A Bad Bargain
Adam Ozimek has an idea for Republicans:
Here’s what they should do: offer a compromise to Democrats that passes a $15 federal minimum wage in exchange for cutting corporate tax rates.
Why would this deal represent a win for Republicans rather than just a compromise? Because regardless of the support it generates among fast food protestors and advocates, a $15 minimum wage would simply be untenable. The increase in unemployment would be swift and significant, and Democrats would be unable to deny it. The $15 minimum wage would be repealed very quickly in a bipartisan consensus.
Well, that’s certainly putting his money (or policy) where his mouth is, in terms of his opposition to raising the minimum wage.
The problem I see with the bargain is this: The effects of raising the minimum wage would be pretty unequally distributed. As would nixing the corporate income tax, though the effects there are harder to lay out.
High-wage, high-cost places would likely not feel the increased minimum wage nearly as much. Nowhere would it be less felt, for example, in Western Dakota. After that, you’d be looking at New York City, San Francisco, Seattle, DC and other Democratic strongholds where you can afford to raise the minimum wage somewhat because (a) basement wages are higher to begin with, (b) there is more money flying around, and (c) it’s more justifiable there because of the cost of living.
This is why I don’t have any objections – or predict much in the way of negative consequences – when high-cost cities choose to increase their minimum wage. To the extent that we’re going to have a minimum wage, it makes sense that the minimum wage have some sort of relationship to purchasing power.
But that’s also why I am critical of the likely consequences of a state-wide or nation-wide bump. If you raise the minimum wage in Washington, you’re raising it in Seattle and you’re putting Eastern Washington at a distinct disadvantage. There’s less money out there to pay people $10-15/hr, and cities like Pullman would be at a disadvantage compared to cities like Moscow, right across the Idaho border.
You can get rid of the state line problem by raising it nationally, of course, but the disparities become more stark. Having the same minimum wage in Mississippi as in San Francisco makes little sense. The positive effects are more likely to hit the latter, the negative effects more likely to hit the former.
That’s a policy problem, but it’s also a political one. If the positive effects are felt primarily by the constituents of one party, and the negative effects felt primarily by the other, it’s hard to get that bipartisan consensus to repeal it. At the least, there would likely be enough support for it to hold the minimum wage where it is while inflation catches up to it. Which leaves some states better off and some states worse off (and I think this is an optimistic assessment, when we’re talking about $15/hr), if you represent the latter, you’re not doing your job if you sign on to this bargain. Especially when (by my seat-of-the-pants assessment) the benefits of the corporate tax elimination would primarily go to wealthy and blue states (and Texas).
college pigskin critique
christina aguilera weight loss Country legend Willie Nelson to play sold out 9
christina aguilera weight lossHow to Become a Swimsuit Model
Why can’t we just give it a cost of living adjustment, like we do everything else? Then there’d be no more need to bitch and moan.
Minimum wage looks like a sawtooth, and it always has.Report
Cost of living equations tend to be battles in themselves, but I have no problem with it in the abstract.Report
The military does this, more or less. I don’t know how they calculate it, but I know that base salary is based on rank and than a housing allowance is offered base on cost-of-living and other factors.Report
One problem I can think of is that it will be impossible ever to lower the real minimum wage. Right now, inflation eats away at it and prevents it from getting to a level where it can do real harm. With automatic inflation adjustments, it will tick up every time the Democrats get a solid majority, and never again go back down. Then even worse policies will be enacted premised on the notion that the high unemployment rate is due to corporate greed.Report
Brandon,
I’m pretty sure you’d see more support in the creative class for “keep the minimum wage where it’s at” if it was a stable number that wasn’t constantly shrinking.
Plus, you could point to actual studies saying “Here’s how much this minimum wage thing is costing us” (yeah, these studies would be kinda annoying to actually run. but CATO would run them I’m sure — right? they do do research? if not them, then RAND).Report
The parties could start to discuss tax reform. However they are to far apart on staring positions and i don’t think either side has a desire to move. Certainly the R’s want to reduce corporate rates, which few companies pay at the highest rate, but they also want to drop overall taxes. The D’s have talked about cutting corporate rates but making it revenue neutral which is a no go for F’s.Report
Given how much variation there is in the cost of living nationwide, a federal minimum wage always seemed a little strange to me. It only really “works” if it makes sense for the region with the lowest possible cost of living.
Even at the state level, it can get a little bit sticky. California likes to set a minimum wage above the federal minimum, but the variation in cost of living between the rural and urban parts of California is huge.Report
Woo-Hoo! A shout out for my birth town of Pullman!
Anyways, I think the R’s will be moving pretty hard here on tax reform in the near future anyway, and the left is just trying to see if they can get anything out of the deal. Or at least get them on record as not being in favor of a dramatic jump in min wage, and try to work the politics that way (which is what the right will be trying to do with taxes, but it is starting to look like they will have more leverage.)Report
National Democratic proposals to raise the federal minimum wage to $15, which I’m not aware of in any case, would almost certainly involve phasing in the change pretty gradually for the reasons Will is concerned about. (The $10.10 proposal might do that for that matter, now that I think of it.) I doubt Democrats would vote for it if it didn’t do that. And if it did, that, i suspect Adam Ozimek would be much less interested in going forward with his implicit game of chicken (though he may, as he might not really care about the minimum wage that much one way or the other and really just mainly want the tax cut).
If it were on the table in that form, Democrats should take it. Or: they should come back with a MW number that they prefer to $15 and make Ozimek look like a stooge for being unwilling to deal on a MW of $X but being willing to do so on a MW of $1.3(X) or whatever (when it’s known that his actual policy preference would be $0.3(X) or maybe $0). It’s a fundamentally unserious approach.Report
The concern isn’t really or too fast, exactly but that it is poorly tailored for the cost disparities around the country. I actually responded to Seattle’s increase with a shrug and some interest in how it goes.
Even a gradual increase would still leave a uniform policy with very different places with different needs and vulnerabilities.Report
National Democratic proposals to raise the federal minimum wage to $15, which I’m not aware of in any case,
Here you go. 😉Report
I don’t see where that link is on point. It’s about Socialist Party demands for the MW level.
Also, to clarify, by “National Democratic proposal,” I don’t mean any proposal proposed by a Democrat in Washington. I mean one that has buy-in from the national Democratic leadership, rather than just a few Representatives or such. Potentially the view of the Progressive caucus would qualify. They probably do have a $15 proposal, but I bet it’s phased in.Report
Democrats, socialists, and a grin emoticon.
Sometimes a joke is just a joke.Report
Jesus, my bad. I don’t know why I tuned out the emoticon. I was genuinely curious to see if I had missed that they came out with that position.Report
I just assumed it was a long day, or you still hadn’t had your coffee yet.Report
Tbh, looking at it again, I don’t think there was any way I was going to get what you were doing there the first time around, regardless. I guess I thought the wink was saying “It was pretty easy to find if you would have just looked it up,” which I assumed was a fair dig since by all means I hadn’t bothered.Report
I know this observation is somewhat off topic, but since it makes me so angry I have a hard time getting past it I feel like underscoring this part of the Ozimek post:
Doing something you honestly believe would sabotage the US economy to make points for the next election soundbite cycle? Awesome! Seriously, this post (Ozimek’s, not Trumwill’s) is pretty much everything that I think is wrong with conservatives and the GOP today.
Say what you will about the shortcomings of liberals and the DNC, I never see them advocating s**t this cynical.Report
Well yeah…its a pretty much bad faith suggestion.
Of course if some policies are put in place, like a plains state that institutes long sought conservative tax policies which fail, people will of course modify their views. So he does have a point about how people deal with their polices not working.Report
Vikram had the same response.
Ozimek is somebody to read for economic insights, not actual political strategy (which is outside his wheelhouse).Report
Also this, although I’m prone at times to thnking like this as well. (I don’t usually go as far as writing items about it in national magazines, however.)Report
Hmm. Adjusted for inflation, what’s 1985’s minimum wage today? 1975? 1990?
IIRC, we’re no where remotely CLOSE to the maximum minimum wage the US has had. It’s like when people tell me raising taxes will destroy the US economy. It didn’t seem particularly destroyed in 1983. Or 1996. Or 1999. Or especially 1950 or 1960.
There’s a lot of things that have some actual historical evidence. The minimum wage? It’s been higher in the past. Taxes? Higher. We don’t have to use pure thought experiments and imagine what it’d be like. We can just, you know, look at what it was like 20 years ago. Or 30.Report
Adjusted for inflation, $15/hr would be the highest minimum wage we’ve ever had.Report
Looking it up, from about 1956 through 1980, it ran about 10 bucks an hour. So we can go up almost 50% from what we’ve got and still be in a zone that encompasses 25 or so years.
I’d start there. Bump to 10 and let it sit a bit. (Frankly, I’d just have it auto-adjust for inflation every few years anyways).
Then again, in US dollars — Australia is about 15/hour, Germany is 11, and Denmark is 21/hr — all with FAR more robust safety nets and cheaper healthcare (and yes, higher taxes). So it’s not like we don’t have examples of 15 dollar an hour minimum wage either.
The world exists out there. 15/hr isn’t some crazy utopian leap into the dark. I’m sure there are tradeoffs, but in the US there’s always this “OMG changing it will end the world as we know it plunging us into a nightmareish abyss of depression and debt and chaos”.
It’s really hard to take that seriously when the first response is “So Denmark is a nightmarish abyss of economic woe?”. (I mean, it is part of the Eurozone so I guess it might be!)Report
In my view, the problems outlined in the OP stand. While it might make sense for high-cost places to raise it, it’s dicier for low-cost areas and would strip them of a competitive advantage despite the purchasing power often being stronger there than in high-cost areas with higher minimum wages.Report
morat20,
Comrade Wesson is very much in favor of raising the minimum wage!
(expect crops to become more automated. Made in vat sounds fun, ya?)Report
Looking it up, from about 1956 through 1980, it ran about 10 bucks an hour.
Not sure where you’re getting that. According to this chart from the DOL, it very briefly spiked up to $10 in 1968 and was around $8-9 from 1962 to 1980.
It’s also worth noting that during that time the minimum wage applied to a much larger percentage of the labor force, under 5% now compared to around 15% in 1980.Report
Denmark is 21/hr — all with FAR more robust safety nets
The cynic might wonder if the one is necessary because of the other.
Also, Denmark relevant.Report
And no, Denmark does not have a $21/hour minimum wage.
The PPP adjustor for Denmark is about 2/3, so in addition to that not being an actual minimum wage, the PPP-adjusted value is around $14.Report
“Doing something you honestly believe would sabotage the US economy to make points for the next election soundbite cycle?”
I agree for all the reasons mentioned but do want to point out a not so subtle distinction. The proper phrase is allowing the other side to do what they foolishly think they want to do but which would blow up and thus undermine the competition’s credibility, cause them to learn and hopefully be repealed anyways.
It may be a strategy I totally disagree with. But The strategic logic is there.Report
Yeah, but I think the repulsion is based on the idea that it’s each party’s job to stop the bad ideas of the other party, not to assist them for electoral gain.Report
Also, almost tautologically, low-wage workers are the workers whose labor has the lowest marginal value, so the overall cost to the economy would be low, and probably offset by repealing the corporate income tax. Implementing one bad policy temporarily to end another permanently sounds like a pretty good deal to me.Report
This is kinda my response, too, actually.
Case in point: Prop 13 in California makes it politically nearly impossible to raise taxes of any sort. The response from the Right has historically been to just sit on this as a budgetary control measure (while of course also contributing to the problem at the expenditure side).
I personally think it’s entirely fine to have higher taxes to support more services, as an operating principle. I think it’s entirely fine to have lower taxes to support fewer services, too – as an operating principle, anyway.
What isn’t okay is to have a budget shortfall that’s dictated as ongoing and un-addressable because you allow people to vote 51% to add a service but require 67% of them to agree to pay for it.
That’s just a flatly stupid model for governance.
The principled thing to do is to repeal the 2/3 requirement for taxes, or increase the voting percentage to 67% for everything else, *not* to enable the status quo.
Yes, it may mean that in the short term folks vote to increase taxes and damage the economy.
But barring some sort of negative consequence that is inflicted upon the voting populace, they will continue to vote for cake and eating it too, because why not?Report
I think the effects would be less subtle than you do. At $15 an hour very few states would lack a negative impact. Notice that even in the highest cost cities who are pushing the minimum wage boundaries they are barely approaching $15 an hour, and they are easing it to it very, very slowly.
New York City might not see a devastating impact, but many ex-manufacturing towns elsewhere in New York that are already struggling would. It would be, for example, 40% higher than even staunch minimum wage advocate Arin Dube recommends for the state: http://www.hamiltonproject.org/files/downloads_and_links/state_local_minimum_wage_policy_dube.pdf
San Francisco might feel slight impacts, but L.A. would feel big impacts. Again, it would be 40% higher than Dube’s recommendation for California.
If we were talking about $10 or even $11 an hour I might agree with you but, $15 is just really, really high.Report
Welcome, Adam. Even within states, though, it would likely be the red areas that would be the most negatively impacted. A big part of it is how much impact it would have on Los Angeles.
We’ll have a better idea, I suppose, watching the Seattle experiment.Report
But do you think a New York State senator would be able to ignore a 10-15% jump in the unemployment rate in Buffalo? Given that $15 an hour would bring the minimum wage to just about the median wage, and thus half of all workers would be impacted, that estimate seems quite plausible.
Again, for small changes you may be right, but I don’t think you’re appreciating how radical a $15 minimum wage would be. The Seattle experiment won’t resolve this, since a $15 m.w. there would just be 66% of the median instead of 100% of the median.Report
Adam,
Change is coming, whether we do the minimum wage thingy or no.
Automation is really just around the bend from making tons of jobs go away.
We’re talking big heavy hitters — agriculture, shipping, construction.
Doing the minimum wage thing NOW, gives us time to adjust before change hits everyone at once.Report
As I noted, 10 is the federal minimum wage we had from the mid-fifties through 1980. 15 (in US dollars) is Australia, and 21 is Denmark. France is around 11 or so.
Personally, I’d go to 10, wait a year or three, and then gradually bump it up. (if 15 was my target). Just out of natural conservatism.Report
Going straight to ten would be disruptive. I’m somewhat ambivalent about a smaller increase to $9 or $10, but you’d have to phase even that in. (It was phased in when raised from $5.15 to $7.25 and even when it was raised from $4.25 to $5.15.Report
I meant set the initial target of 10, not jump 50% in one fell swoop.
Although in my mind, the US has a lot of labor issues to look at — poverty wages being just one.Report
If we believe that min wage has positive offsetting factors, then why do we need to move slow? What’s your theory about how fast the good things move versus how fast the bad things move? I think the “let’s move slow” theory implicitly accepts the negatives are big. It’s just a hope that if you go slow it won’t show up in the econometrics.Report
I also meant to mention we did not actually have a $10 minimum wage for very long. Just a brief period in the late 60’s. Inflation was high and it fell quickly. By 1980 it was between 8 and 9.Report
Moving slowly gives employers time to adjust and “find the money” (re-evaluate prices, delivery models, etc.)Report
If we believe that min wage has positive offsetting factors, then why do we need to move slow? What’s your theory about how fast the good things move versus how fast the bad things move? I think the “let’s move slow” theory implicitly accepts the negatives are big. It’s just a hope that if you go slow it won’t show up in the econometrics
Because change itself has costs — and a good rule of thumb is the greater the change, or the faster the change, the more costs? Markets do not instantly find equilibrium?
I mean, take your pick.Report
The notion that there are big adjustments that need to be made contradicts the stories used to defend the minimum wage: there won’t need to be many changes, workers will just increase their productivity or lower employee turnover will decrease costs. If you think there need to be big and complex changes in relative prices or delivery models, then you think there will be a big impact of the minimum wage and you should be a pessimist.Report
And if eliminating the corporate income tax is good, creating a negative tax that doubles corproate income would be even better! The GOP should propose that immediately!Report
The minimum wage has been around for some time. There have been increases during this time. As I understand these increases have generally not been associated with increases in unemployment. I think that minimum wage employees are likely to have the least amount of market clout compared to other people, and they are thus likely to lag in the increases in wages. In other words, by the time the minimum wagers get an increase the conditions have already been reset to a higher point.
In the last twentyfive years, the DowJones has quintupled. Perhaps this means that corporate America won’t be hurt that much by paying more to the lowest earners.
An increase might be good for the rest of us and the economy as a whole. Minimum wagers are going to spend the money and stimulate the economy. People who currently have low wages cost society money in the form of food stamps and healthcare subsidies; just because their employers don’t provide these things adequately doesn’t mean that our society as a whole doesn’t, and getting government support rather than a better pay check might be inefficient.
Finally, there are patholgies associated with low income such as substance abuse and crime whose amelioration by increasing the minimum wage would actually pay for itself.
What I am saying is that grinding the faces of the poor might not be the best solution.Report
Yes and no. Generally increases to the minimum wage are met with a minimal increase in unemployment, but that is because the minimum wage tends to be set pretty close to the reserve wage anyway and increases tend to be small. A larger increase in the minimum wage would create a larger unemployment effect.
Also, and perhaps more importantly, the people who tend to lose jobs and lose hours as the result of a minimum wage tend to be the least skilled and least productive workers. This makes sense. If you are an employer or manager and you suddenly have to reduce your payroll, you are not going to lay off your most productive workers. You are going to make the cuts from the folks you perceive as the least essential employees.Report
If the layoffs push these people into training themselves for better jobs, then you might see a net productivity increase over the course of a person’s lifetime.
However, if the layoffs essentially “cut out rungs” on the ladder (can’t prove that you’re a good worker, because you can’t get hired at the chump jobs…), you’d be looking at a net productivity decrease…
I’m inclined to think that it’s the former rather than the latter, simply looking at how many full-time, non-student folks are in minimum wage jobs…Report