Incentives (2)

January 5, 2014

Here’s an interesting article from today’s Post-Dispatch:

Missouri Democrats seek minimum wage hike

Missouri’s minimum-wage workers received a small bump in pay at the turn of the calendar, but a larger one could arrive next year from lawmakers in Jefferson City.

House Bill No. 1098 would raise the state’s minimum wage to $8.25 an hour, effective Jan. 1, 2015.

The state’s minimum wage rose to $7.50 an hour Wednesday, just above the federal minimum wage of $7.25 an hour.

Pat Conway, D-St. Joseph, was among the 27 representatives — all Democrats — who signed on as co-sponsors for the bill when it was pre-filed in December.

Existing legislation will remain in place to allow for adjustments to the minimum wage each year, relative to the Consumer Price Index (CPI). Last year, an increase in the cost of living raised the minimum wage from $7.35 an hour to $7.50. However, such increases came few and far between, according to Conway. […]

Mr. Conway said such increases are needed because many people draw more in unemployment benefits than they would make at a minimum wage job, so instead of rejoining the work force, they stay home.

“We’ve got to get the minimum wage up to a point where it gives people an incentive to take jobs at minimum wage,” Conway said. […]

Where to start…?

First, maybe, with how politicians never seem to get price elasticity? Since we have politicians setting market prices, why don’t they set the minimum wage to $25 an hour? If you think that’s crazy (and it is), then you should think about the effects of any minimum wage law.

Second, what will a minimum wage increase do to unemployment among young, unskilled workers? That is, to the people who have the hardest time finding a first job?

In this vein, I’m reminded of Mark Twain’s advice to job seekers: to get the job you want, offer to work for nothing. But Twain’s out-of-date these days because the state has made that illegal.

Third, you have to love how the newspaper reports this action. "but a larger one [bump in pay] could arrive next year from lawmakers in Jefferson City." Wait just a minute, Mr. Editor… The lawmakers in Jefferson City aren’t the folks paying those higher wages. There’s a more accurate way to state what will happen if you take a minute to think about it: "but a larger increase in costs could arrive next year when lawmakers in Jefferson City force some Missouri businesses to pay 10% more for labor."

And, last but hardly least, Mr. Conway admits that his unemployment insurance is providing too good an incentive. Gee, who’d have thought, huh?

So he and his comrades plan to give people a different incentive by raising the cost of labor across the state. What the…?!

Historically, employers pay taxes to fund unemployment benefits. (My company used to pay them when it had employees.) But the amount and duration of the benefits are set by the state government. So having made those benefits so attractive that people have no incentive to work low-wage jobs, the state now wants to increase the cost to businesses by raising the low wages.

Why don’t we limit the attractiveness of the unemployment benefits by decreasing their amount or duration – instead of imposing another cost on the business that fund the system?

I can imagine situations where unemployment provides assistance that is badly needed.

On the other hand, it’s too easy to game the system. I know a couple of people who’ve done that, including a former employee. And I’ve met too many cases where people know it will be available so they collect all they can even in a good job market. People without children or who have an employed spouse sometimes treat their eligibility period as a paid vacation. This is hardly news to any employer.

Plus the unemployment system presents the moral hazard of encouraging people to live paycheck-to-paycheck. I’m talking about people who could afford to save for the proverbial rainy day, but who don’t because they expect to collect unemployment benefits.

What we need is separation of Market and State (as I’ve said before).

Update (3/1/14): Here’s a recent cartoon in the Friday Funnies at Hit & Run.

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