Tuesday, January 7, 2014

How to increase the real minimum wage

Proposals to increase the minimum wage are being debated again, with both sides treating us to the usual arguments. Those favoring increases note the impossibility of supporting a family on the current minimum:  $7.25 an hour federally up to around $10 in some states.  This is obviously true. Opponents say increasing labor costs will reduce the number of workers hired, increasing unemployment.  This also is true, though the extent of the damage is unclear. 

We need a policy that would increase the prevailing minimum wage to a decent level selected by the government,  perhaps $15 hourly,  without increasing unemployment.

Of all places,  North Dakota may suggest the way.  The oil boom there has produced such a labor shortage that some McDonalds are paying rank and file workers $15 to $20 per hour. Some even offer signing bonuses.

North Dakota undermines claims that increasing the legal minimum would drive fast food establishments out of business.  McDonalds pays less in the rest of the country, not because it can’t afford to pay more,  but because conditions allow it to get workers for much less.  Most places the supply of low-skill workers is greater than the demand for them, and employers are not in business for their health.

We seem to be in a trap:  Unemployment could be reduced by reducing the minimum wage,  but this would aggravate already intolerable economic inequality.  A higher floor under wages could reduce economic inequality (for those with jobs) but reduce the number of jobs. 

We can avoid this trap by make the whole country more like North Dakota.  This would require a federal program offering full time jobs for everyone over 18  for (say) $15 an hour plus legally-required fringe benefits like health insurance.   Those hired would do things that need doing but are not getting done—helping old people,  maintaining parks,  picking up litter,  tutoring kids,  keeping an eye out for vandals, taking care of invalids,  comforting the dying,  you name it. 

Given such a program, places like McDonalds would have to pay staff at least as well as the federal program does to get enough workers.  And if employers reduce staffing because of increased costs, it wouldn’t increase unemployment; the government program would pick up the slack.  There would in fact be no unemployment.  None! 

The biggest disadvantage of this program is that it would visibly cost taxpayers something.  But it is more honest than minimum wage laws which promote noble objectives without apparently costing anybody anything and which do not guarantee a job,  just  minimum hourly pay if you can find a job.    

Benefits like improved personal security against unemployment would be an offset against the costs. The services provided by people working under the program would also be a plus.  And the program could partly be paid for by eliminating or reducing the Earned Income Tax Credit,  food stamps,  unemployment compensation, and other federal benefits.  Minimum wage laws could be repealed, eliminating the costs of enforcing them,  and no one would notice. 

It is time to put a real floor under wages and eliminate the scourge of unemployment once and for all.  North Dakota proves that this is not impossible as a matter of economics.  Now all we need is leaders who will make it politically possible.

This piece has run in the Grand Forks Herald.