Social Justice, Current Events

Some thoughts on the minimum wage

As you know, California is phasing in a $15 minimum wage. As Matt has explained, this is very likely a very bad idea. But: could a minimum wage law be a requirement of justice?

I don’t mean to ask whether justice might require some coercive measures to benefit a group of people. Let’s suppose that it can. (It’s almost certain that the minimum wage won’t help the group one would want to help the most, again for reasons Matt discussed, but set that aside, too.)

I also don’t mean to ask whether justice might ever allow interference with freedom of contract. Let’s suppose again that it does, at least sometimes.

My question is more specific – about this particular kind of freedom of contract. Minimum wage laws apply only to a subset of employment relations, namely bilateral ones. These are not the only employment relations. Importantly, people can be, and often are, self-employed. But minimum wages laws don’t apply to self-employment.

One reason is obvious: it’s not clear how they could apply to self-employment. Such a law would be plainly unenforceable. But equally plainly, even if we could enforce it, such a minimum wage law would be a terrible idea. There is simply no good reason to prevent people from working for themselves at whatever rate they choose is worth their time.

But this has a bizarre result. People can apparently work for themselves for, say, $8 an hour, without an injustice being done. They just can’t work for someone else for the same price. Or, to put it the other way around, people can employ themselves for $8 an hour, they just can’t employ anyone else at the same rate.

It’s not that difficult to come up with reasons why people might want to work for themselves for only $8 an hour. One might enjoy the work, or find a kind of fulfillment in it, even though it doesn’t really pay the bills. One might treat it as an investment, accepting a low income now in the hope that this line of work will become more profitable later. It might, more regrettably, be one’s best option. And so on.

But one might want to work for others for the very same reasons. If one thinks it’s a good deal to be self-employed at a low wage, it might similarly be a good deal to be employed by others on the same terms. So why is one allowed but not the other? The worry here is a general one. Why would it ever be okay for people to offer a benefit to themselves but not to others?  After all, those others will have their reasons for accepting employment at a low wage. And imposing a minimum wage law won’t change anything about that.

John Rawls wrote that a just society is a cooperative venture for mutual advantage. And these are mutually advantageous exchanges. Of course, any thinker worth their salt knows that mutual advantage isn’t a conversation stopper. It’s possible for exchanges to benefit both parties and still be wrong. But mutual advantage does matter. And any thinker worth their salt also knows that issuing blanket prohibitions on productive exchanges is no way for a society to flourish. The same goes for the people within it.

Again, it’s an open question whether there ought to be policies in support of the poor (or even in support of the working poor – which is not the same). But even if so, a minimum wage law remains a bad idea.

  • Jerome Bigge

    Without a minimum wage, employers would likely take bids from those seeking work as to what amount of payment would be required to make it worthwhile for them to come to work for that employer. Rather similar to how one takes bids for having a contractor come and do remodeling or whatever else is desired. Under conditions of high unemployment this figure would likely be below our current minimum wage. However when the level of unemployment is low it is likely that employers would have to compete with one another to obtain employees to do the work required. Last time this happened was during Clinton’s second term when fast food places were paying well above the minimum wage to obtain workers. Under “normal” conditions there are always more people seeking work than the available number of jobs. So in such a case, most likely the rate of pay would start somewhere below even the current minimum wage for those who could offer little to an employer except for the chance to show what they could do.

  • JW Ogden

    I would like to hear supporters of the $15.00 minimum wage defend phasing it in.

    To me the phasing in just seems to hide the negative effects. The decline in employment should be small and so easy to hide over time, because almost all of the increased costs seem to passed on to consumers thus the employment effect should be mostly due to consumers spending less in businesses that had employed people at below the new minimum.

    • Ron H.

      It’s also possible some consumers might adjust their spending to cover the higher costs, and then consume less of something else, thus causing losses and dis-employment effects in businesses not directly affected by minimum wage.

    • Counsellor

      Not as a supporter; however:
      The phasing in can work as a defense against charges of adverse economic impacts on the distribution of wages.
      In other words, establishing a category of wages will create “externalities” for other employment (and consumption) relationships in the economy. That is, because “A” is happening over there, it changes or affects the way “B” is happening over here. Think of allocating various forms of irrigation (stream flows, drip, spray, etc.) over various parcels and for various types of growth (Lettuce, root crops, almonds, etc.).
      If you phase in changes that become externalities elsewhere, there may be time for some adjustments to the externalities (changing to drip and almonds -as an extreme). Eventually the effects of the original re-allocation may be offset by changes elsewhere (inflation?) so the intended change of “balance” is never achieved.

    • Mick Price

      Also more of the job losses are from people not hiring, rather than firing. Whether it’s not putting someone extra on or not going into the business in the first place, something that never was and never will be is easier to hide than something that was and now isn’t.

      • Ron H.

        Exactly. The unseen and unintended consequence.

  • Jameson Graber

    I actually find it odd that you claim a minimum wage law governing self-employed people couldn’t be enforced. Of course it could. Say you own a business. The government requires you to register that business and file a tax return every year, so they know how much you’re making. If we decided to pass a minimum wage law on small businesses, we could easily insist the government shut down any business that didn’t make enough money according to the IRS’s calculations.

    Of course we would never do that. Small business owners are not perceived as victims of someone else’s greed.

    • Sean II

      Indeed. They could say low earning businesspeople are just victims of the economic system in general, who need protection as much or more as anyone else. Trot out some hot dog vendors living below the poverty line without health insurance, and say “we must get poor souls like this off the corner, and into the modern employment economy where we can protect them”.

      20th century Marxists did a similar mental trick, but in reverse. At first you had to collect rent or hire labor to qualify as an exploiter. After a while, anyone with any kind of independent prosperity became an exploiter, even if he had no hirelings. They created categories like “sub-kulakizer” (podkulakniki if I recall) to take such people in, and it seems more importantly…to “take them out”.

      You could do a similar category expansion now, where being exploited no longer requires having a specific exploiter.

      Very good point.

      • Jameson Graber

        It’s kind of frightening to contemplate these things, especially on April 15 of all days.

    • Mick Price

      Yes but how would you prove that someone was working as long as they were? They (and possibility their immediate family) might be the only ones working in the business so it’s easy to keep things quiet. Of course an in-depth investigation would catch out those that they specifically wanted to catch out, but most would get off scot-free.

    • King Goat

      “Small business owners are not perceived as victims of someone else’s greed.”

      Small business owners are often portrayed as victims of the ‘big box’ companies, and like most groups so perceived there’s quite a bit of government largesse set aside for ‘small business owners.’

  • I’m not going to comment on the real-world effects of raising the minimum wage or the philosophical fine points around “issuing blanket prohibitions on productive exchanges”. However I _am_ going to push back against the notion that the proper way to approach the minimum wage issue is by considering what would be economically rational for the employee and employer.

    Put simply, I see the minimum wage issue as a real-world analogy to the “ultimatum game” experiments: If I receive $100 and have to split it with you for some reason, strict economic rationality would dictate that you accept even a $1 offer (which means in turn that rationally I should give you no more than that). After all, it’s better than nothing, right? Similarly, rationally I should seek to pay an employee as little as possible, and if there is a large enough pool of applicants and they have no other prospects then they should rationally accept any wage I offer, no matter how small.

    But the ultimatum game doesn’t typically play out that way: People on the receiving end tend to reject low-ball offers, and people on the giving end tend not to make them. It seems plausible that things might work the same way in the employer/employee relationship: that there are internalized and collectively held norms about what constitutes a “fair” wage, with minimum wage laws being the legal codification of those norms.

    Why codify such norms? Well, there are always going to be some people inclined to defect from social norms, and a law backed by coercion is one way to deter would-be defectors. With respect to minimum wage laws in particular it’s possible that corporate employers are more inclined to “defect” than individuals as employers, possibly because the diffusion of individual responsibility in a corporation causes it to act more according to strict economic rationality.

    Why not then make minimum wage laws apply only to large corporations? Well, it seems as if in a lot of cases such laws could be relatively easily gamed by a corporation going to a franchise model in which the formal setting of wages is devolved to the individuals running ostensible “small businesses”. This is basically how the fast-food industry works, and it’s possible that a low-wage employer like Wal-Mart could do something similar with its stores if it became economically advantageous to do so.

    Thus I see supporters of minimum wage laws as justifying extension of minimum wage laws down to even the smallest businesses. However I don’t see them extending the idea to the self-employed, because from the social norm perspective it doesn’t make sense to consider what self-employed individuals pay themselves as being “fair” or “unfair”.

    • M S

      Hold on a second. In paragraphs 2 and 3 of your comment you provide a completely positive (as in non-normative) description of certain behaviors. Then, all of a sudden, you jump to the assumption that these behaviors are good and need to be protected from “defectors”. Where is the justification for the statement that defecting from these behaviors is bad? Where is the justification for referring to people who don’t do what that majority does as “defectors” in the first place?

      • I’m using “defector” in a technical sense, as someone who violates existing widely-accepted norms. That is certainly “bad” from the point of view of those holding such norms; whether it is “bad” in some broader sense is a different matter. My point is that there seem to be relatively universal norms about what is considered “fair” in the context of ultimatum game experiments, and it’s plausible that there might be analogous norms in the context of wage setting. If so then the employer attempting to pay employees as little as humanly possible is susceptible to being judged as a norm violator, or more bluntly, as a “bad person” (or corporation).

        Could we imagine different norms? Of course, and I see a large part of the libertarian program (including the BHL subset of it specifically) as an attempt to promote an alternative set of norms, under the assumption that adopting them would ultimately benefit everyone. Thus Matt Zwolinski’s arguments about the positive aspects of “sweatshop labor” and “price gouging”, Jason Brennan’s arguments about the benefits of expanding the range of possible monetary transactions, and so on. But assuming (as I do) that present-day norms are in large part a function of evolved genetic predispositions, I think they’re fighting an uphill battle with a lot of this stuff.

        • Swami

          Frank,

          I appreciate you sharing your insights on the issue.

          I do not really “get” your determination of fair. I understand people in society can deem that a wage below X is unfair or unjust or whatever. But if that is the most anyone else is willing to pay this person for a job, then our definition of fairness is effectively using social justice to eliminate that job. Effectively it implies that we would rather eliminate that job, than allow someone to take it. It has the effect of creating a class of person who is increasingly unemployable. At a dollar an hour, pretty much nobody is effected. At $20 an hour, I think a substantial portion of people, especially the inexperienced and less capable, will be defined out of a job.

          I do not see that as promoting general welfare or fairness.

          Consider a $300 minimum watch price law. The effect of this law would make Swatch go out of business, yet Rolex and Movado would do great. A minimum wage LOWERS the bargaining power of an unskilled labor if their skill is below the cutoff, and raises the bargaining power of a person above the skill level. It is fundamentally unfair, and reveals why it is unionized incumbents and racist groups who initially supported min wages.

          • “I do not really ‘get’ your determination of fair.” I myself don’t have a strict definition of what is “fair”. My point was/is that people do seem to have some internalized idea of what is a “fair” split in things like ultimatum game experiments, and it’s possible that something similar may be the case when considering what is a “fair” wage for low-wage work.

            I think the libertarian view of wage setting works better the more workers have bargaining power relative to employers. I don’t think it’s a coincidence that most of the advanced democracies without minimum wage laws also have high social welfare spending and a large proportion of workers covered by collective bargaining agreements.

            My personal view is that minimum wage laws are blunt and imperfect instruments, for various reasons including the one you cite, and that their use in the US is primarily because they are more politically acceptable to a more conservative (relative to Europe) voter base and business community than alternatives that involve increased government spending and/or increased unionization of the work force.

          • Swami

            Again, great comments, Frank.

            But if “wage setting works better the more workers have bargaining power relative to employers,” then by that definition a minimum wage is harming lower skilled workers. A lower wage (like a lower price for Swatch) is part of their bargaining power. A min wage effectively emasculates the bargaining power of less skilled workers relative to more skilled and experienced.

            I think it may help to grok the effects if you consider that rather than assuming there is competition between workers and employers, to instead reframe it as a cooperative venture (they cooperate to fulfill consumer needs). The competition is between workers to be chosen to cooperate. Similarly employers compete with each other to cooperate with employees. Any interference on the point where supply meets demand will bias the bargaining power between workers.

            In a two party cooperation, there is bargaining over how the benefits will be distributed (there may be multiple Pareto outcomes — all absolutely better for both but some relatively better for one or the other). IOW various levels of win/win prices. However, with a large number of buyers and sellers, the price becomes the meeting place between supply and demand for that product. The competition is no longer over what to pay a person of that skill but which person of that skill gets that job. A minimum wage increases the bargaining power of the advantaged prospective worker relative to the disadvantaged prospective worker. It is fundamentally unfair.

          • (Apologies for the delay in responding; I was feeling ill last night.) I sort of see what you’re saying here, but still need to clarify. I see at least two different cases:

            If two workers A and B have equivalent skills but A can satisfy their needs on a wage of $10/hour vs B needing $15/hour (maybe A lives in a location with a lower cost of living), then A has a competitive advantage over B. Setting the minimum wage to $15/hour eliminates that competitive advantage, to the detriment of A.

            If, on the other hand, A is less skilled than B, then in the absence of a minimum wage law A might be able to command only $10/hour, vs $15/hour for B. (I assume here that A and B have similar cost of living, though it’s really irrelevant to the argument.) Setting the minimum wage to $15/hour advantages B, to the detriment of A, since presumably no employer would choose a lesser-skilled candidate over a more-skilled one if there is no difference in the wages to be paid.

            I presume that this second case is what you mean by “A min wage effectively emasculates the bargaining power of less skilled workers relative to more skilled and experienced”. I’m not sure I’d use the word “bargaining power” in this context though; I think it’s more clear just to say that the minimum wage law reduces the employment opportunities open to A.

          • Swami

            I don’t see why it is incorrect to say it lowers someone’s bargaining power. Remember it is other competing prospective employees they are competing with. I think both scenarios you gave reflect unfair policies that privilege B at the expense of A.

            A simple example is to consider a minimum wage for prostitution. A minimum “trick” would effectively privilege pretty workers vs less attractive ones. A minimum wage, like a minimum trick is a privileging mechanism biased toward the already advantaged.

            Fairness arguments don’t support a minimum wage.

    • Ron H.

      Your comment is somewhat unclear. Are you saying you don’t believe employers and employees are capable of reaching mutually agreeable and mutually beneficial agreements on their own? Do hey need outsiders – maybe you and me – to determine what price they should agree on?

      • No, I’m saying that many people, perhaps most people (given the relatively broad support for minimum wage laws), don’t see the minimum wage issue as a matter of “reaching mutually agreeable and mutually beneficial agreements”. Instead I suspect they see it as more akin to the ultimatum game, with employers deciding how much of a business’s revenue to share with employees, and the employees and third parties evaluating the resulting split on the basis of whether it is “fair” or “unfair” in some loosely-defined sense.

        Should wage setting work differently? One alternative, and I presume the preferred alternative from a BHL perspective, would be to abolish minimum wage laws, and then to supplement the income of low-wage workers through a guaranteed basic income or similar means. But recall what happened at Wal-Mart when they did something similar to this, paying employees as little as possible and then helping them apply for welfare. Wal-Mart got attacked as being unfair to its employees, and also as taking advantage of taxpayer subsidies to make its business model possible.

        So my conclusion is that the BHL alternative is out of sync with present-day social norms and political realities, at least in the US. Minimum wage laws, on the other hand, are more consistent with the “folk libertarianism” that many people in the U.S. seem to practice: Although not ideal, such laws are acceptable because they don’t require any direct government taxes to be imposed on the populace.

        • Ron H.

          And why should third parties be involved at all? That was my question.

          What, exactly, is “folk libertarianism”?

          • To answer your second question first: “Folk libertarianism” (by analogy to “folk biology”, etc.) is my term for a watered-down and sometimes self-serving form of libertarianism that seems to be favored by many politicians and their constituents. I think a good example of folk libertarianism is people who object to government spending that benefits others but are happy to receive preferential tax breaks that apply to themselves (“it’s just letting me keep what is rightfully mine!”), leaving other taxpayers (present or future) to take up the slack.

            Now to the first question: I doubt one can justify “third parties [being] involved” from a strict libertarian perspective. I think minimum wage laws are an exercise in government paternalism under the assumptions that a) human dignity requires every worker to be able to realize some reasonable amount of income in order to be able to support themselves and their families; b) low-wage workers are typically (if not inevitably) in an unequal bargaining position vis-a-vis their employers, and hence are at great risk of not having sufficient income to satisfy (a); and c) compensation from employers should be the primary (if not the only) source of income for low-wage workers.

            I think justifying the abolition of minimum wage laws to non-libertarians requires changing at least one of these assumptions. I think (a) is non-negotiable for most if not all people, so that leaves (b) and (c). Progressives see (b) as true almost as a matter of faith, while folk libertarians see (c) as true. (That’s presumably why in the U.S. politicians have to play word games like calling a worker subsidy an “earned income tax credit” so that it doesn’t sound like government welfare spending.) So minimum wage laws are left as an acceptable compromise for most people who aren’t strict libertarians.

          • Ron H.

            I think a good example of folk libertarianism is people who object to government spending that benefits others but are happy to receive preferential tax breaks that apply to themselves (“it’s just letting me keep what is rightfully mine!”), leaving other taxpayers (present or future) to take up the slack.

            That seems to be saying the same thing. I object to government spending – period. I object to taxation – period. And I use any means possible to escape taxation. Anyone who manages to keep some of their valuables hidden from a mugger is to be congratulated.

            Now to the first question: I doubt one can justify “third parties [being] involved” from a strict libertarian perspective.

            Thank you.

            I think minimum wage laws are an exercise in
            government paternalism under the assumptions that a) human dignity requires every worker to be able to realize some reasonable amount of income in order to be able to support themselves and their families; b) low-wage workers are typically (if not inevitably) in an unequal bargaining position vis-a-vis their employers, and hence are at great risk of not having sufficient income to satisfy (a);

            Heh! Of course accepting what government has taken from someone else by force is an excellent way to maintain one’s dignity. (/sarc)

            I would suggest that while a) may be generally true, those made unemployable by government meddling probably don’t feel the dignity in their loss, and those who do manage to gain something can hardly credit it to their own worthy actions.

            b) is mostly false.

            I think c) is correct, but wouldn’t exclude voluntary help from family, friends, community or voluntary charitable organizations. And I wouldn’t consider myself what you describe as a “folk libertarian”.

            I think justifying the abolition of minimum
            wage laws to non-libertarians requires changing at least one of these assumptions.

            You may be right, but pointing out the harm caused by such a policy to some of the very people they pretend to help would seem

            to be an effective counterargument to anyone but a hardcore collectivist who can’t see individuals in any situation.

          • “That seems to be saying the same thing.” Not quite. The key word from my point of view is “preferential”. If Alice is granted a tax break and Bob, Carol, etc., are not, that’s no different than Bob, Carol, etc., being taxed more (or government debt being increased) in order to provide a subsidy to Alice.

            “… accepting what government has taken from someone else by force is an excellent way to maintain one’s dignity. (/sarc)” But the millions of people getting government subsidies in the form of preferential tax breaks paid for by others (or by future taxpayers, if the lost revenue increases the government deficit) seem to be maintaining their dignity quite well.

          • Ron H.

            Your logic only works if you assumes the money rightfully belongs to the government to begin with and government is granting favors to individuals by failing to steal as much from them as from everyone else.

            ‘Granted a tax break” is just such a backwards construction. It sounds like debt forgiveness by a benevolent government, but it isn’t.

            In addition you may be assuming that government spending is justified at current levels, as you haven’t suggested that tax breaks could be “granted” by reducing spending, or that borrowing against future tax collections is a bad idea.

            I have no trouble with my dignity when I thwart a thief. even though I can sympathize if your loss is greater, it’s certainly not my fault you didn’t protect yourself better.

          • This sort of illustrates my point about the psychological mechanisms around the various ways money can be redistributed from one group of people to another via the government. Suppose legislators were to entirely exempt from taxation a favored group of people, say their friends and business associates, leaving the tax burden unchanged for everyone else. Using the logic outlined I could point to this as a victory for liberty and entirely consistent with libertarian principles.

            (And whether this subsidy via the tax system is balanced by a reduction in overall spending is irrelevant. It would be formally equivalent to the government taking money previously spent on other things and using it to send checks to the favored group.)

            In any case, my original point was that given that people think like this, it would likely be politically impossible to fund a basic income scheme as some BHL folks advocate, since both the scope and unconditionality of it would make it difficult to pitch it as a “tax credit” scheme like the current EITC.

          • Ron H.

            Suppose legislators were to entirely exempt from taxation a favored group of people, say their friends and business associates leaving the tax burden unchanged for everyone else.

            There’s no supposing required. That is the reality.

            Using the logic outlined I could point to this as a victory for liberty and entirely consistent with libertarian principles.

            Not really, intentional favoritism by muggers is hardly a victory for liberty. Not being mugged is a victory for liberty.

            In any case, my original point was that given that people think like this, it would likely be politically impossible to fund a basic income scheme as some BHL folks advocate, since both the scope and unconditionality of it would make it difficult to pitch it as a “tax credit” scheme like the current EITC.

            You’re undoubtedly right about that. I object to a BIG for a different reason: A BIG would unconditionally transfer income from those who are good at producing value, to those who have demonstrated their inability to do so. This obviously results in less overall prosperity for everyone.

            Keep in mind that in a market economy – not a political economy – a person earns income and may accumulate wealth in direct proportion to the value they provide to others, who voluntarily pay for their products and services. Short-circuiting that process hurts everybody.

          • Ron H.

            Suppose legislators were to entirely exempt from taxation a favored group of people, say their friends and business associates leaving the tax burden unchanged for everyone else.

            There’s no supposing required. That is the reality.

            Using the logic outlined I could point to this as a victory for liberty and entirely consistent with libertarian principles.

            Not really, intentional favoritism by muggers is hardly a victory for liberty. Not being mugged is a victory for liberty.

            In any case, my original point was that given that people think like this, it would likely be politically impossible to fund a basic income scheme as some BHL folks advocate, since both the scope and unconditionality of it would make it difficult to pitch it as a “tax credit” scheme like the current EITC.

            You’re undoubtedly right about that. I object to a BIG for a different reason: A BIG would unconditionally transfer income from those who are good at producing value, to those who have demonstrated their inability to do so. This obviously results in less overall prosperity for everyone.

            Keep in mind that in a market economy – not a political economy – a person earns income and may accumulate wealth in direct proportion to the value they provide to others, who voluntarily pay for their products and services. Short-circuiting that process hurts everybody.

          • j_m_h

            Ron, are you an employee or do you employ other people? If so you’ve either signed a W2 (W9?) or, very likely, required others to sign the documents. That does represent a contractual agreement relating to income taxes and their collection.

          • Ron H.

            That would be a W4 form, and that’s a good point. It authorizes an employer to withhold amounts from a workers pay. I’m not sure how much consent to taxation is implied, as one can select a large enough number of personal allowances so as to avoid withholding altogether. Typically people choose the number of allowances that causes the amounts withheld during the year to roughly equal the amount of tax they will be forced to pay at tax time.

            No such authorization or adjustment is offered for payroll taxes, which are just withheld automatically by the employer.

            You’re right that I, like most people, have complied with this requirement. I also comply with requests to hand over cash when someone holds a gun to my head. That doesn’t exactly meet common definitions of consent.

            I pay taxes because I don’t want to go to prison, which is one of my other choices. compliance doesn’t necessary equal consent or approval. Some things are just tolerated, because the alternatives are seen as worse.

          • j_m_h

            I think the big distinction here is that the robber is not acting under any form of social rule that was the result of some generally accepts social process (politics/government law-making..) while clearly taxes, including income taxes were. Your aregument undoes all property rights for the new generation hat had no say in the rules they were born into.
            I would say you pay taxes because you want to have the live that employment and participattion in the existing economic nexus allow you. There are alternatives to putting yourself in the possition to have the taxman come looking for what you “owe”. They just are not all that attractive.
            That doesn’t mean there are not problems with the current state of things only that the view you’re offering is not really as good an analogy (IRS=robber, pay taxes only to avoid punishment as if the rest the choice to put your self in that position of facing that choice can be excluded) are not that good..Both over simplify in ways that don’t help shed light on the problem or what the solution(s) might be.

          • Ron H.

            The robber could be (is?) acting at the direction of, and according to the rules of, one group of people against another group. The other group doesn’t like it, but complies to avoid even worse outcomes. ‘Let’s take money from everybody by force, to pay for the things we want.” says the first group, not allowing for choice in the matter.

            “blockquote> Your aregument undoes all property rights for the new generation hat had no say in the rules they were born into.

            I’m not sure I understand this, but no one has EVER had a say in the rules they are born into. If one believes we all have a natural property right in oneself (self ownership), it’s not clear how reducing rules and coercion by others reduces property rights.

            “blockquote>I
            would say you pay taxes because you want to have the live that
            employment and participattion in the existing economic nexus allow you.

            I would prefer to make my own choices in a competitive marketplace for some of the services I currently get from government, and for which I’m forced to pay whether I want them or not. I have no use for most of what is forced on me. I wouldn’t choose to pay for a federal department of energy, or education for example.

            There are alternatives to putting yourself in the possition to have the
            taxman come looking for what you “owe”. They just are not all that
            attractive.

            Thanks for making my point for me. My least bad option seems to be to bite the bullet and pay as little tax as possible.

            That doesn’t mean there are not problems with the current
            state of things …

            Boy, I’ll say!


            Both over simplify in ways
            that don’t help shed light on the problem or what the solution(s) might
            be.

            What do you think they might be?

          • j_m_h

            “What do you think they might be?”
            Truley the 64 billion dolllar question (or answer I suppose is the better phrase 😉
            I think my answers have to be cast on several levels, the top level is the most pessimistic — there are not solutions that all, or even a significant majority (80% plus?) will agree on. Like the old saying goes: Hell is other people. So ultimately we’re always going to produce the social rules and implemnet the social instuturions in a compromise way. I’m not sure if that means we get it most correct if everyine is unhappy.
            At a different level, I agree that we can shift away from the idea that government is some provider or services that can be provided by private market actors/institutions. Excatly where that line between the best production setting is can be difficult and will not be static over time as both the population changes and as technologies change.
            Related to the point about public-private service provision is the entire poltical process or putting representatives into office to make these decisions on the citizens behalf. So we need a number of changes in the process that currently is in place. My current thinking is that we could implement a few general principles (and figure out some of the ramifications regarding operational process) that might produce a better outcome. When I’ve mentioned some before to people most seem to reject them out of hand as unworkable or a worse soltion that we have now.
            The first change I’d like to try is requiring all elected representatives be elected by a majority of eligable voters, not merely the majoirty of those showing up. From the simple votes to show what people want point of view counting the no-shows as a vote against helps eliminate the free rider problems people like to point at and, to some extent mitigates the Voter Paradox a little — your vote still is only one of a large number but now it’s placed into a voting block regardless of what you do.
            Under this election rule we’re going to get representatives that at least have the support of a true majority (and I’d even consider requireing something along the lines of 60% not merely 50% + 1). Currently we have governments that are elected by less thgan 30% of the eligable citizens and actually represent even less. Then with the two party system we end up with legislation that is largely a bunch of horse trades between the two extremes in political views and rules that the fat middle never wanted anything to do with. Kind of like a barbell view of legislative production.
            The other thing this approach migh procuide is that when most people don’t see a need for new laws or new government action they will simply not vote and that means no new laws can be enacted. That should actually help control the growth of government size and spending.
            I’d also put rules in place that set time limits on legislation so that after X years (or even months in some cases) the law is dropped fmor the books and no longer valid. I think this might help with som eof the racheting effect we see in crisis cases where everyone is acting largely emotionally and not really rationally (though I also reject the idea and public choices can really be evaluated from a individual rationality perspective — relates to the first “answer” above.)
            I’d also like to see changes in how law is crafted and implemented. First, it should be single issue and primarily defined in terms of the general principlal and stated goal. I often think we should limit all law to a maximum of 2 type pages, 12 point font double spaced. Then each law can be challenged in the courts if it’s seen that the results of the law is failing to achieve the claimed results. This produces something of a blend of the two legal philosophies in the country — statutory law and common law processes and help produce something of an additional check and balance on government actions and powers.
            Granted there is a lot that would need fleshing out and I’ve not really done that (and probably never will).
            In addition to the above, I sometimes think we need to consider government not as an actor in the society, which is what it’s historically been, but rather an institutional structure that can reduce the cost of people getting together to solve their own problems. Thinking of government in that way — what I’d call a 21st Century view of government — opens the door to really considering some significant changes. Specifically in regard to your statement about having a menu of service you could opt into or out of with your taxes I think this view start getting to where taxes are greatly reduced and much of the public spending becomes more like crowd sourcing. In some ways this approach could lead to a nearly anarchistic strucutre of governance in a society and essentially eliminate politicians as we know them. Clearly a kernle of an idea but something I would love to see some smart people toy with.

          • Ron H.

            The first change I’d like to try is requiring all elected
            representatives be elected by a majority of eligable voters, not merely
            the majoirty of those showing up.

            I’m 100% in favor of that change, as it would immediately result in NO ONE ever being elected to any office. what could be better than that?
            We could begin managing our own affairs in peace and prosperity.

            And yes, every piece of legislation should have a sunset clause. Unless it’s re-voted and extended, it will cease to be in effect.

            In some ways this approach could lead to a nearly anarchistic strucutre
            of governance in a society and essentially eliminate politicians as we
            know them.

            YES!!

            Although a menu of services from which people could select the services they actually want is a vast improvement on current affairs, I would prefer a free market in such services with private businesses competing for consumer dollars just as is currently the case with most consumer goods and services. There is no Federal Dept. of Clothing for instance. We seem to be able to handle our own clothing needs without government help.

  • martinbrock

    When I hear the same, worn out arguments for and against the same, tried and retried policy, I wonder less which arguments to believe than which arguments I’m not hearing, so I’ll repost the same, worn out argument for an alternative.

    A basic employment guarantee, with a decentralized duty to employ, is far superior to an income guarantee (an a minimum wage). Unemployment (for the able) is entirely a matter of social disintegration. The only possible solution to unemployment is social reintegration, and an income guarantee has the opposite effect. An employment guarantee could exist in the U.S. as follows.

    Every adult has an individual BEA (Basic Employment Assurance) account through which s/he monthly reports all income up to a threshold. All reported income is exempt from income taxes. This exemption replaces personal exemptions and standard deductions in the existing income tax.

    Above the threshold, persons contribute a portion of income to a common BEA fund. Contributors receive an income tax credit.

    A person with income below the threshold in a given month may receive income from the fund in one of two ways. First, s/he may receive a payment directly from another person with income above the threshold. A person contributing to the fund may withdraw any part of the contribution to make these payments. Second, if a person receives insufficient income in first way way, s/he may borrow from the fund to reach the threshold. No one must borrow from the fund.

    A contributor reports the recipient of a direct payment from the fund and also reports other payments to this recipient in a given year. After paying an individual the threshold income from the fund, a contributor must return a dollar to the fund for each additional dollar paid to the individual in a given year.

    A person receiving more than the threshold income in a BEA account in a given month repays any loans from the common fund before contributing to the fund. Everyone’s balance with the common fund is a matter of public record. While a person owes the fund, the income floor is effectively an income ceiling as well, but every few years, loans from the fund are forgiven. Periodically, funds remaining in the common fund are returned to the contributors in proportion to their contributions (contributions before direct payments).

    All income received in a person’s BEA account from the common fund is identified as such in the recipient’s public record. Anyone may see this record at any time. The recipient knows the source of direct payments, and the source may comment on a payment, like “I paid Martin to mow my lawn, and I was very happy with the outcome,” or “I asked Martin to mow my lawn, but though he seems able, he never showed up.” A comment might explain a payment otherwise, like “Martin is my son,” or “Martin is blind and attends my church.” A comment may identify the source or not.

    A person taking a loan from the fund also comments on the use of the loan, like “I’m buying a lawn mower” or “I have no other offers this month and need to pay my rent”, and anyone contributing to the common fund may comment on the recipient’s use of a loan as well, like “Martin volunteers many hours at our hospice each week” or “I’m Martin’s brother, and he’s always on the sofa with a beer in his hand watching ESPN.”

    The recipient of a loan must read (or listen to or watch) these comments, insofar as this requirement can be enforced automatically (without human monitoring). The common fund is administered through a web site or something similar.

    Of course, in this system, the only penalty for continually taking loans and never repaying them, while drinking beer and watching ESPN all day, is public shaming, and some people would happily endure this shaming, but this problem has no obvious solution short of jailing the debtors, and jailing debtors is absurdly costly as well as inhumane.

    The effect of this system on the affluent and fully employed is as important as its effect on the poor and underemployed. Unemployment is entirely a matter of disintegration between these groups. By simply transferring money from one group to another, a basic income guarantee increases this disintegration rather than reintegrating the groups.

  • stevenjohnson2

    It is not reasonable to imagine that someone self-employed at a lower monetary compensation than a minimum wage gets only the monetary compensation. There are such things as not reporting to a supervisor, setting your own hours, choice of location, being able to quit without any adverse reports on record, hopes of self-advancement. None of these can be expected to obtain in minimum wage employment. (Advancement depends upon superiors in employment.) The premise that someone might wish a lower wage in employment for the same reasons as for accepting less money in self-employment is unreasonable.

    But, for the sake of argument, let this misrepresentation stand. How do other people know when someone is accepting a lower wage for personal satisfactions, of whatever kind, rather than necessity, such as needing cash for property taxes? The self-employed may be expected to know, especially when they turn down available employment. Self-employment sufficient to keep body and soul together is no more guaranteed than employment. In thinking about the demands of justice, society at large cannot be expected to assume everyone taking a wage is making an equal bargain. The libertarian assumption that market prices are social justice is not well justified by experience. Libertarianism remains a bad idea.

    (By the way, the approving reference to the recent Zwolinski post is symptomatic. That relied on a rather sleazy false dichotomy in which the employed and the poor are two different groups.)

    • Ron H.

      None of these can be expected to obtain in minimum wage employment. (Advancement depends upon superiors in employment.)

      Well yes, whether it’s superiors at one’s current job or elsewhere if current superiors for some reason don’t recognize the increased value of an employee over time and reward them accordingly.

      The premise that someone might wish a lower wage in employment for the same reasons as for accepting less money in self-employment is unreasonable.

      Do you mean a person might not accept lower wages if they could, say, walk to work, or have flexible hours so as to be home when their children are home from school, or work in a more pleasant environment, or for better benefits?

      How do other people know when someone is accepting a lower wage for personal satisfactions, of whatever kind, rather than necessity, such as needing cash for property taxes?</blockquote

      Well they don't – and why should they? I'm not entitled to know why you or anyone else might choose one thing over another.

      The self-employed may be expected to know,
      especially when they turn down available employment.

      I’m pretty sure people DO know why they do what they do, but there’s no reason why you should know as well.

      … society at large cannot be expected to assume everyone taking a wage is making an equal bargain.

      ??? “Society at large” doesn’t assume anything. Individuals assume things. I’m not aware that anyone holds that expectation of “society at large”.

      Other than expressing your belief that you are owed an explanation for why other people make the decisions they do, it’s not clear what your point is.

      • stevenjohnson2

        The notion that it’s the low wage jobs that have the greater benefits or flexible hours is nonsense. It is possible that some low wage jobs may be in walking distance. But it would be folly to think this sort of thing is likely to be true, were it not for the rhetorical convenience.

        Apostles of greed (including the libertarian subset,) may have no concern with whether wages are just. Decent people do.

        • Ron H.

          You may be having trouble with reading comprehension. I didn’t claim that low wage jobs necessarily have better benefits, my point is that people do take jobs that pay less in cash wages than others because there are other working conditions they may value more than the higher wage. I listed just a few. Try reading my previous comment again – slowly.

          A just wage? that’s easy. That’s easy. a just wage is the one an employer and an employee agree is acceptable to both of them. what could be simpler.

          • stevenjohnson2

            You clearly imply that if some workers take lower wage jobs for other reasons that satisfy them, then all considerations of justice for wages are met. This is contempt for reason.

            And, no, the easy assumptions that any private agreement must be deemed just and that nothing ever justifies collective action in the name of justice, would be childish were they not so vicious.

          • Ron H.

            You obviously need others to define justice for you, as you have no clearly defined sense of your own.

            Do you really believe you, as a member of some collective have a better idea what is a just wage than the people actually involved in a voluntary exchange? What is clearly contempt for reason is your silly notion that you can decide for others what work arrangements they should accept as best for them?

            Get over yourself. You’re not that important, and have no such cosmic insight.

          • stevenjohnson2

            Simple inspection of reality shows your convenient assumption that all exchanges are voluntary, because, is a big lie. Your belief that you can simply declare that there are no considerations of justice in a wage too low to pay for housing, transportation, health care, just because you can hypothesize that some people might still find it satisfactory is indeed contempt for reason…and humanity too.

            And, if anyone is else is reading, the OP’s contention that low wage employment offers the same compensations that self employment does, ergo is just, ergo we can’t consistently claim morality for a minimum wage, is still malicious BS. Ron H.’s nonsense does nothing to salvage the OP.

          • Ron H.

            Inspections of reality? I’m not sure you have any idea what reality is.

            Other than muggings and the use of force by government (is there a difference?) I can think of very few exchanges that aren’t voluntary. With respect to the exchange of labor for compensation I can’t think of any. You either agree to go to work for certain compensation and working conditions or you don’t. Please explain what isn’t voluntary about that?

            You will need to explain why my assumptions about voluntary transactions are wrong if you wish to be taken seriously by the grownups. “Big Lie” isn’t good enough. Please provide an actual counterargument that relies on something other than appeals to emotion.

            Are you infantilizing people by suggesting they can’t think for themselves? Surely no one needs your help deciding whether or not a job offer includes enough pay.

            Why would you assume that anyone and everyone can produce enough value for others to exchange for housing, transportation, health care, and everything else all by themselves? That’s a bizarre notion.

            Of course you, and I, and anyone else can voluntarily chose to help those who aren’t able to make it on their own, but to suggest, as I think you are doing, that others should be forced under threat of violence to support those you think need supporting makes you nothing more than a thug and a thief, and a person to be despised.

  • j_m_h

    While slightly off the topic of minimum wage law, I do often wonder why all the analysis here (subject area not comments — have not read many) tends to focus on a price theroy economic analysis and never on something like a public choice distributution of surplus analysis at all. In the end just about all the production we consume these days are some what complex joint production processes where marginal product is next to impossible to calculate in any nonarbitrary manner (to my knowledge). In such a setting it’s not clear that wage policy is really driven by the usual w=mpv econ markets are supposed to prodcue and may well be more driven by internal politics about distribution of the existing surples over non-labor input costs.

    • Would you care to flesh that idea out a bit? I’m skeptical.

      • j_m_h

        Which aspect are you skeptical about? The idea of calculating (estimating might have been a better term) the marginal product value of an employee in a complex production process and the associated questioning that the firm then cannot set w at that point? Or is the question about compenstation policy might be more drriven by internal politics about how to devide up the residual revienue once non-labor costs are covered?
        I suppose the best starting point might be to note that the vast majority of employees are not the marginal worker in terms of last added or subtracted and most are not paid according to that employees rate. This holds even if the marginal worker we’re considering is essentially similar to the others in terms of skills and performance.
        Another aspect to think about might be a cross firm comparison. Lets say that firm 1 has more productive worker on the assembly line and pays them better than at firm 2. The one difference between the two firms is that one is kept very clean by the cleaning staff. Cleaning staff is generally about the lowest paid labor categaory. So how much of the premium the assembly line workers at firm 1 earn over their peers at firm 2 is really due to the cleaning staff? Why wouldn’t the assembly line workers at both firms be paid the same and the cleaning staff at firm1 getting the additional pay? That would be the implicaiton of the standard economic model but I don’t think that’s what we really see in the real world — at least not in my experience.

        • Ron H.

          I suppose we can ask whatever we want, and try to measure things about which we can have no direct knowledge, OR we can concede that the parties most intimately involved and with the most at stake – the employer and employee – are probably best qualified to determine the MPL of any given employee.

          • j_m_h

            The problem is that’s not how compensation and pay is actually set in any thing but a small business with less than about 20 employees.

            My manager know what I do on a daily basis. He does not get to decide my pay. He provides the anual review which pretty much sets a minum and maximum on the raise and bonus. However, he only get a fixed pooi of funds to compensate the entire team that reports to him. That pool is set but other levels of management. It’s not set based on the evaluation of mpv of each member of the team to the corporate bottom line but rather by a different process.

            So while you say “concede that the parties most intimately involved” should be left to decide that’s a myth in most cases so becomes something of a non-sequirtur in the discussion. The execuatives in a large corporation have about the same level of intimate knowledge as the politicians do.

          • Ron H.

            You’re right that your individual contribution may not be known to your employer, but as you say, there is a range within which your employer is willing to pay people doing the job you do, and your immediate manager has great deal of input into where your pay will fall within that range.

            That range has been determined by calculating the monetary value of the contribution of the average worker doing your job, and by comparison to other companies who employ workers to do the same or similar work. If your company estimates that range incorrectly or evaluates your contribution incorrectly, they may lose money, or you may find a better paying job.

            My point was more in the context of an original job interview in which an employer offers a specific starting wage, and you accept it. An agreement has been reached. No third party can determine better than the parties actually involved what an agreeable wage should be. A mandated minimum wage arbitrarily excludes many low skilled workers from the negotiation process.

    • “wage policy … may well be more driven by internal politics about distribution of the existing surplus” I am sympathetic to this argument, and would add that it’s not just internal politics, it’s also a function of shared norms within industry sectors and across them. Some anecdata:

      I have spent almost my entire career as someone who works with sales reps and who depends on commissions for a major chunk of my income. Sales is one of the easiest jobs for which to determine marginal product: Each sales rep has as annual compensation plan with a given sales quota and an associated commission rate, and quotas are set across all reps based on the level of revenue and profit the business has as its goal. For a company with high fixed costs and low variable costs (e.g., a typical software vendor), once a sales rep goes above quota they are pretty much contributing pure profit to the business.

      So a naïve model would predict that sales rep compensation would be basically uncapped. But this is not in fact the case. A sales rep who greatly exceeds quota in one quarter will frequently if not invariably have their quota significantly increased and their commission rate greatly reduced in the next quarter. Why is this? Part of it I think is because management and the market increase their expectations regarding achievable revenue and profits, and increasing sales quotas is seen as a quicker path to meeting those expectations than hiring and training new sales reps.

      But I think another factor, and perhaps the more important one, is that there are enforced norms about how much money a sales rep should make. In particular, I think it is a common norm that a sales rep’s total compensation should not consistently exceed that of a senior manager: That an Executive VP of such-and-such, not to mention the CEO, must “of course” be more important to the business than a mere salesperson, and should be paid accordingly. (And of course it’s senior management that has the power to write the comp plans, not the sales reps.)

      The upshot is that I am inclined to the idea that wages are only loosely determined by marginal productivity, with (within-firm) political power and (cross-firm) social norms playing a pretty significant role.

      • j_m_h

        “I think it is a common norm that a sales rep’s total compensation should not consistently exceed that of a senior manager: That an Executive VP of such-and-such, not to mention the CEO, must “of course” be more important to the business than a mere salesperson, and should be paid accordingly.”
        Yes but how can we really calcualte that? I suspect we find that lots of data can support the claim, and lots of data can refute the claim and that lots of data is completely inconclusive because other factors were at play and excluded from the analysis. Still it’s a certainty that management, given their agenda setting position in the process, will produce a set of rules that support their interests in good compensation.
        But this is really not anything new; it’s just another aspect of the problems related to the separation of ownership and control and must be balanced against other factors in terms of deciding if the overall structure is generally beneficial to the larger society and ecnomony, and through those benefits to the general population.

        • “Yes but how can we really calcualte that?” I think it’s quite difficult to calculate except pretty loosely. That may be why people fall back on tautological reasoning like “If that person were not really being paid per their marginal productivity then market forces would tend to correct the situation. So we can conclude that what they’re paid really does reflect marginal productivity.”

          By coincidence FT Aphaville’s “Further Reading” today had a link to a post by Chris Dillow on the limits of marginal productivity theory. I’ve also seen posts by Arnold Kling where he questions the underlying assumptions of W=MP.

          • j_m_h

            I agree that the caclulation in the real world is likely very poorly estimated except in all but the most simple productive activities where there is no joint production aspects.
            Thanks ofr the link however I think the issue is even deeper than actual versus expected. I think the issue really is that marginal theory is all about understanding where the limit of activity stops, a logic to explain getting to the intersection of S & D. I think that’s a purely locial construct that presents something of an ideal picture of markets. This is a story about allocation of things or the size of activites in a P-Q context. It assume that everying within the confines of the S & D curves up to the intersection point is distributed according to the equilibrium P for the market. The problem is that only the marginal actor is on that margin — everyone else is interior and have more degrees of freedom in their choices.
            The question about wage politcy and compensation becomes that of distribution of the available surpless that exists between the cost cureve (sams labor inputs) and the market price. Alrenatively, in the labor markets it’s about the “consumer surplus” the “firm” enjoys above the market price. If we assume that entire consumer surplus goes to profits and the owners of the firm and transfer here will impact share prices and is a transfer from owners to those “controlling” the firm. If we assume that there’s enough slack in calculating consumer surplus by owners or that it’s expected that the D cureve for the firms labor demand covers what the firm’s owners are willing to pay (i.e., built into the profit struture) then how that is distributed amoung the insiders (workers, amanagers) is not decided by marginal analuysis but will be decided more along the lings of a public choice model of distributing the rents.

  • j_m_h

    Just had a new thought on this topic. While it’s been often stated one of the commenters below made a comment about social justice used to eliminate a job and it made me think about Smiths division of labor being limited by the extent of the market. This feature of economic action is not linked at all to the idea that the marginal product value of the specialized task will be of any given size — that is support some level of income. Still it’s a core part of Smith’s driver for the wealth of a nation.
    Is there a role for public policy in terms of setting some limits on this deivision of labor? In other words, if we ask the same question in a different way do we get any additional insight?

    • Ron H.

      Is there a role for public policy in terms of setting some limits on this deivision of labor?

      No.

  • “But minimum wages laws don’t apply to self-employment. One reason is obvious: it’s not clear how they could apply to self-employment. Such a law would be plainly unenforceable. But equally plainly, even if we could enforce it, such a minimum wage law would be a terrible idea. There is simply no good reason to prevent people from working for themselves at whatever rate they choose is worth their time.”

    I think they can apply easily. Fred qua owner pays Fred qua employee the minimum wage. As a consequence the company (i.e. Fred qua owner) suffers a loss. The company stays in business because Fred qua employee uses part of his wage to give Fred qua owner a gift equal to the size of the loss.

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