The Real Alternative to the Minimum Wage

Moneybox
A blog about business and economics.
Feb. 17 2013 4:28 PM

EITC Isn't The Alternative to a Minimum Wage, This Is

74056471
When I'm dictator, people will get paid to do this.

Photo by China Photos/Getty Images

A higher minimum wage, with its possible disemployment effects, is often counterposed with wage subsidy schemes like the Earned Income Tax Credit as an alternative for helping low-wage workers. But as Mike Konczal and Arindrajit Dube explain, it's better to think of them as complementary policies. Wage subsidies help low-wage workers, but also serve in part as a subsidy to low-productivity employers, and they have the benefit of inducing more people to join the workforce. Minimum wages (within reason) also help low-wage workers, but serve in part as a tax on employers, and have possible downsides in terms of discouraging employment. So you want to try to do some of both.

But I still think minimum wage regulations are far from optimal. The real policy mix you're looking for is a blend of wage subsidies (to encourage work) and something like a Guaranteed Basic Income program that just hands out cash to people regardless of what they do.

A GBI helps people by giving them money, obviously. It also serves as a kind of de facto minimum wage, since if people can earn money doing nothing, in practice you're going to need to offer them higher pay to get them to work. But it's much more flexible than a minimum wage. In a GBI world, an employer has to make work somehow appealing enough to get employees even though everyone's guaranteed a basic minimum whether they work or not. But that "appealing" factor could be high wages, could be valuable skills and training, could just be a pleasant work atmosphere, or could be some combination of the three. Current minimum wage policies sort of try to achieve these goals by having exemptions for educationally rewarding internships or vocational programs. But these exemptions manage to be simultaneously too prone to abuse and too inflexible to capture the full range of possible scenarios that arise in human life.

Advertisement

Obviously, real-world politicans and activists operate within constraints, but when I'm dictator that's what we're going to do. No minimum wage rule, no sloppy enforcement, and no weird loopholes. But everyone gets a check every month, and employers need to offer a proposition that's more attractive than leisure even though pure leisure won't necessarily lead to immiseration. I'd also add in a progressive payroll tax that's somewhat negative at low levels to prevent the disemployment effects from getting out of hand.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Politics

Smash and Grab

Will competitive Senate contests in Kansas and South Dakota lead to more late-breaking races in future elections?

Stop Panicking. America Is Now in Very Good Shape to Respond to the Ebola Crisis.

The 2014 Kansas City Royals Show the Value of Building a Mediocre Baseball Team

The GOP Won’t Win Any Black Votes With Its New “Willie Horton” Ad

Sleater-Kinney Was Once America’s Best Rock Band

Can it be again?

Technocracy

Forget Oculus Rift

This $25 cardboard box turns your phone into an incredibly fun virtual reality experience.

One of Putin’s Favorite Oligarchs Wants to Start an Orthodox Christian Fox News

These Companies in Japan Are More Than 1,000 Years Old

Trending News Channel
Oct. 20 2014 6:17 PM Watch Flashes of Lightning Created in a Lab  
  News & Politics
Politics
Oct. 20 2014 8:14 PM You Should Be Optimistic About Ebola Don’t panic. Here are all the signs that the U.S. is containing the disease.
  Business
Moneybox
Oct. 20 2014 7:23 PM Chipotle’s Magical Burrito Empire Keeps Growing, Might Be Slowing
  Life
Outward
Oct. 20 2014 3:16 PM The Catholic Church Is Changing, and Celibate Gays Are Leading the Way
  Double X
The XX Factor
Oct. 20 2014 6:17 PM I Am 25. I Don't Work at Facebook. My Doctors Want Me to Freeze My Eggs.
  Slate Plus
Tv Club
Oct. 20 2014 7:15 AM The Slate Doctor Who Podcast: Episode 9 A spoiler-filled discussion of "Flatline."
  Arts
Brow Beat
Oct. 20 2014 9:13 PM The Smart, Talented, and Utterly Hilarious Leslie Jones Is SNL’s Newest Cast Member
  Technology
Technocracy
Oct. 20 2014 11:36 PM Forget Oculus Rift This $25 cardboard box turns your phone into an incredibly fun virtual-reality experience.
  Health & Science
Medical Examiner
Oct. 20 2014 11:46 AM Is Anybody Watching My Do-Gooding? The difference between being a hero and being an altruist.
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.