Category Archives: Economics

The New York Times has a fascinating story by Sarah Maslin Nir about conditions in New York nail salons. According to her, thousands of immigrant nail technicians are being exploited by salon owners.

As if on cue, cavalcades of battered Ford Econoline vans grumble to the curbs, and the women jump in. It is the start of another workday for legions of New York City’s manicurists, who are hurtled to nail salons across three states. They will not return until late at night, after working 10- to 12-hour shifts, hunched over fingers and toes.

On a morning last May, Jing Ren, a 20-year-old who had recently arrived from China, stood among them for the first time, headed to a job at a salon in a Long Island strip mall. Her hair neat and glasses perpetually askew, she clutched her lunch and a packet of nail tools that manicurists must bring from job to job.

Tucked in her pocket was $100 in carefully folded bills for another expense: the fee the salon owner charges each new employee for her job. The deal was the same as it is for beginning manicurists in almost any salon in the New York area. She would work for no wages, subsisting on meager tips, until her boss decided she was skillful enough to merit a wage.

It would take nearly three months before her boss paid her. Thirty dollars a day.

It’s a well-reported, well-written story, and I have no doubt that there are some bad things going on in the nail salons. However, I think Nir is missing some important aspects to what’s going on in New York nail salons. When you encounter a tale of exploitation like this, there are some important questions you need to ask.

Probably the first of those question should be, If working in the nail salons is so awful, why don’t the women don’t just quit and get better jobs?

I’m sure just asking that question will make some readers want to tell me to “check my privilege,” but I think it’s important to think seriously about the answer. The news is full of complaints about McDonald’s and Walmart employees being paid only the minimum wage. That’s still more than these nail technicians are earning, so you’d think they would be applying for those jobs, offering to work for the same pay (but without protesting in the streets about it). So why don’t they? Why don’t they get better jobs?

Nir never address the issue directly, but she nevertheless supplies a few answers:

Almost all of the workers interviewed by The Times, like Ms. Ren, had limited English; many are in the country illegally. The combination leaves them vulnerable.

These workers are foreigners in this country illegally, so the biggest reason why these women can’t get better jobs is that the United States government doesn’t want them to work here at all. Most legitimate businesses, including major employers like McDonald’s and Walmart, are simply not allowed to hire them. They have to take what work they can get.

Also, they’re probably afraid to complain too much about working conditions because they fear they’ll be deported if they attract too much attention. My boss can only fire me, but Ms. Ren’s boss can get her thrown out of the country if she pisses him off.

Besides, even if their immigration status allowed them to work here legally, they still wouldn’t be allowed to work as nail technicians in New York because they haven’t met the state licensing requirements.

Between U.S. immigration law and New York State professional licensing requirements, government restrictions have robbed these women of much of their bargaining power.

The next question to ask is What do these women have to offer employers?

Not much, according the the facts in Nir’s story. Most of them don’t even know how to do the job yet, so they will have to be trained by whoever who hires them, and their inability to speak English means they can’t serve a customer without help.

In fact, their lack of English language skills severely limits the jobs they can do: Not only do they need to find a job where talking to English-speaking customers is not a requirement, they are also limited to seeking employment at businesses where the managers speak their language.

Another question to ask is What do these women get out of this?

The 20-year-old woman mentioned in the quote above, Jing Ren, starts out by paying $100 to get the nail salon job, and she works for almost three months for free, after which she earns $30/day for a 10-12 hour shift. Here’s the last report on how she’s doing:

She quit on March 8. Her boss said nothing; one colleague hugged her goodbye. After 10 months she had made about $10,000, she said.

Last month, she found a $65-a-day job at another nail salon.

Even if she only works an 8-hour day, that’s less than the New York minimum wage (but more than the minimum for tipped employees).

That doesn’t sound very good, but it does bring me to the next question. These workers certainly make less than regular American workers, but How do their wages compare to wages where they came from?

The Davos global wage calculator tells me that the average private sector wage in China is 32706 CNY, or about $5267. So Ms. Ren paid the equivalent of one week’s wages for the average Chinese worker to get her nail salon job, and worked for free for three months, and yet still managed to earn $10,000 that year. That means that at the age of 20 she is already earning the world average wage, or almost double the average wage in China. With her new $65-a-day job, she will be able to repeat that annual performance by working only three days a week. If she works a full five days a week, she will earn triple the average Chinese wage.

To put that in perspective, the equivalent for an American would be a 20-year-old without a college degree getting an offer to work overseas, paying an $800 fee to get into the program, working through a 3-month internship, and then going on to earn $80,000 the first year and $120,000 the next.

I’m not saying that all the nail salon owners are wonderful people — there’s way too much going on in that article (and its followup) to believe that. Nevertheless, that hasn’t stopped an ambitious, hard-working, risk-taking young immigrant like Ms. Ren from prospering. And as with most immigrants, if she has children, they will probably do even better.

(Obviously, I don’t know much about Ms. Ren’s specific circumstances, and I’m greatly simplifying things for purposes of this post, but I don’t think it invalidates the point that she seems to be doing pretty good compared to where she came from.)

The last question, and arguably the most important one, is What do these women want?

We can figure out what these women want by looking at the choices they make. Jing Ren chose to leave her home and cross the ocean to America to work as a nail technician in a string of seedy New York nail salons. And within a year, her mother came over to do the same. That tells us a lot.

Which brings me to my special bonus question: What happens next?

Well, the Governor has a (hastily pulled together) plan of sorts:

Gov. Andrew M. Cuomo ordered emergency measures on Sunday to combat the wage theft and health hazards faced by the thousands of people who work in New York State’s nail salon industry.

[…]

Nail salons that do not comply with orders to pay workers back wages, or are unlicensed, will be shut down.

In other words, if Cuomo’s task force finds workers who are being exploited, they will solve the problem by taking away their jobs? I understand that the goal here is to coerce nail salons into treating workers better by threatening to put them out of business, and it’s possible that this could have a net positive effect. But I guarantee that talk like this is scaring the crap out of all those workers Cuomo says he’s trying to protect. This could easily turn into a disaster that puts thousands of them out of a job. And if Cuomo thinks the nail salons are exploitative, he’s really going to hate some of the alternatives (NSFW).

“We will not stand idly by as workers are deprived of their hard-earned wages and robbed of their most basic rights.”

“Basic rights” like the right to work in a job they find acceptable for a wage they find acceptable?

Some of the proposed regulations seem like they might improve health and safety, but others show a real lack of understanding of the problem:

Salons will now be required to be bonded — which is intended to ensure, through a contract with a bonding agency, that workers can eventually be paid if salon owners are found to have underpaid the workers.

Yeah…salon owners employ illegal immigrants to do unlicensed work at illegal wages, but I’m sure they’ll get right on that bond thing…

The framework for the emergency measures began to take shape shortly after the first article was published on Thursday, according to Alphonso B. David, counsel for the governor. Staff members from several agencies reacted strongly, and began to call one another upon reading the findings, convening on Friday for hours of brainstorming sessions to hash out the plan. A decision was made to take emergency measures rather than go through the usual route by which policies are updated, which involve time-consuming steps like periods of public comment […]

I hear all the best government work begins that way. What could possibly go wrong?

Well, for one thing, the plan to force nail salons to pay their workers more might succeed. As Rich Lowry puts it in his wildly off-the-mark opinion piece,

Surely, one reason that salons can pay so poorly is that the supply of illegal workers is so plentiful.

And this supply of labor must, at least at the margins, crowd out workers already here who might consider working in salons if pay and conditions were better.

These immigrant women bring very little to the bargaining table except their willingness to work in unpleasant conditions for low pay. If you force the salon owners to spend more money on wages and equipment, they’re not going to stick with their unskilled labor force. They’re going to replace them with nail technicians who are already trained, who speak English, and who have the legal right to work here.

Apparently there’s also been a public backlash against low-cost nail salons in New York, with lots of middle class women saying they’ll stop using them. I think their hearts are in the right place, but a move like that that could put the cheap nail salons out of business, which would put immigrant workers like Ms. Ren out of a job.

I understand the desire to try to help, but it’s important to remember that these nail salon jobs (and other low-paying jobs like them all over the country) provide a path up out of poverty for thousands of people every year. The wrong response could shut that down and do a lot more harm than good.

I stumbled across an In These Times article by Amy Domini and Sofia Faruqi called “5 Ways To Reduce Inequality By Holding Corporations Responsible.” It’s pretty much the usual progressive game plan, but one particular sentence in the last proposal caught my eye (emphasis mine):

5. Help women to prosper: Women are twice as likely as men to work for minimum wage. The gender pay gap in the retail sector alone costs women $40 billion annually in lost wages. This wasn’t so bad in 1960 when only 11 percent of American households had a female head, but it’s dire today when women are the primary breadwinners in 40 percent of homes. Plus, it’s bad for the economy. Equal pay would raise American GDP by 2.9 percent, or $448 billion.

The numbers in that last sentence are stunning, but I couldn’t see how equal pay legislation could increase GDP.

Tracing the link in the original article leads to last year’s U.S. Senate Budget committee testimony by Heather Boushey, Executive Director and Chief Economist for the Washington Center for Equitable Growth. She in turn cites a 2014 briefing paper titled “How Equal Pay for Working Women would Reduce Poverty and Grow the American Economy” by Heidi Hartmann, Jeffrey Hayes, and Jennifer Clark of the Institute for Women’s Policy Research.

Here’s what that paper has to say in the summary of its findings. Notice the very careful phrasing (emphasis mine):

The U.S. economy would have produced additional income of $447.6 billion if women received equal pay; this represents 2.9 percent of 2012 gross domestic product (GDP).

The paper gets to those numbers by using data from the 2010-2012 Current Population Survey Annual Social and Economic Supplement to estimate the pay difference between men and women, controlled for age, education, annual hours of work, metropolitan residence, and region of the country. The authors then use those figures to project how much more money women would have made if they had been paid the same as men.

The authors calculated that women earned an average of $36,129 a year, and that their pay was 85% as much as men for the same work. So if women earned as much as men, they would be earning $42,380 per year. That’s an increase of $6,251 a year for all 71.6 million working women. Multiply it out, and you get $447.6 billion, which is 2.9% of GDP. (I get a slightly different figure when I do the math, but it’s close enough.)

Income and production are two sides of the same process: We earn our income by selling our production of goods and services, and we spend that income buying and consuming the same goods and services. So if our collective income increases, production must also have increased. Consequently, if women earn more money, and they do not do so at the expense of anyone else, then the additional income would have to increase gross domestic product.

(There are actually many variations on income and production figures, depending on which components and flows are included in the calculations, and care has to be taken to add and subtract the right components when transforming numbers between two national accounts. In the U.S. we calculate GDP from both production data and from income data. In theory, this is an accounting identity, but there are always data discrepancies that keep income and production figures from matching exactly.)

The point of the careful phrasing in the summary is that $447.6 billion is the estimated amount that GDP would have been higher if women had somehow earned at the same rate as men, all other things being equal. How exactly that could happen is carefully left unsaid. In particular, the study does not say that equal pay legislation would increase GDP by that amount.

If we just passed a law that forced employers to pay women 17% more for their work, that would increase women’s paychecks, which would increase the national income accounts…but not really.

For an economic story to make sense, it has to make sense when applied to the real economy of goods and services. So even though U.S. GDP is expressed in dollars, what really matters is the total amount of goods and services that are produced. So in order for GDP to increase by $447.6 billion, it’s not enough for paychecks to increase by $447.6 billion. Our economy must actually produce $447.6 billion worth of additional goods and services.

But by definition, the equal pay legislation is simply giving women more money for the work they are already doing, which means that the increase in paychecks is not accompanied by an increase in the production of real goods and services. We’d be paying more money for the exact same stuff.

When you pay more for the same thing, we call it inflation. The U.S. Bureau of Economic Analysis calculates both nominal GDP, which is inflated, and real GDP, measured in constant dollars adjusted for inflation. The increase in women’s nominal earnings would show up as inflation of nominal GDP, while real GDP would be unchanged.

Since we’re not raising men’s incomes, the inflation would actually eat away at their real earning power. So the benefits to women would come at the expense of men. Women would be getting a larger share of the pie, but the pie would still be the same size. The deadweight $447.6 billion gain to GDP that Domini and Faruqi envision from the simplistic IWPR calculation is a fantasy.

While idling my brain on Twitter, I stumbled across Jordan Fraade promoting his Baffler article about how New York needs rent control. It’s a little like discovering a grown-up who believes in fairies.

For something that so deeply affects the workings of the city’s housing market, rent regulation in New York is widely misunderstood. At a recent event put on by the Pratt Institute and the NYC Planners Network, a group of progressive city-planning professionals, housing advocates on the panel spent as much time explaining how rent regulation works as they did explaining why we should keep it.

The only sensible response to rent control is to get rid of it. All of the discussion should be about how to phase out rent control in a way that doesn’t produce painful market shocks that devastate poor tenants.

Rent stabilization is less stringent; it covers multi-unit dwellings built between 1947 and 1974, and yearly rent increases are set by the Rent Guidelines Board (currently 1 percent, the lowest in fifty years).

A board that oversees pricing. And apparently sets increases to the same amount for everyone, as if there was no variation in the housing market from one neighborhood to the next. This is how the Soviets managed their economy, and look where it got them.

In rent stabilized apartments, tenants have the right to renew their leases, and have more leeway than market-rate tenants when pursuing legal remedies against their landlords if they are being mistreated. (Rent-stabilized tenants have historically and frequently been targets of landlord harassment.)

The linked story is about a building owner with a criminal history who is harassing tenants by degrading the quality of the building. This is to be expected under rent control.

Property owners want to earn a profit. That’s why they buy apartment buildings. When owners can’t increase their gross income by improving the building and raising the rent, their only choice is to cut costs by skimping on building maintenance and operation. They fire the doorman, let the carpets wear thin, and give tenants buckets to collect water when the roof leaks. They switch to lower wattage lights in all the public areas. They shut down the elevator, close the laundry room, and stop replacing busted security cameras. They let repairs go as long as possible, and they use substandard materials and unlicensed contractors. If anyone complains or makes trouble, they get harassed into leaving.

That’s a shitty way to run a building, and decent landlords will try not to run that kind of building. Of course, the easiest way to avoid being a shitty landlord is to not be a landlord at all. Thus rent control discourages good people from owning rental properties, pretty much guaranteeing that landlords are disproportionately likely to be shitty.

According to the panelists, renewing both these regulations is their first priority, simply because they affect so many people—2.5 million New Yorkers, living in about 45 percent of the city’s apartments.

This is why we can’t solve the rent control problem the easy way — by letting it expire. Disrupting the housing of 2.5 million people all at once would create havoc, with some tenants of formerly rent-controlled apartments being forced to seek housing in lower-cost neighborhoods, bidding up the rental prices there. Eventually some tenants will pay more, some tenants will leave, some landlords will lower their rents, and some developers will build new housing until the turmoil settles. But a good plan for getting rid of rent control would get the city to that same endpoint without all the disruption and pain in the middle.

And despite a media tendency to hold up middle-class Manhattanites as the face of rent control, rent-regulated tenants are disproportionately low-income people in low-income neighborhoods. This fact led Delsenia Glover of the Alliance for Tenant Power to make perhaps the most dramatic prediction of the night: if rent regulation is not renewed, low- and moderate-income people will be forced out of New York within a decade.

Either that or New York would have to come up with realistic housing policies. Which is what they do in the vast majority of the U.S. that doesn’t have rent control and yet still have low and middle-income residents living in apartments they can afford. It’s not like free-market housing is a wacky libertarian idea that’s never been tried.

The main problem with rent control in New York is that the system is administered in the clumsiest way possible.

No. The main problem with rent control in New York is the rent control.

Even worse, according to Harvey Epstein of the Urban Justice Center, 250,000 units have been removed from the rolls of rent-stabilized apartments over the years. This happens in a variety of ways, most notably through “vacancy decontrol,” which infamously allows landlords to make an apartment market-rate once the rent reaches $2,500 per month and the tenants move out (Mayor de Blasio has come out in favor of repealing this rule). No matter how it’s done, though, once an apartment becomes market-rate, it stays that way for good.

If you’ve been following along, New York rent control means that if you own apartments that rent for less than $2500 a month, your rent increase last year was capped at 1 percent. That’s less than the inflation rate of 1.6 percent, so your real income actually went down. On the other hand, if you own apartments that rent for more than $2500 a month, you can raise the rent as much as the market will bear.

That leads me to a question: All other things being equal, if you were investing in New York real estate, would you rather invest in units that rent for less than $2500 or more than $2500?

And then I have a followup question: Can you think of any reason why New York might be experiencing a shortage of affordable rental units?

Which leads us to…

The roots of 421a are in the distressed New York of the 1970s, when city leaders feared developers would never again build new housing. In some neighborhoods, 421a comes with no strings attached—if you build, you get a tax break. In other areas, developers can only take the tax break if they include 20 percent affordable housing in a project.

Either way, the result has been a bonanza for builders, allowing luxury towers like One57 to be built mostly tax-free. Williams estimated that the city loses $1.1 billion per year to 421a, and has only gained a measly 12,000 units in exchange. Most housing advocates in the city want the program to be significantly scaled back or scrapped altogether.

Having made the construction of affordable housing unprofitable because of rent control, the city then sets up a program to give away taxpayer money to developers. Through the miracle of regulatory capture, however, many of those developers aren’t actually using the money on projects that advance the affordable housing goals of the program. The programs do manage to further tie up the city’s housing stock in regulatory knots.

Which leads to…

Noting that 90 percent of all tenants in housing court appear pro se, Epstein said that New York’s current system for resolving housing disputes is “complaint-driven,” explaining that “we’ve set up a structure that prevents people from preserving affordable housing because no one’s looking over the landlord’s shoulder, and they know it.”

In a functioning free market, the people “looking over the landlord’s shoulder” are the tenants. If they don’t like the way their landlord is treating them, they can move out. If the vacated unit rents for a $1000-a-month, and it takes the landlord a month to get somebody in it, that’s equivalent to fining the landlord $1000 for mistreating the tenant. Landlords will work hard to avoid that, if not because they’re nice people, then because they like their money.

That incentive system breaks down under rent control. The threat to move out and stop paying rent is less effective when the rent is low because the landlord has less to lose. And if the tenant has locked in a good rate, the threat to leave isn’t very credible since it would mean moving someplace with higher rent. Actually, since decades of low rental rates have discouraged investment in rental properties, where would the tenant go? Tenants are stuck and the landlords know it, so they don’t have to try very hard to hang onto good tenants.

Without the discipline of the market, tenants’ rights advocates are stuck proposing layer after layer of regulations and procedures, each one trying to offset the perverse incentives of what came before.

There has been plenty of advocacy around the rights of rent-regulated tenants—like this spring’s battle to renew state rent laws, and last year’s unsuccessful fight to get a rent freeze. But there’s been little visible work done on behalf of tenants who are still a majority of the city’s renters: those who don’t live in rent-stabilized or public housing. I asked Williams after the panel what market-rate tenants might be able to expect after this spring’s battles, and she was blunt: “They’re screwed.”

I’d like to hear more of an explanation of why Williams thinks that. According to Landlord.com only four states have rent control — California, Maryland, New Jersey, and New York — along with the District of Columbia. The rest of us live without rent control, and we’re not exactly living in a hellscape. In fact, Googling around for the “Top 10 priciest U.S. cities to rent an apartment,” seven of them — San Diego, Oakland, San Jose, Los Angeles, Washington D.C., New York City, San Francisco — have some kind of rent control.

That doesn’t mean that rent control causes higher rents — the causality could go the other way, with high rents making it politically likely that a city will adopt rent control — but it does cast doubt on the long-term effectiveness of rent control.

Furthermore, some basic economics tells us that artificially capping the price of a good is likely to create a shortage. We had a spectacular example of this during the 1973 oil crisis, when the government respond to shocks in the oil market with price controls. As with New York real estate investors who stopped building rental units, oil companies stopped importing as much oil, and gas stations started running out of gas at the pumps. Even with alternate-day rationing, there were long lines for the gas stations, and fights would break out between people waiting in line. The trucking industry was especially hard hit by the high prices and shortages, and tensions rose to the point that there were shootings and bombings.

In the housing production chain, renting an apartment to a tenant is only the last step, and trying to force prices lower there is only going to work if the production process itself can actually be modified to operate less expensively. If New York isn’t producing enough affordable housing, they place to fix it is further back in the process. You have to figure out what barriers are keeping the market from producing the low-cost housing that is so clearly in demand.

We do this all the time with other products. Just in my lifetime we’ve figured out how to make lots of things less expensive — food, clothing, appliances, mobile phones, televisions. The most extreme example I can think of is computers. When the Cray 2 supercomputer was released in 1985 it cost $40 million in today’s dollars. Equivalent computing power costs maybe $800 today (and it’s more reliable and fits in your briefcase). But we didn’t hammer down the cost of computers by having an Alliance For Computer Users that pressured the Computer Pricing Guidelines Board into lowering the caps on computer prices.

And that won’t work for housing either.

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.