$9/h minimum wage

[respect]

I'm getting a little frustrated with this. I've said many times that my posts about employment were a rebuttal to Courier's claims about employment. People continuously take them as a standalone argument entirely ignoring the context.

Don't read one tiny snippet in a chain of exchanges and respond as though it were posted with no context.

You are both half right and half wrong. More specifics about the position that may or may not be hired for need to be known to determine both if the company should still hire for it and, if so, if they should raise their hiring standards in response to the higher wage.

 

[Cavemonster]

More specifics about the position that may or may not be hired for need to be known to determine both if the company should still hire for it and, if so, if they should raise their hiring standards in response to the higher wage.

Yes, and I never said otherwise. My post was refuting Courier's post that a raise in minimum would necessarily block out a future hire.

I was making the general point of exactly that. That a company would need to remeasure the profitability of a decision to hire in light of a new wage.

 

[respect]

Yes, and I never said otherwise. My post was refuting Courier's post that a raise in minimum would necessarily block out a future hire.

I was making the general point of exactly that. That a company would need to remeasure the profitability of a decision to hire in light of a new wage.

Okay, fair enough. It probably will affect his hiring process but not in the way he is describing unless it is a non-essential position he wanted to test out. For example, he may have been considering taking a modest gamble that hiring a greeter would pay off with improved customer retention, but scraps the plan after payroll swells elsewhere.

A more common response would be that he will still hire for the position but no longer train people for it by only considering applicants with previous experience, especially easy to do in an economic environment like today's where there are a lot of unemployed people.

 

[TubbaBlubba]

Virtually every economist, regardless of general views and politics, agrees that negative taxes are a far superior method for reducing poverty than price distortions in labor markets so naturally we don't talk about that in the national political scene. It makes way too much sense.

One thing I don't get about negative taxes - don't they essentially create an incentive for employers to pay their employees less and have the government pick up some of the bill?

 

[respect]

One thing I don't get about negative taxes - don't they essentially create an incentive for employers to pay their employees less and have the government pick up some of the bill?

No.

 

[TubbaBlubba]

No.

Hmm. Let's see. We'll say the breaking point is $10,000, and the subsidy rate is 50%. Let's say the amount of money the employee needs is $8000. If we were to alleviate him of tax responsibility, that would simply be his salary (assuming the employer is willing to pay it). If he was to pay some tax, he would need to be paid a bit more.

But if we introduce the negative tax, his employer would only need to pay $6000 for him to receive $8000. The employer keeps the surplus, even though he might actually have agreed to pay $8000 (under 0% tax). So, isn't the job basically subsidized? We move money from higher earners so that employers don't have to pay those extra $2000.

 

[respect]

Hmm. Let's see. We'll say the breaking point is $10,000, and the subsidy rate is 50%. Let's say the amount of money the employee needs is $8000. If we were to alleviate him of tax responsibility, that would simply be his salary (assuming the employer is willing to pay it). If he was to pay some tax, he would need to be paid a bit more.

But if we introduce the negative tax, his employer would only need to pay $6000 for him to receive $8000. The employer keeps the surplus, even though he might actually have agreed to pay $8000 (under 0% tax). So, isn't the job basically subsidized? We move money from higher earners so that employers don't have to pay those extra $2000.

Does your employer now routinely cut and raise your pay based on various tax changes?

Wages, outside of government interference, are determined by supply and demand dynamics.

 

[TubbaBlubba]

Does your employer now routinely cut and raise your pay based on various tax changes?

Wages, outside of government interference, are determined by supply and demand dynamics.

Still, in those jobs where the amount demanded is $8000, the government will now pay $2000 of that. Or, rather, workers will only demand $6000 from the employer.

I intuitively like the idea of simplifying welfare, yet I can't see how this is anything besides a subsidy for the low skilled labour industry. Or is that the intended effect?

I guess a worker demanding $8000 could now find a job at an employer who would only supply $6000...

 

[respect]

Still, in those jobs where the amount demanded is $8000, the government will now pay $2000 of that. Or, rather, workers will only demand $6000 from the employer.

I intuitively like the idea of simplifying welfare, yet I can't see how this is anything besides a subsidy for the low skilled labour industry. Or is that the intended effect?

I guess a worker demanding $8000 could now find a job at an employer who would only supply $6000...

This is a silly argument, you seem to be assuming that the employee's only concern is earning $x and no more with no concern about any other factors. Perhaps the employee needs $8,000, that doesn't mean they wouldn't like $10,000 and would gladly go from working 1,000 hours a year at $8 an hour to working 3,000 hours a year at $2 an hour plus $2,000 in an earned income tax credit. Labor markets do not operate like that.

ETA-If your government cuts your tax burden by $400 a year, does your employer immediately cut your wage by $400 a year on the grounds that you already had the correct amount of post-tax income and are not eligible for more? Would you accept such ridiculous behavior when supply and demand dynamics had determined a higher pay rate and you could simply make a lateral move to a firm not trying to pay less than a market clearing rate?

 

[TubbaBlubba]

This is a silly argument, you seem to be assuming that the employee's only concern is earning $x and no more with no concern about any other factors. Perhaps the employee needs $8,000, that doesn't mean they wouldn't like $10,000 and would gladly go from working 1,000 hours a year at $8 an hour to working 3,000 hours a year at $2 an hour plus $2,000 in an earned income tax credit. Labor markets do not operate like that.

Yes, it's obviously a simplification. Yet, we don't really need to consider varying amounts of hours worked at this point. If an employee was indifferent working 1000 hours at $8 he will still prefer it but now he will be indifferent working 1000 hours at $6 with the government chipping in the additional $2.

ETA-If your government cuts your tax burden by $400 a year, does your employer immediately cut your wage by $400 a year on the grounds that you already had the correct amount of post-tax income and are not eligible for more? Would you accept such ridiculous behavior when supply and demand dynamics had determined a higher pay rate and you could simply make a lateral move to a firm not trying to pay less than a market clearing rate?

"less than a market clearing rate"? If the negative tax alters the amount employees demand (from their employer) for a given number of hours then clearly the market clearing rate changes. In the medium term, obviously.

You can't be saying that the tax credits won't be part of the cost-benefit analysis. If you're saying that the effect is small due to many other external factors and preferable to the alternative - fine. But there HAS to be an effect on wages.

 

[respect]

Yes, it's obviously a simplification. Yet, we don't really need to consider varying amounts of hours worked at this point. If an employee was indifferent working 1000 hours at $8 he will still prefer it but now he will be indifferent working 1000 hours at $6 with the government chipping in the additional $2.



"less than a market clearing rate"? If the negative tax alters the amount employees demand (from their employer) for a given number of hours then clearly the market clearing rate changes. In the medium term, obviously.

You can't be saying that the tax credits won't be part of the cost-benefit analysis. If you're saying that the effect is small due to many other external factors and preferable to the alternative - fine. But there HAS to be an effect on wages.

No, there doesn't. The subsidy is given to the employee (a broader negative tax would just be given to everyone), it has nothing to do with the employer.

Generally when the the government gives a subsidy to a business it is because they have deemed their product to be good but the business's production costs exceed what consumers are willing to pay so the government provides a subsidy to make up the difference or the business will go bankrupt. But in some cases the government provides subsidies to profitable businesses (cynically one may point out that this can be a legal form of political payback). In this sort of case the business simply becomes more profitable. Barring some sort of politically charged boycott the subsidy does not alter consumer demand, they were willing to buy the product without the subsidy and will continue to do so after the subsidy.

In the case of earned income tax credits, employers were willing to pay employees $x without the subsidy and there is no reason for them to refuse to pay the employees $x after the subsidy. The existence of the subsidy, or its lack of existence, does not affect their demand for labor. It is a transaction that is not related to them, it is between the government and worker and does not involve the employer at all.

 

[respect]

To add, the ability of negative taxes to achieve anti-poverty goals without the problems associated with market distortion (such as caused by price floors like minimum wages) is precisely why they are seen as superior alternatives to pursue that goal.

 

[TubbaBlubba]

I agree that it doesn't affect demand of labour. But it affects supply of labour. Suddenly there will be workers who are willing to work for less than whatever was the lowest rate labour was supplied at before because of the government subsidies (who may, for instance, be currently unemployed).

 

[WildCat]

One thing I don't get about negative taxes - don't they essentially create an incentive for employers to pay their employees less and have the government pick up some of the bill?

That's not even the right question. Employers don't get to choose the wage, the employees do. Employers set the wages according to the minimum wage that still attracts qualified workers, thus 97% of jobs pay more than government-mandated minimum wage. Negative taxes do nothing to change that formula.

 

[WildCat]

Hmm. Let's see. We'll say the breaking point is $10,000, and the subsidy rate is 50%. Let's say the amount of money the employee needs is $8000.

Since when are employee needs the basis for employee pay? Does the financial analyst at the bank "need" more than the teller?

 

[Joecool]

Since when are employee needs the basis for employee pay? Does the financial analyst at the bank "need" more than the teller?

Good point. The president had said that he supports raising the minimum wage because people can't support their families on $7.25.

Where does it say that entry level jobs are created for people who need to support families?

Where I live, nearly all minimum wage type jobs are occupied by high school and college students. I'm sure they'll be happy with their 20% raise.

 

[daenku32]

If a CEO took a $1 million annual paycut, the company would automatically hire 66 additional workers at minimum wage?

If not, then increasing the wages of minimum workers wouldn't have the automatic opposite effect.

 

[daenku32]

Good point. The president had said that he supports raising the minimum wage because people can't support their families on $7.25.

Where does it say that entry level jobs are created for people who need to support families?

Where I live, nearly all minimum wage type jobs are occupied by high school and college students. I'm sure they'll be happy with their 20% raise.

Wages around $8.5/h would also be affected by the new wage limit, which means the seasoned worker that started at $7.25/h would also get a raise.

Today you are lucky to get a 3% annual cost of living increase.

 

[WildCat]

If a CEO took a $1 million annual paycut, the company would automatically hire 66 additional workers at minimum wage?

If not, then increasing the wages of minimum workers wouldn't have the automatic opposite effect.

Just who are you arguing with? I don't recall anyone claiming automatic anything. Quite the opposite, lots of possibilities were mentioned besides laying off workers.

 

[This is The End]

Does anyone have a chart of the price of 1 gallon of gasoline to minimum wage ratio over the course of time?