July 17, 2015


Minimum Wage or Living Income? (Robert Skidelsky, 7/16/15, Project Syndicate)

[E]ven if the minimum wage were raised sufficiently to offset the withdrawal of tax credits, transferring more of the cost of labor from taxpayers to employers would be the wrong strategy. The reason is that for many - perhaps most - people, work will be a declining source of income.

After all, one prediction on which we can confidently rely is that automation will make increasingly large inroads into the world of human work. Up to 50% of existing jobs may be at risk in the next 20 years. It is at least an open question whether enough new jobs can be found to replace them, or, indeed, whether it is desirable to continue producing more and more products simply to provide human employment at ever shrinking wages.

As robots increasingly replace human labor, humans will need incomes to replace wages from work. Whereas tax credits point in the direction of replacement incomes, raising the minimum wage points in the opposite direction, by making income more dependent on jobs. In fact, focusing on the minimum wage would almost certainly speed up the automation process. Previous evidence that minimum-wage legislation does not reduce the demand for labor might not stand up against the rapidly falling cost of automating the production of goods and services.

In short, if Osborne is serious about his pledge to provide a "living income" for all, he should be moving toward the idea of a "basic" or "citizen's" income, independent of the job market. A simple way forward would be to provide all citizens an unconditional tax credit, which could be built up gradually as the rewards from work fall.

Both free-market and socialist thinkers have long advocated implementing a basic-income scheme. But the idea has always fallen foul of two objections: societies are too poor to afford it, and it would be a disincentive to work.

The first objection is surely no longer true of the advanced economies, while the second is irrelevant, given that the goal is not to strengthen the incentive to work, but to enable people to live without work. An unconditional basic income would make part-time work a possibility for many who now have to work full-time at non-living wages. And all workers would begin to gain the freedom to make the same choices regarding how much to work, and under what conditions, that owners of substantial capital now have.

We want business to maximize profits for redistribution purposes, so raising their labor costs artificially makes no sense.

Posted by at July 17, 2015 4:25 PM

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