We should probably replace the minimum wage with a wage subsidy.

With the recent discussions of hiking the federal minimum wage, I came across a plan that might solve three MW-related problems:

  1. The MW is rarely enough to get by on.
  2. The MW eliminates (from the regulated market at least) all positions that create less value than the MW. Do you have a great idea for a job that someone might happily do for $7.00/hour? Sorry, that job can’t exist legally.
  3. Inexperienced workers or those with criminal records present more risks to employers, and the MW makes it impossible to offset that risk by reducing the starting wage a bit. This makes it hard for these folks to get a foot in the door.

Because of problem 1 (and because we make a value judgment on the individual and project that value onto our expectations of wages), we tend to only push the MW up, which just exacerbates problems 2 and 3. Then we paper over those failures by paying the unemployed to remain idle, which is bad for their health, their skills, and their community’s productivity. So if there never were a MW, it would sure seem like a bad idea compared to Morgan Warstler’s plan of just having the government pay the difference between the market wage and what society feels individuals need to get by on ($280/wk in his outline).

A particular flavor of wage subsidy, this plan would set up a second labor market where qualifying employers (almost any small business) would have access to workers for as low as $40/wk—low enough to create almost infinite demand for labor—but these employees would take home at least $280/wk (the “Guaranteed Income”), with the government picking up the difference.

The exciting thing here is this could instantly produce almost full employment, giving workers lots of choice of jobs and forcing employers to compete for even low-wage workers in pay and work conditions. The evidence seems to suggest that Germany’s wage subsidies (in the form of shorter work weeks) allowed Germany to have one of the lowest unemployment rates of the OECD countries during the recession and it probably cost less than the equivalent unemployment benefits, too. It certainly reduced the extremely damaging effects that unemployment has on individuals and families.

Warstler also suggests having employees and employers use an eBay-like ratings platform to improve information flow (the value of employees, the conditions/benefits of jobs, bad behavior of parties) within the market. This seems like a good idea, and sites like Glassdoor show there’s demand for it at the higher end of the payscale, but I have some doubts that it will make such a huge difference; I think it will still be weird and a bit dangerous to your working relationship to publicly rate your boss. Anyway, I don’t see why we can’t roll this out independently of GI.

Ultimately I think this plan—and all the other wage subsidy schemes—sound much better for workers than the current “if-you-can-find-work-at” minimum wage system, which seems as hopelessly flawed as every other attempt to artificially dictate prices.

A few other concerns with the plan:

  • Not all employers qualify for GI workers and I think the question of which can/can’t will be difficult to pin down. E.g. If I hire my neighbor to do all my chores and vice versa, we each end up pocketing $240/wk in subsidies. Rooting out these schemes would be tough. Warstler seems to think we don’t necessarily need to and that we might get valuable information from seeing how these pan out.
  • GI employers get workers for significantly less than non-GI employers, and I wonder what kind of market distortions that would create. The answer may be none.
  • The transition into GI could be chaotic, as overnight there’d be countless jobs to choose from and non-GI employers would have to react to this serious competition. We just have no idea what kind of jobs people will come up with, but every additional job would seem to improve the situation for workers.
  • How do GI workers get stable healthcare? Do they get access to a group plan? This could cause problems for workers wishing to move between the GI/non-GI markets.

If we’re stuck with a minimum wage, it would seem best to keep it as low as possible and boost/widen availability of tax credits like the EITC. Essentially this also works as a wage subsidy if by another name.

And can we just get rid of the awful “tipping” system/reduced wage for food workers, as if they’re for some reason especially deserving of having every night’s pay be at the whim of customers and dozens of other elements out of their control.

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