I see that our mayor has proposed a city ordinance to raise Chicago’s minimum wage to $13 an hour. The current minimum wage in Illinois is $8.25/hour, a buck over the federal minimum, so that amounts to a 58% hike. This follows Seattle’s decision to increase their minimum wage to $15 a few months ago, and it’s in step with attempts to raise both the Illinois and federal minimum wages.
There are a number of arguments against raising the minimum wage — it’s poorly targeted, it causes economic distortions, it’s unfair — but the one that attracts the most attention is the argument that increasing the minimum wage will cause a drop in employment among the kinds of workers who earn minimum wage.
Exactly how the job market responds to increases in the minimum wage is a somewhat murky issue, and research on the effects of raising the minimum wage have been inconclusive. However, the idea that increasing the minimum wage will hurt employment is not based on some esoteric theoretical proposition that has caught economists’ fancy. It’s based on a very broad theory that has proven itself often: When the cost of something goes up, people will buy less of it.
It’s that simple. The whole world of commerce is built around that theory, and we see it working every day. For example, it’s a lot easier to eat at a restaurant than to make dinner at home, and restaurant food likely offers better taste and more variety, and yet people don’t eat dinner out every day, because restaurants are more costly than eating at home. Alternatively, if you’re at the grocery store and you notice a great sale on your favorite food, you’ll probably buy more, which means that before it went on sale, the higher price was making you buy less. That quantity demanded declines as prices increase is pretty much the way of the world.
Therefore, I think we can safely say that raising the minimum wage (1) increases the income of low-skilled workers who were earning less than the minimum wage, (2) raises the cost of hiring low-skilled workers, and therefore (3) makes hiring low-skilled workers less attractive for employers. The benefit of increased pay comes in exchange for increased labor costs for employers.
Still, raising the minimum wage does provide some benefit to low-skilled employees, and it may even provide a net benefit, since the people who lose their jobs will be losing crappy minimum wage jobs. There are worse ways to help low-skilled workers.
As proof of that, Sarah Jaffe at In These Times is touting an even worse idea: The Bad Boss Tax.
As conceived, the “bad business fee” legislation would require companies to disclose how many of their employees are receiving public assistance from the state or federal government. Companies would then pay a fine based on the de facto subsidies they receive by externalizing labor costs onto taxpayers.
Some of the proposals for implementing this “bad business fee” would be a compliance nightmare:
The fee might be implemented on a per-employee basis—in Cook County, Illinois, NPA and JWJ partners are considering a $5,000 charge for each employee receiving public assistance—or as a lump sum based on how much an entire sector costs taxpayers, which would then be split up among the employers in that sector. The organizers also want to hold big businesses accountable for their supply chains and franchisees. For instance, if McDonald’s Corporation got slapped with a fee for each restaurant that underpays its workers, it could be pushed to include higher wages in its franchise contracts. Similarly, if Walmart had to pay not just for its retail employees, but the workers in its warehouses, it might have an incentive to require better wages from subcontractors.
Well, whatever else it does, this will certainly increase employment of accountants and lawyers. I mean, can you imagine the nightmare of a business having to obtain these reports from dozens or hundreds of suppliers and thousands of franchisees?
And can anyone seriously believe that charging businesses $5000 for hiring people who are on public assistance will not discourage businesses from hiring people who are on public assistance? How will low-skilled laborers acquire the skills they need to get off public assistance if we make it harder for businesses to give them jobs?
In fact, the low-skilled laborers are being cut out of the process almost completely. As with raising the minimum wage, the bad boss tax would also take money away from businesses that hire low-skilled workers, making them less attractive as employees, but at least increasing the minimum wage funnels the money from employers to low-skilled employees. The “bad business fee,” on the other hand, would take money from employers and give it to the government.
To be sure, the money would only be used to fund the finest of progressive social programs:
At a municipal level, Murray explains, the money could go to an existing development department that could manage and distribute the money. On a statewide level, it could be distributed through the revenue department as a tax break for workers. There’s also the possibility of distributing some of the funds to nonprofits involved with direct worker support, childcare or food assistance.
McGrath says the money could go to bolster the public services that workers rely on, or to hire more people to enforce wage and hour laws. “Minnesota succeeded in raising its minimum wageto $9.50 an hour by 2016 and indexing it to inflation,” he says. “But we have a paltry number of wage and hour investigators in our state. How will we know that people are actually being paid the wage that was just won?”
Elsewhere, other community and labor partners are busy brainstorming about what would make sense in their states and cities. In Chicago, housing subsidies are a possibility; in New York, the money could be used to offset the rising costs of public transportation; in San Francisco, a combination of housing and transportation issues is under consideration, as gentrification has rapidly made it harder for low-wage workers to live near their jobs. In New Mexico, using a bad business fee to support early childhood education is being discussed.
This is a familiar pattern for spending on social welfare programs. It seems that wherever you find a recognizable group of disadvantaged people, you will find a buzzing cloud of middle class people who make a living off of providing them with government-paid services. It would be simplest, and arguably most efficient, to just give poor people the money they need to improve their lives, but instead the money is used to hire social workers, clerks, lawyers, psychologists, and childcare specialists or it’s used to fund programs in education, public transit, or housing.
In this case, to be completely cynical about it, the logic at work seems to be, “Those greedy companies aren’t paying workers enough, so we should tax the companies and use the money to hire people like me to provide services to their workers.”
The public choice implications aren’t pretty either. Once there are thousands of people earning a living by providing services paid for by the “bad boss tax” on workers receiving public assistance, won’t that create a constituency that never wants workers to get off public assistance?
In that way, the fee is win-win. If companies seek to avoid it, they end up doing something just as good for their employees, or even better. Martin says, “For me in particular, the better part is my boss may be thinking, ‘Well, I should just pay my employees better. I should just pay a living wage. I should just give Cliff some benefits.’ ”
Or “Cliff shows promise and I was thinking of promoting him, but now I can’t afford the $5000 I’d have to pay to keep him around. Better to terminate him and give the hours to Mary and Bill.”
Or “I should just terminate Cliff and Mary and Bill and replace all three of them with one employee trained to operate the machine that does their job.”
I think proponents of this idea are sacrificing the welfare of the people they claim to be helping so that they can revel in the joy of punishing businesses they don’t like.