Why a Wage Increase Is Better Than Wage Subsidies

Perusing the economics bloggysphere, we read that many people seem quite fond of wage subsidies, as opposed to minimum wage increases (though a fair number will grudgingly admit that a minimum wage increase might be more politically attainable). Kevin Drum notes that minimum wage increases are quite popular. Noah Smith offers two explanations:

Why do Americans like minimum wage hikes and ignore the EITC? Two reasons, I’m guessing. The first reason is that people like feeling like they are being rewarded for work. Wages are money that people feel like they have “earned”, even if the government has mandated above-market wage levels. Second, EITC is just clunky to use – you have to file for it through the clunky tax system, you have to know about it in order to claim it, and the acronym “EITC” itself has no meaning for the vast majority of poor Americans. A bunch of eligible Americans don’t even claim their EITC. Minimum wages, on the other hand, are easy to use, because the company does all work of administering it.

So is there a policy that would combine the economic efficiency of the EITC with the popularity of the minimum wage? I believe that there is. It’s called a wage subsidy. This means paying companies to offer their employees higher wages.

That may be, but I think Smith misses a huge selling point for the minimum wage versus a wage subsidy: people don’t want the government to pay rich people when they are already making so much damn money.

Consider Walmart. In 2012, Walmart’s profits were $15.7 billion. Here’s how a $12/hour wage would affect Walmart’s profits:

Setting a $12 minimum wage at Wal-Mart would increase the company’s payroll costs by $3.2 billion a year. Some of this would likely be offset by increased labor productivity due to higher morale, lower turnover, and lower absenteeism. The rest could be absorbed through reduced profits. Wal-Mart posted a profit of $16.4 billion in 2010.

Hell, let’s, for sake of argument, claim that a right and just wage would cost Walmart another $6 billion. That’s still $10 billion in profits, over half of which goes to the Clan na Walton. How is there a national interest in maintaining the Arkansan Aristocracy?

Look, as a known MMT/MMR sympathizer, I will gladly deficit spend at the drop of a hat (at the federal level). Money is never a limiting resource. I will deficit spend to support nascent industries. I will deficit spend to conduct research. I will deficit spend to foster our arts and culture. I will deficit spend to feed the hungry and clothe the needy. I will deficit spend to clean our air and water. I will deficit spend to educate all of our children. I will deficit spend to fix all the broken stuff. If I could figure out how to make this shit rhyme, I would be the Dr. Seuss of Deficits.

There are plenty of avenues for increasing employment through government spending.

But what compelling national interest is there in maintaining the wealth–and thereby the prerogative and the political power–of the Waltons? Or that asshole who runs Papa John’s? Why would you want to pay these guys for hiring workers they need anyway?

That’s why people support the minimum wage: they know, often from their own experience, that it could mean lower profits for owners. They know that salaries, especially at the bottom, have little to do market wage levels and a lot to do with power. Guess who has the power? Put another way, there is no reason for the Waltons to not pay a living wage, other than their greed and avarice. They choose to impoverish their workers.

And why should the federal government subsidize their greed and avarice?

Make the owners pay a fair wage.

Aside: It’s worth noting that many people–including our chattering and political classes–are not sanguine about deficit spending, so every dollar spent on the Waltons is (unfortunately) a dollar not spent on useful things.

Related: For those who worry about fast-food franchisees, how is a cheaper Big Mac in the national interest?

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6 Responses to Why a Wage Increase Is Better Than Wage Subsidies

  1. coloncancercommunity says:

    Pretty much sums it up. But a higher minimum wage would trickle through the economy raising anyone who is under – say – the $75k mark. THAT’S what’s got the fat cats on the top so scared. Once the floor is raised for the bottom, it actually has to rise for 80-90% of the population. Salaries across the board have been quashed for so long, that once loosened, it will come as a real jolt to those on top. It would be a boon to the economy and a lot of the money that the bottom 90% receive will go right back into the economy – but they don’t care about that.

  2. Eric Riley says:

    Aren’t they already being subsidized? When the company’s response to a demand for higher pay is met with pointing out to their employees how to get food stamps – and when companies are given tax breaks for setting up shop, how much more money should we give them to ‘produce’ jobs with a livable wage?
    How about we turn the table – no tax benefit unless the lowest paid employees you have are making at least 200% of the FPL? (Part time employees can be pro-rated.)

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  6. Eric Riley says:

    I would like to toss out an alternative to the minimum wage – let us abolish it and instead have a maximum wage.

    The maximum wage is a multiple of the lowest wage paid, the multiple is based on the number of employees (FTEs) and includes all compensation including benefits. Roughly the multiplier would be the number of digits in the number of employees times 10 – so if the lowest paid employee is making $9 an hour at a company with 800 employees, the highest paid person could receive up to $270 an hour. – $540,000 per year.

    For a ginormous company with millions of employees, that could be up to $1.26 M per year.

    How can the man at the top increase his take-home? (1) hire more FTEs and (2) increase the pay of the lowest paid employees.

    There would, of course, need to be a number of details addressed – but the overall goal is to put the incentives in line with increasing pay for those at the bottom and increasing employment.

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