Saturday, December 02, 2006

The very least we can do

Greg Mankiw explains why raising the minimum wage is a rather clumsy means of fighting poverty. I discussed this briefly last year.

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6 Comments:

Blogger djhlights said...

Jonathan, pardon my confusion, but what is the point you are trying to make?

Are you saying that because the EITC is a better method to assist the working poor below the federal poverty level than a minimum wage increase we should continue to do neither? Or are you making some sort of position that it's not the solution to the problem as whole and we should keep that in mind as we implement a minimum wage increase?

The position of the EMPLOYMENT Policy Institute, whom Mankiw uses as his primary reference, is not only that the minimum wage is not a solution, but also should not exist. They also are leaders in the fight against the EITC that you reference in your earlier post as a better solution to fighting poverty. What else would one expect for a policy institute paid for by the business community and has the heads of Steak and Ale, Outback Steakhouses, Burger King, Northern Foods, and others as board members and/or chairmen?

Also if it is a better solution to the problem, why isn't Mankiw pushing for an EITC?

In addition, the main point that Mankiw references is that 63% of the benifits go to those at double the poverty line. That's 33,200 for a family of 3 and below the median income of the same size nationally (approx 45,000). So is that a reason to not have the wage increase? Wouldn't that help a group that has not seen a cost of living increase or their wages keep up with the rate of inflation?

I agree that and EITC is a better solution than a minimum wage increase. I also agree that neither is the perfect solution to lower the amount of the American population that currently live under the poverty line from 12%, but its better than the ambivalence we are currently using to solve it.

I believe we need to be doing both.

But if we as a people are unwilling to have a tax increase for the EITC, a minimum wage increase is better than nothing at all.

4:30 PM

 
Blogger Jonathan Potts said...

First of all, congratulations on your new position.

Second, I would support a tax increase to increase the EITC.

Third, and as to what point I'm trying to make, well, I'm not exactly sure. I wanted to spark a discussion on the issue, since I'm somewhat ambivalent about the minimum wage. But you sort of have me cornered, because it's something of an all-or-nothing proposition. If you favor a minimum wage, then you have to favor periodic increases.

So yes, as we increase the minimum wage, we need to keep in mind that it's an ineffective means of eliminating poverty. And we shouldn't let Democrats pretend it's a panacea.

9:11 PM

 
Blogger djhlights said...

This comment has been removed by the author.

8:12 PM

 
Blogger djhlights said...

Thanks. It's gonna be a big change of pace, but I'm excited to have evenings off.

That's what I thought you meant, but where the info came from in those links I wasn't sure.

The EPI are the front group for the anti-union group "Center for Union Facts" which is why their lit caught my eye.

8:14 PM

 
Blogger Jonathan Potts said...

Don't get me wrong, there are plenty of arguments to be made against the minimum wage, not the least of which that it's very paternalistic. It's saying that some people are so incapable of watching out for their own economic interests that the government has to do it for them.

Unfortunately, the supply of unskilled labor is probably always going to outstrip demand, particularly in a service-based economy, and so workers are not negotiating at equal strength with employers. And today, the minimum wage also mitigates the effect of the government's inability or unwillingness to enforce labor and immigration laws.

9:14 PM

 
Blogger EdHeath said...

Jeez, I tried to post before, and it got lost. And with my schedule, I only get one shot at it.

I, too, support an EITC increase over a minimum wage increase, though I wouldn’t mind a lesser increase of both. The minimum wage is sort of the ultimate unfunded mandate, inflicted not on another part of government but rather on the private sector.

I skimmed through a review of studies from the National Bureau of Economic Research, the authors of which I believe had been mentioned on the (fine) Wikipedia page on the Minimum Wage. In short, their conclusion is that increases in the minimum wage do not lead to unemployment, even among teenagers. Rather the increases lead to future dis-employment, which is to say that fewer workers are hired in the future. I think that what people miss in looking at the minimum wage increase is that minimum wage workers probably spend all their paychecks, including the increase, probably at places that employ minimum wage workers. So some of the increase will be offset immediately. But prices will go up, so in the end the new, higher minimum wage will be offset by higher prices paying fir higher wages, inflation will get a little push from the bottom, and a few teenagers will find it hard to get a job.

If the minimum wage is paternalistic, surely the EITC is worse. It rewards taxpayers with two children and a certain level of job, not too low but not too high. If you have more than two children you still have the child tax credits (for as long as they are around) but no additional EITC.

The minimum wage is a raise unconnected to the worker’s activities. The EITC is a reward for working somewhat hard, but not too hard. Both embody somewhat perverse economic incentives, and should be considered as highly political and visible tools for fighting poverty. What we really need is to cut the cost of trade schools, and get kids in there.

By the way, have you noticed trade schools now cost for 18 months what CMU cast maybe ten years age for the same 18 month period (well, maybe twenty years ago). Clinton’s Hope and Lifetime Learning tax credits turn out to have some negative effects, as the higher education industry figured out how to take advantage of them. Gotta love politics.

11:03 PM

 

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