Tuesday, March 29, 2005

Keeping the faith 

Big Trunk and Bogus Doug both note the STrib's editorial and supporting article arguing for a hike in the minimum wage. It's a silly idea for many reasons. Here's why:

How many people in Minnesota make the minimum wage? 32,000. Here's your data source. When the STrib editorial says it would benefit 230,000 workers it must include in the increase many workers making above the minimum wage. We know that about 57% of workers in MN are paid hourly wages (broadly, 1.5 million out of 2.8 million workers). The last distribution of MN wages number I saw is for 2002, and the lowest decile percentage comes in at $7.22. Therefore the number should be more like 130-140k, not 230, unless the STrib wishes to argue that an increase in the minimum wage will push up wages 100k workers earning more than $7/hr.

A study from a few years ago from the Heritage Foundation notes:

Nearly two-thirds of minimum wage workers move above the minimum wage within one year, and the median raise for those workers is over 10 percent. For full-time minimum wage workers, the median first-year raise is almost 14 percent. Entry-level jobs are not lifelong dead-end jobs. These jobs allow Americans to establish a track record of work that creates opportunities for better paying jobs.

...Just 1.9 percent, or 404,000, of the 20.8 million poor Americans over the age of 15 would be affected by an increase in the minimum wage ...Studies show that raising the minimum wage does not significantly reduce poverty. In fact, for some subgroups, minimum wage increases appeared to raise the level of poverty.

More than half of those who earn minimum wages are teens. Trunk does a good service bringing up Ben Zycher's rebuttal of the Card and Krueger study, but the point Tyler Cowen makes is also apt:

On this issue (and many others) I've been much influenced by my colleague Gordon Tullock. Gordon notes that the government can make an employer raise nominal money wages, but can't stop him from turning off the air conditioner. [A more optimistic scenario is that the employer invests in creating a higher-productivity job.] Surely just about every job out there can be made worse, one way or another, in a way that saves the employer money.

So the scenario is now simple. The government boosts the minimum wage. Low-wage workers earn more. Few lose their jobs. Workers sweat more too, one way or another. Few are much better off.

Cowen links to Steve Landsburg in Slate, in which Landsburg has an answer for the STrib:

Ordinarily, when we decide to transfer income to some group or another�whether it be the working poor, the unemployed, the victims of a flood, or the stockholders of American Airlines�we pay for the transfer out of general tax revenue. That has two advantages: It spreads the burden across all taxpayers, and it makes politicians accountable for their actions. It's easy to look up exactly how much the government gave American, and it's easy to look up exactly which senators voted for it.

By contrast, the minimum wage places the entire burden on one small group: the employers of low-wage workers and, to some extent, their customers. Suppose you're a small entrepreneur with, say, 10 full-time minimum-wage workers. Then a 50 cent increase in the minimum wage is going to cost you about $10,000 a year. That's no different from a $10,000 tax increase. But the politicians who imposed the burden get to claim they never raised anybody's taxes.

If you want to transfer income to the working poor, there are fairer and more honest ways to do it. The Earned Income Tax Credit, for example, accomplishes pretty much the same goals as the minimum wage but without concentrating the burden on a tiny minority. For that matter, the EITC also does a better job of helping the people you'd really want to help, as opposed to, say, middle-class teenagers working summer jobs. It's pretty hard to argue that a minimum-wage increase beats an EITC increase by any criterion.

So here's the challenge for the STrib staff. How about rather than advocate an increase in the minimum wage, you advocate a negative income tax (of which the EITC is an example) on a statewide basis to transfer income? Why should McDonalds and WalMart have to pay for our desire to give others more "economic dignity"?

You of course know the answer: To do so would mean that the costs of our "noble" desire to take money from someone to increase someone else's dignity would be exposed as a tax expenditure, and taxes on other would have to be raised, in broad daylight. It's one thing to slam Governor Pawlenty's continued commitment to no tax increases; it's quite another for the STrib and its DFL buddies to ask for a tax increase to help the poor. They know there are no votes there.