August 26, 2015

WHY NOT SKIP THE JOB AND GIVE 100% $8?:

A $4 minimum wage can get people back to work (Michael R. Strain, February 14, 2014, Bloomberg)

Because of the federal minimum wage, the company knows that it has to take at least a $7.25-an-hour chance on a worker. If we knocked the minimum wage down to, say, $4 an hour, we would significantly mitigate employers' risk from hiring a long-term unemployed worker. Allowing employers to pay this group of people 45 percent less than other minimum-wage workers provides a strong incentive for businesses to give the long-term unemployed a shot.

Of course, we can't just lower the minimum wage for the long-term unemployed to $4 an hour and leave it at that. Society must have as a goal that no one who works full time and heads a household lives in poverty. This policy would have to be paired with an expanded earned-income tax credit, or with more straightforward wage subsidies -- federal transfer programs that supplement a worker's labor market earnings with tax dollars.

How much will this cost? Let's say that the government decided to give a minimum wage worker an additional $4 for every hour he worked. This wage subsidy effectively increases the financial rewards from an hour of work above what is required under current law, and will induce some workers to take jobs they wouldn't otherwise take. Let's assume that 20 percent of the long-term unemployed take a $4-an-hour job, and that each of them works full time for a year. Under this plan, the annual cost of the wage subsidy would be about $6 billion. Even given this (probably extreme) overestimate, the program would be relatively cheap.

A suggestion for paying for it: Take some money the federal government spends on the highest-earning households and divert it to this program. For example, the government spent $70 billion on the mortgage-interest deduction in fiscal year 2013, the Congressional Budget Office estimates. This spending overwhelmingly benefited households in the top quintile by income. A better use for some of that money would be to help the long-term unemployed make a transition into jobs.

You can still pay for it out of just that one tax credit.
Posted by at August 26, 2015 4:13 PM
  

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