This caught my eye:
[Arindrajit] Dube responds that “one has to be honest about not knowing what would be the impact in every place.” But he points to 2019 research by Anna Godoey and Michael Reich of the University of California at Berkeley, who found that increases in state minimums didn’t hurt employment even in low-wage counties where the new floor equaled 82% of the prevailing median wage. And even if a high minimum wage does kill some jobs—as many studies, though not Dube’s, show it would—it can still be worthwhile if it raises incomes of low-wage families overall, he says. Some experts say that as with free trade, which helps more people than it hurts, any losers could be made whole with government assistance.
Yes, free trade is an excellent analogy for labor market policy, but not for the reasons cited by Peter Coy in this Bloomberg article.
Economists typically evaluate issues from both an equity and efficiency perspective. Many economists favor policies that maximize efficiency (making the pie as large as possible), combined with some redistribution to compensate the losers. Thus they favor free trade, combined with a program to help workers that lose their jobs due to import competition.
Oddly, Peter Coy seems to think this analogy points in the direction of boosting the minimum wage. Exactly the opposite is true. If we wanted to match the standard economic approach to international trade, we’d abolish the minimum wage and replace it with some sort of subsidy for low wage workers. Even if that were politically impossible, you would definitely not want a $15 minimum wage. A much superior policy would be a $10 minimum wage combined with a $5/hour wage subsidy, where the subsidy phases out at the rate of 50 cents/hour for each $1/hour pay raise, ending entirely when pay reaches $20/hour. (Teenagers could be excluded from the subsidy, if they are not living independently.)
I’m not saying this would be ideal (I’d prefer no legal minimum), but it would be much more in the spirit of the “free trade plus compensating the losers” analogy that Coy uses to justify a higher minimum wage. It would be aimed at making the pie as large as possible, while compensating the less fortunate.
READER COMMENTS
AMT
Feb 12 2021 at 5:13pm
This is exactly correct!
David Yearsley
Feb 12 2021 at 6:37pm
Instead of a wage subsidy, would you also favor a combination of no minimum wage and a universal basic income? This combination seems like it would also fit the bill of “let the market work, but compensate the losers,” since when combined with some degree of progressive income tax, you’d generally get the UBI back from high-earners.
Scott Sumner
Feb 14 2021 at 1:26pm
In my view, the whole point of getting rid of the minimum wage is that it allows you to get by without a UBI, and instead rely on wage subsidies.
I oppose any large UBI, although a small one might be acceptable if it didn’t discourage people from working.
David Yearsley
Feb 14 2021 at 6:46pm
I suppose I’m partial to UBI since I wonder whether wage subsidies warp decisions about unpaid productive roles. For example, if someone thinks their marginal productivity would be much higher by taking care of their own children or grandparents, rather than working for a wage and then hiring a childcare/elder worker, wouldn’t a wage subsidy encourage them to make the wrong decision, assuming their belief is correct? (Whereas a UBI wouldn’t introduce this distortion since it is unconditional on work.)
Do you think a wage subsidy would introduce this distortion, and if so, do you think it’s a notable concern or mostly trivial to get around?
Thomas Hutcheson
Feb 13 2021 at 6:19am
Wouldn’t it be great if instead of debating yes/no every new proposal we could discuss better/worse ways to modify them (including, of course accept as proposed and reject completely)?
Don Boudreaux
Feb 13 2021 at 8:56am
In my view, free trade is not an excellent analogy for labor-market policy. Quite the opposite, in fact. Despite the superficial similarity of the costs of free trade and the losses imposed by minimum-wage legislation, the two are, I believe, categorically different from each other. Back in 2016 I elaborated.
Scott Sumner
Feb 13 2021 at 2:07pm
Excellent, that’s my view as well. Free trade is analogous to free labor markets, not wage controls.
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