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Politics : Politics for Pros- moderated -- Ignore unavailable to you. Want to Upgrade?

To: MSI who wrote (21730)	12/27/2003 5:38:47 AM
From: LindyBill	Read Replies (1) \| Respond to of 793721

This from a "Blue Blog." Read it and be very afraid if these people get back in office. "The Cardinal Collective." WAGE SUBSIDIES: Matt Miller picks up an idea by Edmund Phelps, an economist at Columbia, for wage subsidies (see previous post). Suppose you want every worker to be paid at least $10/hour. A minimum wage would just destroy jobs for people with productivity less than $10/hour. Wage subsidies won't, because the government pays the difference between the market wage and $10/hour. The idea of a wage subsidy is that if an employer pays a worker a $5/hour salary, the government will give that employer a $5/hour subsidy which it would then pass on to the worker. The worker ends up making $10/hour, but the employer pays only $5/hour, so that it's still worth it to the employer to hire the worker and the job is not destroyed. The wage subsidies are phased out on a sliding scale, so that there's no cut-off effects. In other words, this seems like a way to implement the goal of living-wage campaigns, without destroying jobs or economic efficiency. And, in a way, it's fair: if there are social benefits from higher wages, it makes sense that society as a whole should have to pay them (through taxes), rather than private companies. This is the best way to help the poor that I have heard of yet. It provides a basic minimum while encouraging work (which is the only way to end poverty) and making crime not pay. Now there's one objection that I should talk about. Suppose the wage subsidy was set to start at $5/hour but then very gradually wind down to $0 around $15/hour. One could object that employers who now pay workers $10/hour would drop their wages to $5/hour and then apply for $5 of subsidies. The worker would still be paid the market wage of $10/hour, but the government would end up subsidizing the business by $5/hour. Thus the government would end up subsidizing employers instead of workers. This objection doesn't hold, though, because it's based on a static analysis. Basically, the market will bid up the worker's wage to whatever an employer can gain by employing him. If a worker's productivity is $10/hour and his wage subsidy at $10/hour is $3, an employer can get $13/hour from employing him. So the market will bid his wages up to $13/hour and the employers won't benefit from the subsidies - it will all be passed through to the worker. The main drawback with this idea is its cost: it would also cost $85 billion to make the "living wage" $9 an hour, according to Matthew Miller (though he combines it with making the minimum wage $6 an hour, which should make this idea both cheaper and less effective.) A lot of that can be found by reducing welfare, housing assistance, foodstamps, and the EITC, however. The real benefit of this idea, I think, is not to begin an argument over how much the living wage should be set at and how much money should be spent to raise the standard of living for poor people. What it does is that it says that, if you plan to spend $X to alleviate poverty among able-bodied people, you should spend it in a wage subsidy, not on welfare or targeted assistance. I think, after welfare reform, an enterprising state might be able to do this already with federal welfare monies. And since that money is actually helping people, I wouldn't mind spending more on it than I would on welfare. cardinalcollective.blogspot.com