In 2010, the top 20 percent households, earned 51.9 percent of income, paid 68.8 percent of federal taxes. Top 1 percent earned 14.9 of income, paid 24.2 percent of federal taxes. Poorest 20 percent earned 5.1 percent of income, paid 0.4 percent of federal taxes.
Inspired by, and drawing largely from, this post over Cafe Hayek, here is a question that must be answered by every person claiming they support raising the minimum wage:
Regarding the effects of an increase in the minimum wage on the employment prospects of low skilled workers, do you either
1) believe that raising the minimum wage for some low skilled workers will NOT price other low skilled workers out of the job altogether – in other words that there are no trade-offs, no downside, to raising the minimum wage – or,
2) believe there are trade-offs, and some low-skilled workers will be priced out of the labor market – specifically those whose skills are not sufficient to demand the higher wage, such as, for example, teens and recent high school graduates – but, also believe the resulting benefits to the now higher paid workers will outweigh the resulting losses to the now unemployed low skilled workers, and therefore justify the increase?
Believing the first premise is simply economically incorrect. It defies basic economics and few sane people would likely defend such a stance when applied to other goods besides labor. Playstation4 consoles are currently selling for about $400 on Amazon. No reasonable person would argue that were the government to set the price of that console to no less than $800, that there would be no decrease in sales of PS4. Most people would rightly point out that sales of alternative consoles would likely increase, while sales of the PS4 would decrease. This is economics 101. If the price is artificially increased, quantity supplied may go up, but quantity demanded will go down, creating a surplus. Or in the case of low-skilled labor, creating a bunch of teens willing and able to work, but unable to find jobs.
Believing the second premise is, however, more of a statement of values than an economic question. I happen to think it contrary to American values to endorse a government policy that grants benefits to one group at the explicit expense of another group. You may have convinced yourself of the goodness of raising the minimum wage on utilitarian grounds, or you may simply not care if some are harmed, so long as others are helped. Either way, you are endorsing a policy that reduces the freedom of one group to artificially boost the wages of another group.
It is often unclear what exactly is being debated is discussions over the minimum wage. If advocates of raising the minimum wage could please just answer this question up front, it will make it a lot easier to refute all your arguments. Thanks.
From Joseph Heath at In Due Course:
Many of our outstanding social problems remain outstanding because they occur in areas that are outside the immediate jurisdiction of the state: either because they occur in the private sphere (e.g. the gendered division of labour within the family), or because they involve an exercise of individual autonomy, (e.g. students dropping out of high school). As a result, there is no obvious “policy lever” than can be pulled to solve the problem, because the state simply lacks the authority (and sometimes even the power) to intervene directly in these areas.
As a result, when people who would like to see these problems solved analyze them, there can be an enormous temptation to believe that they are causally connected to some other area, in which the state does have an effective policy lever. The case in which I have seen this most clearly is the tendency to overestimate the causal effects of inequality – because the distribution of wealth is something that the state does have the ability to control. So if “intractable social problem A” can be shown to be caused by “poverty of group B,” then that gives the state leverage over the intractable social problem, because it can always redistribute wealth to B.
To take a concrete example, one hears a lot these days about the “social health gradient” — basically, the strong correlation between various health outcomes and SES (“socio-economic status”), which remains surprisingly strong despite the relatively egalitarian distribution of health care resources. Now SES is an explicitly hybrid concept, designed to represent relative inequality of wealth and social status. But of course, while the state can quite easily redistribute wealth, social status is a much trickier thing, and the state’s ability to intervene, much less modify, these status hierarchies is pretty close to zero (except perhaps indirectly, by redistributing wealth, but even then that often backfires, as the recipients of those transfers find themselves losing status precisely for being in receipt of those transfers). So to the extent that the social health gradient is related to inequalities of status, there is practically nothing the state can do about it. As a result, I can’t count the number of presentations on public health I’ve heard that start out talking about SES and then just subtly shift toward talking about wealth inequality, in order then to recommend some form of income redistribution.