Erisian23’s Post on Minimum Wage

This post is by Angry Bear reader erisian23:

I’m still working out my thinking on wage floors so this is not offered in the spirit of a final answer, merely a snapshot of where I’m currently at. In the interests of keeping this relatively concise, I’m necessarily glossing over many important but non-core details. It’s a complicated problem set, to say the least.

A Low-Cal Economic View

A guaranteed minimum wage acts like a tax upon the creation and maintenance of minimum wage jobs. We know that what we tax, we discourage. The lower the fair market value of the labor relative to $7.25, the steeper the effective tax becomes and presumably the more drastic the impact on that market. We are in effect actively suppressing the creation of the market-determined optimal number of these types of jobs. That also means reducing the options available to those who would take these jobs. These are people who, if anything, need more, not fewer options.

If we decide that low wage jobs are undesirable for whatever reason, we might be willing to leave people unemployed vs. encouraging the creation of additional low-end jobs. However the American dream of achieving prosperity by moving upward and onwards is balanced against a number of realities, for example: (1) some people today who have climbed the ladder quite proficiently started out on the lowest rung and (2) some will find the limits of their aptitude, current skills (language, education, craftsmanship, etc), personal motivation, or other factors leave them in low wage positions indefinitely.

For whatever reason someone is working at a low paying job, I take it as a given that their gainful employment is preferable to their unemployment. I also assume that the creation of additional similar jobs represents increasing demand for their particular type of labor and should ultimately benefit them over time in areas like working conditions or job benefits, even if not a natural wage at or above $7.25/hr. Based on this it stands to reason that, all else being equal, more low wage jobs are preferable to fewer. If “any job is better than no job, we ought to encourage demand and competition in both entry level and dead-end labor markets to the benefit of all concerned. We certainly should not be placing a special tax solely on the creators of these jobs.

In the Name of Justice

Bizarrely, taxing purchasers of low-wage labor is precisely how we attempt to achieve our socially just aim. As a result, both the purchasers and suppliers of low-wage labor suffer, one through artificially increased costs and the other through artificially decreased demand for their labor. Adding insult to injury, the minimum wage and its increases do not share their negative impacts on the market for accountants, attorneys, software engineers, etc. It is, for example, Johnson & Sons Landscaping, its employees, and its customers who will pick up the tab for society’s largesse while my household income and Deloitte & Touche’s profit margins and job listings are likely to be relatively immunized.

As proponents of social justice, it’s difficult to argue that this is a socially or economically fair arrangement. Society may for example strongly believe that charities who serve food to the needy represent a noble cause. This hardly compels us to conclude that businesses in the food service industry, and only they, must donate 10% of their revenues to the charities we prefer.

If society-at-large wishes to purchase the psychic and social benefits of a guaranteed standard of living for all workers, what reason do we have for shifting the costs of our kindness onto others? The desire to hire low valued labor does not inherently imply an obligation to sustain that person in a manner society determines is suitable. It is society that is imposing this requirement for a minimum guaranteed standard of living and so it should be society that pays for it. It’s easy to be generous with other people’s money. We don’t discover our true values and priorities until we pay the costs ourselves.

I’m willing to put my money where my mouth is. Let the ditch diggers wage in Seattle sink to $4.50/hr. Let the cost of a cashier to a grocer in Kansas fall to $3.25/hr. If guaranteeing them a better standard of living then means raising my taxes, do it. I am willing to pay my fair share to support my beliefs because ultimately it’s the degree to which society is willing to assume these costs that we can arrive at the real market value of having a guaranteed minimum standard of living in the first place.

-Michael (erisian and the number twenty three, all as one word at