Why Economics Is Too Important to Be Left to the Economists: The Glaeser-Minimum Wage Edition

In the Boston Globe, Edward Glaeser writes this about wage subsidies (boldface mine):

Still, the larger concern about raising the minimum wage is an ethical one. Every American ought to share in the cost of reducing income inequality. A higher minimum wage, however, pushes those costs on the very companies that already employ younger, less-skilled workers. Every 20-something who is playing video games at home rather than working hard is a national deficit. We shouldn’t discourage employers from recruiting and retaining more low-wage workers. Plus, in many cases, these businesses not only employ poorer Americans, but they also sell to this population. Higher labor costs at Walmart and McDonald’s will likely lead to higher prices, a hit to the wallets of the very workers that minimum wage advocates want to help….

Better yet would be an even more transparent approach: a government subsidy to businesses that hire low-wage workers. So, for instance, if Walmart paid an employee $7 per hour, the government would chip in $4 to bring that hourly wage up to $11 per hour. Firms don’t pay more, but employees earn more. Edmund Phelps, a Nobel Prize-winning economist at Columbia University, has argued prominently for direct low-wage subsidies, and while implementation issues do exist, none appear to be insurmountable.

By making an ethical case–wandering into normative territory (what ought to be)–well, I get to play too, since, by proclamation, I too, am a doctor of philosophy. So let’s philosophize (boldface added):

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 …$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….

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.

I suppose if there were a way to add a tax that hit only the wealthy that would subsidize income supplements, that wouldn’t be awful, though it too would be unfair: why should a wealthy person who doesn’t employ low-wage workers be forced to subsidize some other employer’s profits? Politically, given that we believe that deficits need to be reduced and that raising taxes is nigh impossible, the most straightforward and least Rube Goldbergian strategy is to advocate for a higher minimum wage.

And I would argue the most ethical too.

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5 Responses to Why Economics Is Too Important to Be Left to the Economists: The Glaeser-Minimum Wage Edition

  1. Gingerbaker says:

    WalMart’s profits would not suffer as much as the calculation shows. Hell, they might not suffer at all. A $12.00 minimum wage would increase the discretionary spending of tens of millions of people more than the number employed by WalMart itself, and they will probably spend a lot of that at WalMart, since $12/hr doesn’t a middle class income make.

    Not sure how much WalMart pays in taxes, but increased payroll should help alleviate that expense for them as well.

    Not sure $12/hr is a proper figure to use. If we really cared about our workers, I think $20.00 would be a better target considering how long it will take until it actually gets enacted, and since it is not likely to be increased until well after it should be (if history is a guide).

    Another idea I would live to see debated: Why should businesses have an exemption to providing full benefits to part-time workers? We have seen the result of this concept, it ain’t pretty, and it affects way more strata than minimum wage workers. Jobs should come with benefits.

  2. Min says:

    “Every American ought to share in the cost of reducing income inequality.”

    Why? Does every American share in the gain of income inequality? In fact, income inequality is itself a cost, and a cost that is borne most by those at the bottom of the income scale. To rectify that cost, is it not appropriate to benefit low wage workers? Perhaps the best thing would be a wealth tax, or a return to income tax rates of the Eisenhower administration, but that is a political impossibility. Raising the minimum wage may be a second best option, but it is politically possible.

  3. Min says:

    “Plus, in many cases, these businesses not only employ poorer Americans, but they also sell to this population. Higher labor costs at Walmart and McDonald’s will likely lead to higher prices, a hit to the wallets of the very workers that minimum wage advocates want to help.”

    This is actually an argument in favor of a higher minimum wage. Do we imagine that the rise in prices will offset the increase in wages? Of course not. But what it will do is to enable businesses to afford the pay increase. (As though WalMart, et al., could not afford to pay higher wages now.)

    “Better yet would be an even more transparent approach: a government subsidy to businesses that hire low-wage workers. So, for instance, if Walmart paid an employee $7 per hour, the government would chip in $4 to bring that hourly wage up to $11 per hour. Firms don’t pay more, but employees earn more.”

    First, the idea that WalMart would pass on the whole gov’t subsidy is unrealistic. Anybody over 30 should know that. Second, that is very much like things are now. The extra money is paid directly to workers in the form of food stamps and other assistance. It is a hidden subsidy to low wage employers, who could not pay people less than a living wage without that support. Making that subsidy explicit is not going to address the problem of economic inequality.

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  5. Gingerbaker says:

    So, as a taxpayer, you think I should foot the bill for 40% of WalMart’s labor costs? Are you kidding me? They don’t have enough money to pay their own employees? Man, what a bad idea.

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