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IDEA for supplementing min wage hikes.

brunoalley
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5/14/2015 5:51:49 AM
Posted: 1 year ago
An idea that I wanted to kick around with everybody:

The first criticism of proposed minimum wage hikes is usually its effect on employers (esp. small business owners) and on further decreasing the number of jobs.

However, if minimum wage hikes were supplemented by hikes on capital gains and estate taxes (at least in some introductory period) instead of placing the burden of the raise directly on the employer, would this not both help employers by allowing to hire more/better labor and help employees by raising wages and potentially creating jobs?

Placing aside for the moment questions about tax collection, what would be the benefits or drawbacks of such a proposal? Also: we can also think about whether the employer would pay from 0% of the hike or merely some portion, or whether similar dynamics could be achieved through tax breaks for the individual firms.

All input welcome!
ResponsiblyIrresponsible
Posts: 12,398
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5/14/2015 11:45:11 AM
Posted: 1 year ago
At 5/14/2015 5:51:49 AM, brunoalley wrote:
However, if minimum wage hikes were supplemented by hikes on capital gains and estate taxes (at least in some introductory period) instead of placing the burden of the raise directly on the employer, would this not both help employers by allowing to hire more/better labor and help employees by raising wages and potentially creating jobs?

Do you mean cuts in capital gains and estate taxes?

Because *hikes* in capital gains taxes would tend to reduce employment by discentivizing investment.

Estate taxes would have virtually no impact on employment - at least not in the shorter run. Estate taxes don't even apply to businesses, but to "estates" - i.e., it's a tax on someone's wealth after, I think, $5 million. It's possible to make a case, as I would, that the existence of this tax discourages saving, and thus reduces employment somewhere over the longer run, and thus cutting it could be conducive to employment growth, but the interaction between this and the MW is virtually zilch because they take place at two completely different times.

Now, if you're suggesting that we *cut* the capital gains tax at the same time as raising the same wage, that brings forward several questions. Indeed, a cut in the capital gains tax would tend to increase supply whilst a minimum wage hike would reduce it, but there's a question of magnitude and scope of the businesses. Obviously some businesses earn income via capital gains, but many don't - in fact, most of the small businesses we refer to when discussing the minimum wage, such as mom-and-pop shops (or even, if you want to go larger, Wal-Mart - though that's hardly "small"), don't. So I don't see how this could possibly be a perfect offset to a MW hike unless the cut in the cap gains tax were so massive that it eclipses the minimum wage. That could be the case, but I don't know why you opt to cut cap gains in lieu of marginal income rates - you'd probably get more bang for your buck with the latter, as it's more broadly applied.

Placing aside for the moment questions about tax collection, what would be the benefits or drawbacks of such a proposal?

Of the one you offered, or of what I think you meant? A tax hike in either cap gains or estates would obviously tax future consumption at a higher rate than current consumption, and thus reducing savings rate, which is obviously a probably down the road.

Cutting the taxes whilst boosting the minimum wage would likely r educe employment unless the tax were wildly massive - and, as I mentioned, it's hardly a perfect offset.

The main problem with the minimum wage is that it reduces resiliency to AD shocks; it increases short-run nominal rigidities, and thus flatten outs the AS curve, meaning that the economy isn't flexible enough to "self correct," and thus downturns require immense policy intervention. I don't see any way in which cutting the capital gains tax would address that pitfall.

Also: we can also think about whether the employer would pay from 0% of the hike or merely some portion, or whether similar dynamics could be achieved through tax breaks for the individual firms.

I don't see what you're point is, because obviously the tax incidence is on the employer, though the economic incidence is elsewhere. Capital gains hikes may transmit to various asset prices, while estate taxes would likely be borne on heirs of wealthy estates. But a MW hike, generally, is borne by employers, though some of that may transmit to higher prices, though those tend not to be all that large. But the problem, of course, is that because these taxes are such terrible offsets, we can't really say that an X percent cut in cap gains transmits to ameliorating Y percent of the MW hike. I don't think there's a tax, save for *maybe* the the top marginal rate, that could serve as at least a reasonable, material offset.
~ResponsiblyIrresponsible

DDO's Economics Messiah
Cowboy0108
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5/14/2015 2:52:32 PM
Posted: 1 year ago
Maybe (and I do mean maybe) this will work in aggregate. Still, the people negatively influenced by the MW will remain negatively influenced.
My biggest problem with proponents of the MW is that they fail to see that people get "paid" more than just what they are making. They are also getting work experience that is necessary for further employment. If this is raised, employers will have a larger supply of people from which to choose to hire and demand fewer employees. Thus, the young, inexperienced, and often minorities will be set back years in bettering their future.
Your plan(assuming that it is actually what ResponsiblyIrresponsible posted above) would not resolve this.
brunoalley
Posts: 15
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5/14/2015 6:05:53 PM
Posted: 1 year ago
Responsiblyirresponsible,

Thanks for the involved response; I obviously did not make myself clear.
I meant, as a thought experiment, what would happen if, with the taxes collected from estate and capital gains or just on higher incomes, the government subsidized a minimum wage hikes instead of being paid for by the employer?

That is, if minimum wage was raised from $10 to $12, the employer would continue to pay the employee $10, but the taxes furnished the rest (or maybe some percentage which would still marginally incentivize the employer to hire). Or maybe, the more general question is, what are the benefits and drawbacks of subsidizing the minimum wage?

The benefits I *imagine* are that employees have higher wages, employers are not forced to cut employees or freeze employment, and this may even create more jobs since employers are discounted (in the example above) 1/6 of the wages they'd pay to new employees.
Also a few other conditions:
1) The employee would sill have to work and the employer still have to pay a previous minimum (so that they couldn't just "hire" workers that do nothing, like the Speenhamland System).

2) The subsidy would taper, rather than just rounding to some cut-off, some set received-minimum wage.

3) Perhaps after some considerable period (perhaps indexed), the wage paid by the employer might eventually rise as well.

I hope this is clearer.
brunoalley
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5/14/2015 6:08:29 PM
Posted: 1 year ago
Also, in this forum, do commenters only see replies when you select "Reply & Quote?"

I would be curious about responsiblyirresponsible's response (and naturally of everyone's as well)
Diqiucun_Cunmin
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5/14/2015 6:59:36 PM
Posted: 1 year ago
At 5/14/2015 6:08:29 PM, brunoalley wrote:
Also, in this forum, do commenters only see replies when you select "Reply & Quote?"

I would be curious about responsiblyirresponsible's response (and naturally of everyone's as well)

Yeah, but he comes to the Econ forum often enough, so he'll see it.
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ResponsiblyIrresponsible
Posts: 12,398
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5/14/2015 7:34:16 PM
Posted: 1 year ago
At 5/14/2015 6:05:53 PM, brunoalley wrote:
Responsiblyirresponsible,

Thanks for the involved response; I obviously did not make myself clear.
I meant, as a thought experiment, what would happen if, with the taxes collected from estate and capital gains or just on higher incomes, the government subsidized a minimum wage hikes instead of being paid for by the employer?

That is, if minimum wage was raised from $10 to $12, the employer would continue to pay the employee $10, but the taxes furnished the rest (or maybe some percentage which would still marginally incentivize the employer to hire). Or maybe, the more general question is, what are the benefits and drawbacks of subsidizing the minimum wage?

The benefits I *imagine* are that employees have higher wages, employers are not forced to cut employees or freeze employment, and this may even create more jobs since employers are discounted (in the example above) 1/6 of the wages they'd pay to new employees.
Also a few other conditions:
1) The employee would sill have to work and the employer still have to pay a previous minimum (so that they couldn't just "hire" workers that do nothing, like the Speenhamland System).

2) The subsidy would taper, rather than just rounding to some cut-off, some set received-minimum wage.

3) Perhaps after some considerable period (perhaps indexed), the wage paid by the employer might eventually rise as well.

I hope this is clearer.

Okay, that makes a lot more sense. Honestly, I don't see how that would be much different from the EITC, which is a low-wage subsidy. It would probably become a matter of semantics from that point.
~ResponsiblyIrresponsible

DDO's Economics Messiah
brunoalley
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5/14/2015 8:29:38 PM
Posted: 1 year ago
I see a few critical differences between this and EITC, as far as its effects and incentives.

1) The EITC subsidizes low-income but does not subsidize wages. So for a single, childless worker, they earn $496 if they earn less than $14,590. Correct me if I'm wrong, but all other things being equal, I believe that the $496 is the same up to $14,590; then one is no longer eligible. Around, 14,000, I become disincentivized to earn more because I lose the EITC.
What's more it's supposed to be added to earned income, but the minimum for that earned income is $1. This means that whether I earn $1 or $14,590 dollars, the result is the same: $496.

If we were to tack the subsidy onto the wages, this is added incentive to someone making 8,000 to make 10,000, and it removes the disincentive for someone making around 14,000 (however small it might be).

2) Subsidizing wages is an aid rather than the burden upon employers that a normal MW hike would be. The EITC is fairly neutral (unless you can think of exceptions). The employer can buy labor at a discounted rate (even though it would be instituted universally, which has to be accounted for). If we used the figure I used above, they can get $12 in worker productivity for $10. It might help so much that he can hire more workers, and create more jobs, depending on the marginal productivity of each added worker.

3) It increases spending power of low-income workers but that power proportional to and the result of their owned earned wages. That is, they are spending "their own" money, which I think fosters better choices.
ResponsiblyIrresponsible
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5/14/2015 8:39:46 PM
Posted: 1 year ago
At 5/14/2015 8:29:38 PM, brunoalley wrote:
I see a few critical differences between this and EITC, as far as its effects and incentives.

1) The EITC subsidizes low-income but does not subsidize wages. So for a single, childless worker, they earn $496 if they earn less than $14,590. Correct me if I'm wrong, but all other things being equal, I believe that the $496 is the same up to $14,590; then one is no longer eligible. Around, 14,000, I become disincentivized to earn more because I lose the EITC.
What's more it's supposed to be added to earned income, but the minimum for that earned income is $1. This means that whether I earn $1 or $14,590 dollars, the result is the same: $496.

If we were to tack the subsidy onto the wages, this is added incentive to someone making 8,000 to make 10,000, and it removes the disincentive for someone making around 14,000 (however small it might be).

2) Subsidizing wages is an aid rather than the burden upon employers that a normal MW hike would be. The EITC is fairly neutral (unless you can think of exceptions). The employer can buy labor at a discounted rate (even though it would be instituted universally, which has to be accounted for). If we used the figure I used above, they can get $12 in worker productivity for $10. It might help so much that he can hire more workers, and create more jobs, depending on the marginal productivity of each added worker.

3) It increases spending power of low-income workers but that power proportional to and the result of their owned earned wages. That is, they are spending "their own" money, which I think fosters better choices.

This is pretty interesting now that I think about it. I'll think about this a bit more and respond more thoughtfully when I don't have a giant final to study for, lol.
~ResponsiblyIrresponsible

DDO's Economics Messiah
Chang29
Posts: 732
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5/14/2015 8:48:30 PM
Posted: 1 year ago
At 5/14/2015 5:51:49 AM, brunoalley wrote:
An idea that I wanted to kick around with everybody:

The first criticism of proposed minimum wage hikes is usually its effect on employers (esp. small business owners) and on further decreasing the number of jobs.

However, if minimum wage hikes were supplemented by hikes on capital gains and estate taxes (at least in some introductory period) instead of placing the burden of the raise directly on the employer, would this not both help employers by allowing to hire more/better labor and help employees by raising wages and potentially creating jobs?

Placing aside for the moment questions about tax collection, what would be the benefits or drawbacks of such a proposal? Also: we can also think about whether the employer would pay from 0% of the hike or merely some portion, or whether similar dynamics could be achieved through tax breaks for the individual firms.

All input welcome!

How about, let each person set their own minimum wage? No enforcement needed, no off setting taxation. Just an employer and employee reaching an mutually beneficial agreement.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
Cowboy0108
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5/14/2015 9:18:06 PM
Posted: 1 year ago
How about, let each person set their own minimum wage? No enforcement needed, no off setting taxation. Just an employer and employee reaching an mutually beneficial agreement.

Isn't that just how we do it today? I like how it is done now, and I am highly against the minimum wage. (And I am an 18 year old).
Chang29
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5/14/2015 9:51:17 PM
Posted: 1 year ago
At 5/14/2015 9:18:06 PM, Cowboy0108 wrote:
How about, let each person set their own minimum wage? No enforcement needed, no off setting taxation. Just an employer and employee reaching an mutually beneficial agreement.

Isn't that just how we do it today? I like how it is done now, and I am highly against the minimum wage. (And I am an 18 year old).

Not the system we have now. There are employers with work that needs to be done, but at a lower than minimum wage price. If a person is willing to work for less than minimum wage they should be allowed.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
Cowboy0108
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5/14/2015 10:00:22 PM
Posted: 1 year ago
Not the system we have now. There are employers with work that needs to be done, but at a lower than minimum wage price. If a person is willing to work for less than minimum wage they should be allowed.

Oh yeah, of course. I was just thinking of higher wage jobs, not necessarily the low skilled jobs.
brunoalley
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5/15/2015 3:21:49 AM
Posted: 1 year ago


How about, let each person set their own minimum wage? No enforcement needed, no off setting taxation. Just an employer and employee reaching an mutually beneficial agreement.

Well, notice that my suggestion is precisely geared toward subsidizing wages rather than mandating unfunded wage hikes. That being said, I think there still needs to be a minimum wage because, especially on the bottom rung, it violates the condition of a voluntary and symmetrical exchange (which is our rare though regulatory ideal).
Meaning that, business interests unchecked, wages will get suppressed to exploitative levels, and workers at the bottom rungs will have to choose between exploitation and starvation. This is no more a "choice" or "mutually beneficial" than saying "your money or your life." If permitted, many businesses would "hire" children and the mentally disabled as well-- and underpay them. Minimum wage expresses a bound of human decency. But I think that, even ethics aside, eliminating the voluntariness of exchange has economic repercussions.
Chang29
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5/15/2015 6:10:12 AM
Posted: 1 year ago
At 5/15/2015 3:21:49 AM, brunoalley wrote:


How about, let each person set their own minimum wage? No enforcement needed, no off setting taxation. Just an employer and employee reaching an mutually beneficial agreement.

Well, notice that my suggestion is precisely geared toward subsidizing wages rather than mandating unfunded wage hikes. That being said, I think there still needs to be a minimum wage because, especially on the bottom rung, it violates the condition of a voluntary and symmetrical exchange (which is our rare though regulatory ideal).
Meaning that, business interests unchecked, wages will get suppressed to exploitative levels, and workers at the bottom rungs will have to choose between exploitation and starvation. This is no more a "choice" or "mutually beneficial" than saying "your money or your life." If permitted, many businesses would "hire" children and the mentally disabled as well-- and underpay them. Minimum wage expresses a bound of human decency. But I think that, even ethics aside, eliminating the voluntariness of exchange has economic repercussions.

The bottom rung is the most hurt by minimum wage laws. Your "money or your life" example is another problem, governments making starting a business too difficult. Entrepreneurship is the way out of suppressed wages.

People can not be voluntarily exploited, exploitation requires force from a government.

"Minimum wage expresses a bound of human decency", minimum wages are heartless. The lowest skilled worker's options are limited to law breaking or dependency. The truly compassionate position is to allow a person to work at any wage rate.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
Cowboy0108
Posts: 420
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5/15/2015 6:23:02 AM
Posted: 1 year ago
Well, notice that my suggestion is precisely geared toward subsidizing wages rather than mandating unfunded wage hikes. That being said, I think there still needs to be a minimum wage because, especially on the bottom rung, it violates the condition of a voluntary and symmetrical exchange (which is our rare though regulatory ideal).
Meaning that, business interests unchecked, wages will get suppressed to exploitative levels, and workers at the bottom rungs will have to choose between exploitation and starvation. This is no more a "choice" or "mutually beneficial" than saying "your money or your life." If permitted, many businesses would "hire" children and the mentally disabled as well-- and underpay them. Minimum wage expresses a bound of human decency. But I think that, even ethics aside, eliminating the voluntariness of exchange has economic repercussions.

So, how does your idea work in practice? Let us look at other developed countries but without a minimum wage. Namely, Germany and Switzerland. Yes, Germany does currently have a minimum wage, but that started this year, and there is still plenty of meaningful data.

Germany and Switzerland are in the top thirty for GDP per capita. During the economic crises, they had the most stable youth unemployment rates. Switzerland has one of the highest qualities of life in the world.

Also, since union wages are indexed on the minimum wage, by not having a minimum wage unions become cheaper and thus, more practical. I do not support unions; however, this is just an observation of mine.