives matter because it doesn’t matter how careful you are in design of higher prices for employees because, well, incentives matter.   We like her description of “less likely to backfire” so she seems to know the is a likelihood of bad outcomes from increasing the cost of employees.  That outcome is less employees.   Perhaps she can add one that is really less likely to backfire like less regulation for hair cutting and the like.

We are delighted to see Catherine taking small economic steps.  We don’t hold out much hope for Bernie but Catherine might be progressing from being so progressive.  It might help that her mom is an accountant. We wish her a good journey.

 

 

Stopping Low Unemployment Rates

It seems that attempts to increase unemployment and misery by increasing the minimum wage have come to a standstill.

Sidebar: Just to remind everyone why increasing the minimum wage is such a terrible idea.  Folks need to start somewhere and if they have low skills they start at low wages.  Most of the folks with low skills are poor or young.  Very few people stay at the minimum wage in our dynamic economy because the develop skills that deserve and receive more money.  We are pretty sure we worked for $1.25 an hour fifty some years ago.  Preventing people from developing the personal capital to succeed is a terrible idea.  End Sidebar

When folks fail on one front they try to open another.  We just heard about the second front in the attack on low skilled individuals today. from Jack Crowe at NRO:

Senator Bernie Sanders of Vermont introduced a bill on Wednesday that would require large corporations to reimburse the government for welfare benefits extended to their employees.

The bill, dubbed the “Stop BEZOS Act” in reference to Amazon founder Jeff Bezos, would implement a 100 percent tax on any government welfare distributed to employees of corporations with more than 500 workers. In essence, it would require such corporations to pay the government one dollar in taxes for every dollar Washington spends providing its employees with federal welfare benefits.

We want to make it clear that we are not making this up.  They could be trying to stop Bezos but it will only stop the low skilled like the young and the poor.  Yes, corporations with over 500 employees would be forced to cover 100% of any [federal?] government welfare distributed to their employees.  Jack notes that it is not a partisan issue as Fox News was embarrassed by one of its readers:

Fox News host Tucker Carlson targeted Bezos and his ultra-wealthy peers in a segment earlier this week, praising Sanders as the only politician willing to address what he views as an “indefensible scam.”

It appears that they want corporations (with over 500 employees) to fire folks receiving government benefits.  As benefits depend upon family size it would be a tricky job for both the corporations and the IRS.

The only rational reason we can see for the new front is that folks might think that raising the minimum wage is less foolish then this new assault on individuals trying to work their way up the ladder.  Don’t be fooled.

A Less Bad Idea?

David Neumark is trying to sell a new minimum wage idea in the WSJ.  First let’s talk about a strange headline and sub-headline.  The header is:

Let The Taxpayers Pay The Minimum Wage

That makes some sense.  If taxpayers are foolish enough to want to increase the minimum wage then they ought to foot the bill.  Fair enough.

The sub-headline is:

Employers shouldn’t bear the brunt of redistributive policy.

Well, at best employers share the brunt of a silly policy with employees.  We’re not convinced that David’s idea is less bad enough to support.  That is, sometimes you support a policy or a candidate because the alternative is so bad that less bad is way better.  We don’t see that higher taxes or bigger deficits are good ideas.