tag:blogger.com,1999:blog-17232051.post3554890068011066032..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: Wage subsidiesNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger51125tag:blogger.com,1999:blog-17232051.post-15383386963437218592014-02-06T16:33:46.577-05:002014-02-06T16:33:46.577-05:00If administration of the wage subsidy is left to e...If administration of the wage subsidy is left to employers, all they need offer the worker is the latter's reservation wage and pocket the subsidy in its entirety. Why should whether the subsidy is phased out quickly or slowly matter?<br /><br />The conflation of the EITC and NIT is just wrong. The EITC matches the first dollar of earnings up to some maximum, plateaus, then phases out. The NIT provides a minimum payment at zero income (earnings or otherwise), then phases out as income grows. Totally different.<br /><br />As far as participation goes, the EITC compares well with other benefit programs -- over 80% participation. It could be improved in various ways, but it beats the hell out of wage subsidies, IMNSHO. It also complements the minimum wage, since for an employer paying the minimum, there is no way to benefit from the EITC. It must supplement rather than supplant the wage.<br /><br />-- The blogger formerly known as MaxSpeak<br /><br /><br />MaxSpeakhttps://www.blogger.com/profile/08594964334301228571noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-40954264038751752852014-02-06T11:56:49.829-05:002014-02-06T11:56:49.829-05:00Noah,
Indeed, you are very late to the basic inco...Noah,<br /><br />Indeed, you are very late to the basic income party! But welcome....<br /><br />EITC and minimum wage are not alternatives. Wage subsidies depress wages: there is both theory and empirical evidence for this. You need either a minimum wage or a basic income to prevent employers bidding down wages to the floor. I prefer the latter, personally - but it must come with a guaranteed right to refuse work. If there is any element of workfare, or if basic income is below EITC, wages will be depressed. Ideally you have basic income instead of both EITC and minimum wage, and you tax it away at higher levels rather than removing it. <br /><br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-62536152243687625222013-12-16T20:20:34.328-05:002013-12-16T20:20:34.328-05:00"Why do Americans like minimum wage hikes and..."Why do Americans like minimum wage hikes and ignore the EITC? Two reasons, I'm guessing. The first reason is that people like feeling like they are being rewarded for work. Wages are money that people feel like they have "earned", even if the government has mandated above-market wage levels. Second, EITC is just clunky to use - you have to file for it through the clunky tax system, you have to know about it in order to claim it, and the acronym "EITC" itself has no meaning for the vast majority of poor Americans. A bunch of eligible Americans don't even claim their EITC. Minimum wages, on the other hand, are easy to use, because the company does all work of administering it."<br /><br />The feeling that the extra money is coming directly from corporate profits is much larger than either of those. At least that is what I have gathered from reading the comments section of the NYT, Slate, and The Atlantic. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-54551907811069296822013-12-12T22:40:35.290-05:002013-12-12T22:40:35.290-05:00I do not understand why there is no discussion on ...I do not understand why there is no discussion on the price-fixing effect of a federally-mandated minimum wage. Also, what evidence exists that wages would be lower without the minimum wage? By acting as a universal reference point, doesn't the minimum act as a tremendous drain on workers' bargaining power? As a result, low-skilled workers are confined to poverty while employers enjoy excess profits protected by law. I am afraid Wage Subsidies and EITC are nothing more than subsidies to employers who should've been paying higher wages to begin with. More thoughts on this here: http://tinyurl.cm/lzcf25bH. Publiushttps://www.blogger.com/profile/16019756383734059819noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-3937971597940117522013-12-11T23:02:44.711-05:002013-12-11T23:02:44.711-05:00" Minimum wages can cause higher unemployment..." Minimum wages can cause higher unemployment,"<br /><br />No they can't. That's a *disproven* hypothesis!<br /><br />Every single empirical study says that minimum wages cause LOWER unemployment. Do I know why? No! Does it matter why? No, it's just a FACT.Nathanaelnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-14383281412001541622013-12-10T19:26:44.336-05:002013-12-10T19:26:44.336-05:00" Americans are very strongly in favor of min..." Americans are very strongly in favor of minimum wage hikes, but most economists think it's a bad idea."<br /><br />"most economists" here means those who are mostly not labor economists. These "most economists" will naturally have their Econ 101 model in mind and will say "but demand curves always slope down!"<br /><br />The empirics suggest that the aggregate labour demand curve does indeed slope down but is almost flat at the bottom end - which suggests a modest minimum wage increase can get an awful lot of gain for the working poor with only a very small increase in the non-working poor. There are well developed theories, backed by the empirics, for this flatness - basically around information aymmetries and consequent match rents for employers.<br /><br />On wage subsidies, the conventional wisdom is that you have to offer them to EVERYBODY on the unskilled job market for them to work. If you just give a voucher for them to those perceived most in need of it then you're providing any potential employer with a certificate of unemployability for that person. Signalling effects are very, very strong in the job hire process because of those aforementioned information asymmetries.<br /><br />And yes, the Phelps book is worth a read if you want to pursue the issue further. It's not the last word though - there's quite a literature on this stuff.derrida deriderhttps://www.blogger.com/profile/01188777386180390172noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-48571178378136914452013-12-10T09:19:11.671-05:002013-12-10T09:19:11.671-05:00I also don't understand how Noah came to the c...I also don't understand how Noah came to the conclusion that such a scheme would suspend the law of demand and supply and suddenly make either employees demand or employers offer non-market clearing wages.<br /><br />Under competition I would expect the bulk of the subsidy to be captured by customers -- the immediate effect of lower employers' net wage bill being soon competed away into lower prices -- which is much diluting the intended effect as most customers are not poor. The poor only get a bit of residual benefit in that they (hopefully) don't pay the tax that funds the measure.<br /><br />The great thing about a minimum wage scheme is that it takes the price of labour intensive services up, and these services are overwhelmingly bought by (relatively) well off people with inelastic demand, that is most rich people will rather sacrifice something else (like say buying Treasuries) than stop going to restaurants or clean their place themselves. That seems consistent with the low impact on unemployment observed about every single time a minimum wage scheme is introduced in a new country.cighttp://commentisglee.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-66755945086492971252013-12-10T03:52:56.975-05:002013-12-10T03:52:56.975-05:00Edmund S. Phelps, professor emeritus of economics ...Edmund S. Phelps, professor emeritus of economics at Columbia University, wrote an entire book in 1997 advocating wage subsidies: Rewarding Work: How to Restore Participation and Self-Support to Free Enterprise (Harvard University Press). A second edition was published in 2007.<br />Larry Willmorehttp://larrywillmore.netnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-43907715700730054602013-12-09T19:29:57.353-05:002013-12-09T19:29:57.353-05:00"I'm aware I'm simplifying the struct... "I'm aware I'm simplifying the structure of welfare programs, but hear me out. If I am able to get a basic level of government welfare aid without having to work, then for me to accept a job, my wage needs to be equal to at least my welfare amount plus some valuation for work and time. The existence of welfare winds up raising the market's minimum wage, even in the absence of a government-mandated wage floor. "<br /><br /> Patrick, I'm interested whether you or anyone else for that matter can name what 'welfare programs' that are available to any single male provided he has no legally recognized disability. I count one-maybe food stamps but that's been remorselessly cut over the last 3 years since the Tea Party rode into town. <br /><br /> Anyone who figures they don't have to work because they're going to get a $135 dollar packet of food stamps every month is a little math challenged. <br /><br /> What I find interesting is that those who want to cut back on the MW can't show that we've lost anything in the 76 years we've had it. So what's the need to go back?Mike Saxhttps://www.blogger.com/profile/01360689916550576484noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-85182106897578966692013-12-09T18:09:50.566-05:002013-12-09T18:09:50.566-05:00Noah is there anyway to do a cost analysis of this...Noah is there anyway to do a cost analysis of this? Also if it were combined with a lowering or abolishing of the minimum wage would a simulation have to be used to predict annual cost? I posted a similar question on Tyler Cowen's blog but no reply. This is real crappy but in assessing cost I used this link http://www.bls.gov/cps/cpswom2011.pdf. Page 48. I really wish I could learn how to simulate policy cost.Danielhttps://www.blogger.com/profile/00693994820049055213noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-15548076352872928272013-12-09T13:51:38.324-05:002013-12-09T13:51:38.324-05:00Social welfare programs have changed the dynamics ...Social welfare programs have changed the dynamics of the labor market. Employers have to offer a wage at which they have an adequate supply of labor. If you set that below the benefits level of welfare, nobody will work. That's not planet republican - it's ECON 101.<br /><br />There is one slice of the labor market where we do indeed see exploitation - the market for undocumented immigrants. But their exploitation is in large part because they're excluded from all social programs and are completely off the government map, not just because their employers don't have to abide by the minimum wage.<br /><br />Anonymoushttps://www.blogger.com/profile/02112850846314864826noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-77005445619299873382013-12-09T13:46:57.153-05:002013-12-09T13:46:57.153-05:00To the Signers:
Another reason Americans don't...To the Signers:<br />Another reason Americans don't like the EITC: poor explanations.<br />From your first two paragraphs, I posit that anyone - or almost anyone - can understand the min wage, and very few can understand the EITC<br />why should people support something that PhD economists are to condescending to explain ?<br /><br />Anyway, you guys are all, from the perspective of a min wage worker, part of the 0.1% (or, more precisely, you signers are all high class in house servants of the 0.1% - like veblen said, they cut you some slack cause you are exoteric).<br /><br />I don't think I have to take any of you seriously until you have spent 6 months working at a min wage job.<br />like they say, in theory, theory and practice are the same; in practice, they ain'tEzra Abramshttp://www.cldne.netnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-51812216018161039062013-12-09T13:41:43.284-05:002013-12-09T13:41:43.284-05:00you really have no idea of the real world, do you ...you really have no idea of the real world, do you ?<br />I mean, I'm trying to be polite, but the idea that lack of a min wage would not lead to horrible, horrible exploitation...you are on planet republican.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-10921007815980141852013-12-09T13:39:27.402-05:002013-12-09T13:39:27.402-05:00noah, why don't you consider the alternate cho...noah, why don't you consider the alternate choice, that economist are wrong..I mean, a rare thing, the profession being wrong, but it might happen, every now and then.<br /><br />Your problem is that you have suffered deformation professionalle; to survive the economics phd program, you had to loose certain abilities; one is to understand that *power* - raw, naked, undiluted power, the ability of a boss to say If you want your job, have your spouse in my office, unclothed...<br />well that is only a slight exaggeration.<br /><br />respectfullyAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-40988171130282049742013-12-09T13:32:53.029-05:002013-12-09T13:32:53.029-05:00The notion that if we got rid of the minimum wage ...The notion that if we got rid of the minimum wage we'd be going back to the exploitation found in Upton Sinclair's age is utterly ridiculous. The existence of the minimum wage isn't the only difference between then and now - there's also significant welfare programs in place. We've decided that as a country, we should provide government aid to those unable to fully provide for themselves. Regardless of your position on whether the current welfare floor that we've set is high enough for people to subsist on, the presence of welfare programs profoundly affects low-wage labor markets.<br /><br />I'm aware I'm simplifying the structure of welfare programs, but hear me out. If I am able to get a basic level of government welfare aid without having to work, then for me to accept a job, my wage needs to be equal to at least my welfare amount plus some valuation for work and time. The existence of welfare winds up raising the market's minimum wage, even in the absence of a government-mandated wage floor. <br /><br />Moreover, in order to encourage people to work, though, welfare programs can't just cut off the aid spigot once somebody gets a job. Rather, they gradually reduce aid as income reaches certain levels. With these types of welfare and poverty programs, what we wind up with is a decent number of people being paid at the official minimum wage, while still being on government welfare rolls. Increasing the minimum wage is one way to increase the money provided to low-wage families. Increasing the wage also a) improves the incentives to maintain a job vs. rely on government aid, and thus b) reduces (by at least a small amount) the welfare aid the government pays out.<br /><br />Thus, the minimum wage winds up being only one of a set of tools in place to provide aid to low-wage families. But given the existence of the other government social programs, it's a required piece of the equation. I kind of cringe when I hear fellow conservatives decry raising the minimum wage as being another example of a government aid program. Yes - but we have many other programs already in place that wind up paying out more anyway! Raising the minimum wage is just a way to re-jigger the balance between all of those tools. Ideally, you want to set the minimum wage at an amount that improves work incentives and shifts some responsibility for welfare from government to employers. Who's to say $7.75 is actually hitting that balance right?<br /><br />One final note - yes, there are economic studies that suggest raising the minimum wage has only a minimal, if any, effect on employment. But don't forget about the limits of that finding - these were studies of small, marginal changes in the minimum wage. Significant shifts in the wage (like the $15 suggested by fast-food strikers) is likely to have many, many unforeseen effects. Very dangerous territory they're lurking in. It's tough to know how far beyond "marginal wage shifts" the unemployment cliff lies.<br /><br />Anonymoushttps://www.blogger.com/profile/02112850846314864826noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-16310257252416615212013-12-09T11:21:14.637-05:002013-12-09T11:21:14.637-05:00Raising wages is "Hoover" economics. Pre...Raising wages is "Hoover" economics. President Hoover figured that higher wages of employees would lead to more spending, and lead us out of the deflatonary period. President FDR continued those poliices. Look how THAT turned out.! -Alan McIntireAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-73519052058745322202013-12-08T19:30:11.515-05:002013-12-08T19:30:11.515-05:00Mike, well said.
I don't think any reputable...Mike, well said. <br />I don't think any reputable economist would disagree with the Idealized models that predict bad things (lower employment )caused by minimum wage laws, but a lot of economist recognize that Idealized models are often (always) messed up by the real world---people being people.<br /><br />So even though models are necessary for thinking about econ, they should never be mistaken for reality and must be confirmed by the data, by empirical evidence. The empirical evidence shows that minimum wages do not result in the negative predicted outcomes. <br /><br />Noah seems to be ignoring the empirical evidence in favor of the theoretical ideal. Bill Ellisnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-921933816576542152013-12-08T19:12:49.937-05:002013-12-08T19:12:49.937-05:00I don't see how workers can capture any of the...I don't see how workers can capture any of the subsidies unless we could count on near unending full employment---or universal strong Unions. <br /> Bill Ellisnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-57095369304743744362013-12-08T18:34:09.350-05:002013-12-08T18:34:09.350-05:00It seems like worries about employers "gaming...It seems like worries about employers "gaming the system" are unnecessarily hyperbolic. Of course employers will capture some of the subsidy, and workers will capture some of the subsidy. How they'll be divided is the interesting question.Davidhttps://www.blogger.com/profile/10565910956857563935noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-91149506494716529762013-12-08T18:30:37.129-05:002013-12-08T18:30:37.129-05:00Noha, I don't think you really addressed this ... Noha, I don't think you really addressed this objection: "How do you prevent employers from gaming the system and reducing wages because they know the wage subsidy will make up the difference?"<br /><br />I think this objection is about employers capturing the subsidy at the bottom of the wage scale. They could capture it by simply not giving raises that keep up with inflation. Why would they ? A minimum wage that kept pace would inflation would prevent this. <br /><br />Some of the research on the EITC says that it suppresses wages just for this reason, Right? So why would wage subsidies be any different ?Bill Ellisnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-49835802209942865942013-12-08T13:53:11.907-05:002013-12-08T13:53:11.907-05:00Oops! That 'very great economist' I had in... Oops! That 'very great economist' I had in mind is Arthur Okun in his "Growth and Inequality'Mike Saxhttps://www.blogger.com/profile/01360689916550576484noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-61207428501183341142013-12-08T13:33:32.944-05:002013-12-08T13:33:32.944-05:00As for wage subsidies themselves, it's rather ... As for wage subsidies themselves, it's rather ironic that conservatives find them a more palatable alternative to the MW as with the WS you are literally awarding people 'a handout' even if it's for workers it's not money they strictly 'earned' whereas a higher MW directly rewards greater work effort. Mike Saxhttps://www.blogger.com/profile/01360689916550576484noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-85440234915326129642013-12-08T13:27:19.391-05:002013-12-08T13:27:19.391-05:00Not to quibble Noah, but my understanding is rough... Not to quibble Noah, but my understanding is roughly 1 in 2 economists support the MW-of course, logically that means about the same amount oppose it. If I'm not mistaken this is up considerably from where it was certainly when FDR first signed the MW into law in the 30s. <br /><br /> In any case those economists who I at least consider most worth listening to support it strongly. As Krugman says:<br /><br /> Second — and this is news to me — the usual notion that minimum wages and the Earned Income Tax Credit are competing ways to help low-wage workers is wrong. On the contrary, raising the minimum wage is a way to make the EITC work better, ensuring that its benefits go to workers rather than getting shared with employers. This actually is Econ 101, but done right: given a second-best world in which you use imperfect tools to help deserving workers, two tools together can produce a better outcome than either one on its own.<br /><br />So a minimum wage increase isn’t some kind of counsel-of-despair way to help workers a bit in a dysfunctional political scene (although there’s that too); it’s actually good policy.<br /><br /> http://krugman.blogs.nytimes.com/2013/02/16/minimum-wage-economics/?_r=0<br /><br /> When I'm taking policy advice I care more about what Krugman, Delong, Reich, etc say than folks like Sumner or David Henderson. <br /><br /> A good point that a very great economist once made is that not all policies are necessarily the outcome of a private debate among economists-there are social and political forces at work as well. American society long decided that the MW is a very good thing long prior to many economists liking the idea. <br /><br /> Who can say the lay public was wrong? One complaint I have with opponents of the MW is their rationale is much more theoretical than empirical-where is the empirical proof that the MW in any way has harmed the U.S. economy or raised the unemployment rate over time?<br /><br /> I can't help but notice that in 1969 we had the highest U.S. MW in history-adjusted both for inflation and productivity gains-and yet this correlated pretty closely to the best years in the U.S economy. I know correlation doesn't prove causation but it sure doesn't disapprove it and we had our best economic years-the immediate postwar era in the years after the MW. <br /><br /> My point is that the models show the MW may be a drag but empirical history shows no sign of this-kind of like the models that claim capital gains taxes destroy growth-where's the proof?. As for the Wage Subsidy I'm all for it if this doesn't mean the end of the MW-which no doubt defeats the purpose for why so many conservative economists support it. Mike Saxhttps://www.blogger.com/profile/01360689916550576484noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-49687126611451073102013-12-08T12:36:39.380-05:002013-12-08T12:36:39.380-05:00We should keep a minimum wage, even if it's lo...We should keep a minimum wage, even if it's low, just to prevent outright exploitation, and as was pointed out in the Krugman link above (who links to Konczal) and perhaps inadvertently by Anonymous, Christy Romer, that rewarding work could put downward pressure on wages, allowing the subsidy to be captured by the employer.<br /><br />Nice to see more talk of a basic income though. Would we even need a work subsidy if we had a basic income? Perhaps if we eliminate the minimum wage (which we shouldn't) and/or wanted/needed to incentivize work.jtrollnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-15301843466676969142013-12-08T11:37:44.953-05:002013-12-08T11:37:44.953-05:00Think carefully about how this could be shown... ;...Think carefully about how this could be shown... ;-)Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.com