MINIMUM WAGE FEBRUARY 19, 2014
In a shocking development, yesterday’s Congressional Budget Office (CBO) report on the minimum wage convinced exactly zero people to change their minds. It only reinforced the prior opinions of both conservatives and liberals.
So, instead of talking about the report, its findings on jobs, poverty and earnings, I want to pose a different question: What are the Republican Party’s ideas for increasing wages?
Pre-tax, pre-transfer wages of low-income Americans have been stagnant for years. Taxes and transfers have helped, but conservatives argue that the goal of public policy should be to help people become self-sufficient and not reliant upon the government. Increasing the minimum wage is intended to help fulfill that goal, along the way reducing poverty and giving a wage bump to workers further up the income ladder. The problem, as conservatives are quick to point out, is that raising the price of labor has the potential to reduce employment.
Let’s stipulate that conservatives are right. Raising the minimum wage is a bad idea, because it will drastically reduce employment. While it may lead to wage growth for some workers, it will also hurt many others who lose their jobs altogether.
OK. Given that, how do Republicans plan to increase wages?
Let the market take care of it. The idea here is that full employment will force firms to compete for scarce labor and require them to raise wages to attract employees. During the late 1990s, low-income workers saw their earnings grow for precisely this reason. The goal then is to help the economy reach full employment. But here Republicans have come up short.
They have still not offered a jobs plan. In the American Jobs Act, President Obama proposed infrastructure spending, payroll tax cuts, extending unemployment insurance, and tax credits for firms to hire the long-term unemployed.
What have Republicans offered? The same thing as always: reduce regulations, cut taxes and “get the government out of the way.” But these are supply-side policies aimed at promoting long-term growth. They aren’t ideas to help in business cycle downturns.
Instead, Republicans have done everything in their power to push unwise spending cuts that have held back the recovery. If their plan to raise wages is to get the economy back to full employment, then they have done a terrible job of choosing policies to do so.
Increase the Earned Income Tax Credit (EITC). Conservatives love the EITC, because it promotes work. For that reason, increasing it would give workers an incentive to work more. In January, Sen. Marco Rubio (R-Fla.) outlined an ambitious anti-poverty agenda that, among other things, would convert the EITC to a wage subsidy, another policy that promotes work, so that childless adults could take advantage of it.
However, Rubio is not proposing to increase the size of it—though he has not written legislation on it yet—so it will create ‘losers’ as well, likely parents. Just as increasing wage subsidies for non-parents will give them an incentive to work more and increase their earnings, reducing the wage subsidy for parents will do the opposite. The net effect on employment may be positive, but this isn’t some magical cure that will suddenly boost the earnings of all low-wage workers, which seems to be what conservatives are searching for based on their criticism of increasing the minimum wage.
Finally, in his State of the Union, President Obama expressed his support for increasing the EITC. If that’s what Republicans want to do, he’s certainly open to it.
Reduce work disincentives. Republicans are often concerned that social benefit programs create work disincentives—Paul Ryan’s Hammock Theory of Poverty. There’s no doubt that incentives matter. So here’s an idea: Let’s give everyone a guaranteed basic income. This eliminates the higher implicit marginal tax rate that low income Americans face as they move up the income ladder. Congress could set it at an income level that is not overly generous so people still have incentives to work. In fact, Milton Friedman supported this idea—although he referred to it as a negative income tax.
Or on a smaller scale, Congress could offer subsidies to purchase health insurance to people further up the income ladder. That would reduce the work disincentives that the Affordable Care Act creates.
But I don’t see any Republican policymakers supporting those ideas.
Here’s a challenge to Republicans: If they are so concerned about stagnating wages, let’s see what they propose. Reform conservatives certainly have put forward ideas (see Michael Strain’s article in National Affairs for instance), but the vast majority of the Republican Party has no interest in them.
Against a proposal of nothing, a minimum wage increase doesn't look too bad.