Better Than Raising the Minimum Wage: Expand the Earned Income Tax Credit
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What should rather happen is the exact opposite! If you work for Walmart you shouldn't be able to receive any government assistance at all because you are already working and the point of working 8 hours a day is to be able to feed and cloth yourself and if you cannot do that with that job then that job is of no use to you or anyone and should therefore stop existing.
But if it turns out that the employer or whoever benefits from that job desperately needs it, they will have to pay the employees a livable wage.
What should definitely not happen is that the tax payer ends up subsidizing privately owned businesses without getting anything in return.
And if it doesn't sit well with anyone that people get money for nothing (which is the argument pushed for EITC) then let the government employ them to do something that is at least remotely useful to the taxpayer that is footing the bill. Even just sweeping leafs off porches is better use of money.
The money that goes into the EITC comes from income taxes and the top 10% of household pay more than half of the US income tax.
If we want to give money to working Americans we have to pay for it somehow. We can either do that explicitly and in a progressive fashion or we can hide the price from voters and let the burden fall repressively.
Employers are bound by the market when they set their prices and don't get to choose their price at random on a whim.
>The money that goes into the EITC comes from income taxes and the top 10% of household pay more than half of the US income tax.
Yes but for the most part those are just the middle class. The plutocrats pay fuck all in taxes. I do not want an MD with a networth of $10M (sweat of his own brow) subsidizing a Walton (who inherited his fortune). I want the Walton to pay the actual cost of running his goddamn shop.
Also frankly, I think minimum wage is besides the point. What should come back are strong sector wide unions like the ones that still exist in Scandinavia. The unions will take care to setup their own sector wide minimum wage and will be far more flexible in responding to the market and also the cost of living than the government can ever be.
...and then people will stop shopping there and go somewhere where they keep their prices lower by paying their executives more reasonably.
If you're going to make naive pro-big-business arguments then don't stop, follow the naive logic to its full conclusion.
If you raise the minimum wage, it will raise the costs of all businesses in a market by the same amount, assuming that they all have the same cost structure (same basic wage and worker efficiency). Usually that causes prices to rise uniformly.
You're really asking why executives don't cut their own pay?
> If you raise the minimum wage, it will raise the costs of all businesses in a market by the same amount, assuming that they all have the same cost structure (same basic wage and worker efficiency).
They don't all have the same cost structure, so it would be rather silly to assume that.
There are many companies that are not gigantic corporations with overpaid CEOs. If you only care about Walmart and Target, then yes, prices will rise uniformly. But employee-owned cooperatives, for example, will be completely unaffected. Places that already pay their employees a living wage would also be unaffected.
Cooperatives (this will depend on details of structure, etc.) are often still subject to minimum wage laws, and of those that are, paying workers minimum wage as the only guaranteed payment with dividends/profit sharing/etc. on top is, as I understand, a not uncommon arrangement. So a minimum wage increase does increase the labor cost to the corporation (and, since wages are taxed differently than capital income, it has a net effect on the worker/owners, as well.)
Now, obviously, the effect on a labor coop or its worker/owners will be different than the effect on a traditional corporation or its shareholders, but there will not necessarily be no effect on the former.
Ultimately I've seen zero evidence that raising the minimum wage has any negative effects on the economy. There are only hypotheses about how it could affect it negatively, but economies are too complicated for us to be making decisions based on hypotheses without evidence.
I have no problem with say subsidizing training for Nurses and doctors but subsidize Liddle and Tesco' shelf stackers not so much.
Maybe employers should pay an additional tax on turnover equal to say 90% of the subsidy
The labor market is filled with many different types of people with many different goals. Who are you to tell a teenager they can't work part-time after school because the company can't afford to pay them whatever amount you believe is the amount to be paid?
Regulations are what cause the gross mis-allocation of labor and resources, when you distort the free interaction of individuals to buy and sell their goods and services you end up with perverse structures where an adult willing takes a minimum wage job at walmart if they can also qualify for food stamps and other government assistance.
Writing a law to tell walmart to pay their employees more doesn't magically fix reality. Laws don't magically make the impossible possible, believing otherwise is adolescent fantasy.
I wasn't making an a pro-minimum wage argument but rather an anti-EITC argument. But anyway, for your information teenagers are exempt from the right to a minimum wage.
>Regulations are what cause the gross mis-allocation of labor and resources, when you distort the free interaction of individuals to buy and sell their goods and services you end up with perverse structures where an adult willing takes a minimum wage job at walmart if they can also qualify for food stamps and other government assistance.
The market is not only about money and Wall St. branded financial products. The market is also affected by power and influence. Regulations are just another part of the market. It's the free interaction of individuals who choose to unite together as one, in order to influence the market to their own benefit.
Because after all who the fuck are you to think that you can conduct whatever business activity you like in other people's neighbourhood. It's only at their own discretion that you are allowed to do that. You don't get to benefit from their property right laws, and their courts, and the infrastructure they built and paid for, and yet expect to do as you please without any interference what so ever, even when you are obviously being detrimental to the neighbourhood that is hosting you, and allowing your commercial activities. Individuals exist but they function at all as modern businessmen only because society also exists.
I actually don't understand your second point, but markets can't exist without the rule of law; markets require a notion of property rights, how can anyone think otherwise?
In a well governed society laws exist to facilitate the exchange of goods and services, how can exchange occur if people cannot trust the contract they engage in will be upheld? As difficult as it might be for you to imagine, laws and arbitration can exist without a government which centrally plans the minutiae of everyday life.
Again, your argument seems to be that by the snap of fingers and the degree of those with power, walmart can just magically raise wages. That's a childish belief.
Politicians are the public face of this, and people realize that those who make the laws can be bought by powerful interests - they know - but believe they can't do anyting about it.
There is some unfair hatred of rich and the elite - that does exist - but there is also a resentment that comes from the realization that the promise of the "American dream" and the level playing field is not exactly that.
That's not a concern to be waived away in the press by the world's richest men, but directly addressed which will be difficult, because you have to acknowledge the problem of the bias (not level field) while simultaneously trying to get rid of the victim mentality which also plays a factor with those who are losing.
If any thing, we need to raise minimum wage and lower the Earned Income Tax Credit. The EITC was created by businesses lobbying the government to low wage earners a tax break in exchange for not raising the minimum wage. It has been disastrous to tax revenues and wages. Millions of Americans get to hear how they are not carrying their tax burden as well and then are attacked by the Republicans for living on government handouts.
Between sales tax, worker payroll, SS, medicare, and various mandated fees from health insurance to car insurance to additional transportation taxes and tolls, and a million other fees and restrictions, the poor stay poor in part because of perverse government requirements.
I wonder about this. In a perfect market system, it's impossible to pay below-subsistence wages, because you can't work if you've starved to death. I think Adam Smith pointed this out. So, any public support for wage earners distorts the market by driving wages downward.
It's arguable that the government should subsidize wage earners, so that wages can be lower. Low wage earners receive a lot of things that they don't pay for out of their own pockets, such as education, which I support. But it should not be offered as a protection of the free market.
You might not starve to death if you start committing crimes on the side though.
Exactly. It's no hard to see how those who praise it so much get to immediately benefit from it by being able to hire people for wages that are ridiculously low and forcing the taxpayer to foot the bill for the rest.
I urge you to think about the many people who are part of a household who can contribute materially with less-than-individual-subsistence wages.
A retiree supplementing their retirement savings with a part time job; the vast majority of teenage workers. Almost anyone working while in school.
There are plenty of people who do not depend on their wage for 100% of their livelihood, but whose outcomes you worsen by pricing them out of marginal work.
It's actually a matter near and dear to my heart, as a musician. The economics of live music are strongly affected by people for whom music is not a vital source of income, and as a result, gig pay can actually drive towards zero or even negative if your locale has a "pay to play" music scene.
And admittedly, I play some gigs for free.
I don't like the idea of picking certain people as being "needier" than others because it is a moving target. For instance, you might say that families need it more because they are raising kids, but one of the most troubled segments of the population are poor young men; if these guys get on their feet they are going to be in a position to raise a family and do it right.
Raising the minimum wage does the opposite. Hiring workers becomes more expensive and 70% of that increase in prices is empirically passed on to consumers in the form of higher prices. So now the money to price ratio goes down and aggregate demand decreases. Your plan was tried in the Great Depression and it backfired spectacularly.
This depends entirely on the price elasticity of demand.
In 2015 and with some data from IRS one could estimate the actual and not just speculative impact of raising the minimum wage. One could know exactly how many jobs will be lost and one does not need to speculate any more. Once one knows the exact impact it's easy to make the decision of exactly what the optimal minimum wage should be.
Also, you seem to be alluding to small enterprises paying minimum wage. I highly doubt that. Small shops can exist only if they are doing something that is highly specialized/technical as the big competitors devour the rest of the general market. As such their employees are highly skilled and don't get paid minimum wage.
Actually, it is. Not the utopia of minimum wage to 15hr.
Let's do some quick numbers. 50 weeks a year, 35 hours a week. Equals 1,750 hours per year.
Employers raise an employee pay by $1 an hour. Hmm. That's greater than most get from EITC. $3.5 an hour raise, and that's greater than ALL EITC recipients.
Also, managers and top managers don't need their lofty salaries. That could change.
Finally, I'd never propose an immediate change. There would be a lot of business structural change to rebuild the middle class. There are other ways to redistribute the money in a more fair way, than what is currently being done.
https://cdn.americanprogress.org/wp-content/uploads/2013/12/...
Because of this there are actually tonnes of papers studying its effects:
[1] http://www.nber.org/papers/w0846.pdf (one such paper)
1. The true elasticity is ~0 (maybe ever so slightly negative). Only small increases in minimum wage were studied, so this isn't an argument in favor of drastic raises, just an argument that small raises don't hurt under prevailing conditions.
2. The funnel should be symmetrical because random error does not favor higher vs lower elasticity. Instead, the funnel is bent, which is evidence of strong publication bias in favor of results of the form "increases in minimum wage decrease the number of jobs."
FWIW I don't think minimum wage increases are a great way out of this mess because I think reduced workweek and basic income / minimum income / EITC are all better options. Still, I think this figure is pretty convincing evidence that economists place too much faith in their neoclassical model.
[1] Page 33 of http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.398...
EDIT: added conclusion, fixed possibly misleading wording
If you're willing to be creative you can come up with a statistic that seems to support nearly anything. There are plenty of decent arguments and studies you can use in support of a minimum wage rather than something like this.
And if they so desperately need to exist then whoever so desperately needs them should damn well pay for them.
And if they cannot then by definition of modern economics, that demand does not actually exist and nothing of value is lost.
You don't want a handful of random bums (your phrasing) either slowly living off the suitcase for a couple of years or quickly burning through on high-ticket items--you want a whole lot of poor people who can buy 2 more things at the checkout this week.
If you favor cash grants to the poor over middle class (on account of the former spending faster), you should similarly favor grants to bums over the working poor.
Alternatively, just recognize that there are more considerations, when forming optimal policy, than the rate of consumption.
Some of the rich people sometimes do relatively a lot to help the poor people. E.g., there are Bill and Melinda Gates, and they also got Warren Buffett to allocate nearly all of his fortune. And little Melinda, sweetheart, got lots of other rich people to sign up for her 50% or so 'giving pledge'
Net, apparently Melinda has, via Bill, Warren, and others, moved well over $100 billion into philanthropy. Andrew Carnegie? Lots of libraries, especially good for poor people. Andrew Mellon? The US National Gallery of Art -- free for everyone. Michael Bloomberg -- $1+ billion to The Johns Hopkins University, especially to its medical school for progress in medicine that helps lots of people, including poor people. And we could construct a much longer list.
From all I can tell, if the poor people have a valid gripe, then it is with some of the power of the powerful people and not much with the money of the rich people, and here is why:
Shockingly, in simple terms, for the most direct purposes of the poor people, the rich people don't have much money!
Sure, each of the 1000 richest people could buy a new Ferrari for themselves, but they definitely can't buy a new Ferrari for each poor person -- even if Ferrari could make that many cars.
Or let's consider 'wealth redistribution' and do a little arithmetic:
Let's look a little at the wealthiest people in the US; for some data, let's look, say, at the 2014 Forbes 400 as at
http://www.forbes.com/forbes-400/
There we see that the 400 people on that list are worth in total
$2.29 trillion.
The least wealthy person on that list is worth
$1.55 billion.
Oh, let's be generous: Let's take the 1000 richest US citizens and assume that each of the 600 least wealthy are also each worth
$1.55 billion.
Then the total wealth of the 1000 wealthiest US citizens would be
2.29 * 10**12 + 600 * 1.55 * 10**9 =
3,220,000,000,000
Suppose we outright 'confiscate' and 'redistribute' all this wealth across all US citizens. So, from Google search
"US population"
we see that the US population in 2014 was
318.9 million
people.
If we were just to confiscate the full
$3,220,000,000,000
and redistribute it among the
318.9 million
people, then from the 'redistribution' each person would get
3,220,000,000,000 / ( 318.9 * 10**6 )
= 10,097.21
So, that's what each person would get if we were to do a 'full redistribution' of the wealth of the 1000 wealthiest US citizens.
So, right, $10,097.21 per person is not enough for a yacht, a house, a new car, or one year of college.
And that $10,097.21 would be a one-time thing, not each year.
So, where is the real 'wealth' for individuals in the US? Sure, just where it long has been: In (1) Social Security obligations, (2) the rest of the US 'social safety net', and (3) employee pension funds.
So, if want US citizens, including the poorest, to be much richer, which is a terrific goal, then, rather than confiscate the wealth of the 1000 wealthiest, find a ways for more of the
318.9 million
people to have good jobs. Just how to do that is more complicated than the simple arithmetic used here.
I agree there are stats that show CEO pay is at an all time high. Minimum wage adjusted for inflation is not as high as it once was either.
I also think we have to solve this problem by creating better and better jobs. Paying the high school kid who takes movie tickets in Seattle a $15 an hour minimum wage is not the long term solution. We need more well paying skilled jobs.
If it was remotely feasible to confiscate the wealth of the top 1% and redistribute it, there would be enough nominal value to double the net worth (or halve the net debt) of the remaining 99% of people. That seems like a pretty dramatic difference to me.
I agree there's a long list of reasons why we shouldn't attempt this, but top 1% don't actually have much to share around isn't one of them.
For your 1%, we'd need some data on how much money they have. Do you have some data for us?
But for the middle class, really want a job at $100,000 a year for 40 years, that is, $4 million. So the $1 million is only 25% of the way there. For the poor people, we still need to find the other 75%, that is, $3 million.
Again, the gripe of the poor people that the rich people have the money the poor people should have is at most $10,000 once, and that wouldn't put the poor people in the middle class.
Or to get the poor people in the middle class will take many, Many times the amount of money the rich people have, say, over a lifetime, say, working 40 years at $100,000 a year, $4 million, that is, 400 times the $10,000. So, that the rich people are too rich solves, for the poor people, at most only 0.25% of the problem of the poor people. So, what we need for the other 99.75% is not from the rich people but, in a word, the powerful people.
That's a longer explanation of my main point.
I'm going to look at 2003-2013 for the somewhat arbitrary reasons that (a) full records are available for all years in question, and (b) a decade is a reasonable and convenient length of time. The effects we'll see are somewhat emphasized from the last 3-5 years, so the effects would be diminished if you looked at, say, the last 30 or 50 years, but the trends would still exist. (That is to say, this isn't a new problem.) I'm also going to use an inflation factor of 1.27 so the analysis can be done in constant calendar year 2013 dollars. (Numbers may not add or work out exactly because of significant figures and rounding error.)
- According to the world bank, US GDP grew 14.7% from 2003 to 2013 from $14.62T to $16.77T. [1]
- The total net worth of the Forbes 400 grew 89% from $1.21T to $2.29T. [2]
- Total payroll tax receipts (which is a good proxy for total wages paid by average folks, since they phase out at higher earning levels) grew 4.6% from $0.905T to $0.947T. [3]
- Meanwhile the total workforce grew 6.1% from 146.5M to 155.4M. [4]
Based on this data, it seems fair to conclude that nearly all of the growth -- i.e., the new value created in the US economy from 2003-2013 -- went to very rich people, and very little (in fact, a negative fraction when adjusted for the growth in the workforce) went to the people actually doing the work of creating that value. Now, there isn't anything inherently wrong about that...but it a) probably isn't sustainable, and b) has created a social burden because delaying the effects requires public assistance to take up the slack -- the number of food stamp recipients rose 214% between 2003-2013.
[1] http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
[2] http://www.forbes.com/2003/09/17/rich400land.html
[3] http://taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=4...
[4] http://www.dlt.ri.gov/lmi/laus/us/usadj.htm
[5] http://www.fns.usda.gov/sites/default/files/pd/SNAPsummary.p...
But you also wrote:
> The basic argument I have is that they are not sharing adequately (i.e., sustainably) in the rewards for their labor.
Let's see: Suppose a company has 100,000 near minimum wage employees and the CEO got $50 million last year. So, for some arithmetic
50 * 10**6 / 100,000 = 500
Might argue that if the CEO does his/her job well, then the company will grow, hire another 50,000, currently nearly unemployed, low wage workers and promote some of the present 100,000 workers to management positions where they start to get into the middle class.
Net, to get the poor people into the middle class will take more money than the CEOs get, and one of the best approaches is to have more and better CEOs who create more and better jobs. One example may be the large company (?) that recently announced that all its employees, many at the low level, can go to college for free.
Again, it appears that the key to getting the poor people into the middle class is not rich people but powerful people, yes, maybe powerful because they are rich; but to be successful they need to use their power, and smarts, and not just their money -- because even the rich people do not have even 1% of the needed money.
Power? Maybe. Money? No.
Let's take Bed Bath & Beyond (BBBY) as an example because, conveniently, their CEO made ~$50M in 2013. [1] Their annual earnings report indicates that they had a net income of $1.04B that year, and their corporate profile suggests they have ~60,000 employees. [2][3] If they spent 100% of their current profits on employee salaries it would yield ~$17k/employee. (For reference, the full-time minimum wage salary in 2013 was $15,080. [4]) Even under much more reasonable conditions -- let's say that we allocate 1/4 of net income to worker salaries -- then each of their 60,000 workers would earn an additional $3800, which is just about equal to the max EITC for a family with one child in 2013. [5]
It's really not about CEOs getting paid huge amounts, it's that workers are neither represented nor included in sharing the prosperity of their labor -- and taxpayers are subsidizing the difference.
[1] http://www.usatoday.com/story/money/business/2014/06/04/bed-...
[2] http://www.marketwatch.com/investing/stock/bbby/financials
[3] https://finance.yahoo.com/q/pr?s=BBBY+Profile
[4] http://www.epi.org/publication/minimum-wage-workers-poverty-...
[5] http://www.irs.gov/Individuals/2013-EITC-Income-Limits,-Maxi...
For your
> You're looking at the wrong pot of money.
I was responding to the common claim that the worker bees are poor because the suits get too much money.
Your example would be really something for Apple Computer with, what is it, $195 billion in cash?
Charities only have to spend 5% of their interests each year, and that can go to salaries, expenses and such. Why do you think so much of Warren Buffett's "charitable donations" go to charities he created? They are tax shelters that are run by his kids. That is his way of avoiding estate taxes.
I doubt if Bill and Melinda will just sit on Warren's fortune and draw a salary for managing it. Instead, likely Bill and Melinda will allocate it as best they can.
Spending $100+ billion effectively is actually not so easy, but I do believe that Bill and Melinda and their foundation will spend the money as fast as they can find good places to spend it.
http://money.cnn.com/2012/08/30/news/companies/buffett-donat...
Warren's worth, what, $75 billion or some such?
Warren gave $3 billion, only $3 billion? Ah, chump change!
I once read a very good article, wish I could find the link, that talks about Buffet and says that anytime Buffet says something you should wonder what's in it for him. That while he is claiming your best interest, his hand is reaching into your pocket to steal a dollar.
My only point was that even if confiscate his money and pass it out among the poor people, the poor people will still be poor and not in the middle class -- even Buffett and the rest of the Forbes 400 don't have money enough to bring all the poor people into the middle class just by confiscation and redistribution.
That's not the only possible point to make about inequality, but by itself it is correct.