I don't understand how to practically make this work.
There's a strong case to be made that a minimum wage helps people whose value approaches the minimum while hurting people above or below (e.g. $12 and $18 wages in an unlimited market both round to $15 with a minimum, while someone who only produces $7 of value is no longer employable). Similarly with cash infusions - giving people more money is inflationary.
Nobody wants to live in a world where people are trying to participate in society and failing. That's truly heartbreaking.
At the same time, naive solutions (decide a "living wage" and force people to pay it, set up and enforce rent control, give out stimulus payments) seem to have a lot of second-order effects/unintended consequences without actually solving the problems they're meant to solve.
My personal position is to abolish the minimum wage and update the tax scale with negative tax rates that support a reasonable quality of life at all income levels. The market will find its own balance for what a true minimum wage is in that environment (and not have weird perverse incentives like you state).
Yes, this is UBI. But phrased as a tax cut makes it politically viable (at least in the US).
One of the classic unintended consequences of social welfare is making someone at the bottom unwilling to work. We saw this during the pandemic when people in formerly low-wage jobs got a lot of cash assistance and stopped being interested in low-wage jobs. (Remember all the "help wanted" signs and early closing hours at local restaurants?)
I'm curious to see an example scale that would continue to incentivize social behavior the whole way up the chain - avoiding the "oh I don't want to make $100 more dollars because I'm in a sweet spot now and bad things happen at $99."
You can certainly argue that many of the current disincentives are bugs in the bureaucracy. I'd like to see a proposal for the UBI tax scale you describe that doesn't have any bugs (that is, bumps in the distribution where people are afraid to reach for state C from state A, because the intermediary state B is worse than A).
> One of the classic unintended consequences of social welfare is making someone at the bottom unwilling to work. We saw this during the pandemic when people in formerly low-wage jobs got a lot of cash assistance and stopped being interested in low-wage jobs. (Remember all the "help wanted" signs and early closing hours at local restaurants?)
I remember this, the cash assistance gave people back their time to focus on starting their own businesses, pursuing self-education, taking care of their kids, etc. It was fully apparent to me that these low-wage jobs effectively trapped people by sucking up all the time they had for self-improvement.
Very much agreed that there should be no cliffs. Every dollar earned should at minimum increase your usable cash flow by at least X amount no matter where you are in the income distribution and other tax incentive phase space
> We saw this during the pandemic when people in formerly low-wage jobs got a lot of cash assistance and stopped being interested in low-wage jobs. (Remember all the "help wanted" signs and early closing hours at local restaurants?)
Unwilling to work or temporarily not desperate to stay alive? How many receiving assistance were still working, just doing it less?
The only studies on outcomes I recall is that a lot of kids were no longer experiencing food insecurity.
That "classic unintended consequence" was specifically tested many times in UBI context, and study after study doesn't find it in any noticeable amount.
In any case, given how badly broken the current system is, surely it's at least worth a try?
We should not make it more than $1000 per month. Very few would choose to be poor. It would put a lot of pressure on companies to pay decent wages, though.
$1000/month is $12,000/year. Thats far far below poverty levels. It needs to be enough that people can choose to supplement in order to engage with luxury consumption. If people are forced to supplement to just survive, then we need to maintain the minimum wage and a whole host of other weird baggage.
The 2024 FPL figure is $15060 + 5380 per additional person family member past the first. $12k/head/year comes up a bit short for an individual, but it's not that far off—expenses involved in holding down a job probably actually account for the difference anyway.
It also becomes clearly tenable with households of more than 1. Supporting a family of 2-3 on $24k-36k is like, yep, I've met married international grad students. Of course they'll spring for supplemental income where available, but as a baseline it is tenuously "enough".
The goal can't be to solve every desperation case. But if the program wouldn't allow individuals living in dangerous and exploitative situations to confidently leave them (financially) Id argue the program was a failure
It is important that this is based on all income levels equally. Yes, some will pay back that money in taxes, but the important part is keeping the amount equal. It would be even more effective if you gave them a monthly check (even if you would eventually take it all back via a consumption tax on people earning more). A ~25% national sales tax should be sufficient to cover a UBI program. (We should still have an income tax, though.) Furthermore, a consumption tax would decrease unnecessary spending since you can target only new products and not used products to encourage people to reduce, reuse, and recycle.
If UBI is encoded as a negative tax rate at low income levels, it no longer really makes sense to talk about it as applying to all income levels equally. It naturally gets distributed as
1) A check (issued by Social Security service?) if income is less than X
2) Less of your paycheck being withheld if your income is greater than X (or more if you're significantly above X, depending on how this gets funded)
We have a tax rate with negative tax rates at the low end of the scale. For sketchy social policy/political tenability reasons it doubles as a child subsidy and phases in up to a nominal amount of preexisting so-called earned income, but functionally that's what the earned income tax credit is.
Expansion of the EITC program is fairly well-regarded among economists and has been historically quite popular! We should do more of it!
> someone who only produces $7 of value is no longer employable
This is the wrong model. You're using a worker's wage to describe their productivity, and a big reason for the mess we're in is that wages stopped increasing with productivity fifty years ago. (search "wages productivity graph")
This feels like you're nitpicking the language, not the thinking.
Imagine someone's contribution to a business increases revenue by $1000 and the total cost to employ that person for the same period is $800. Do you think most businesses would go "nope, we only hire highly leveraged people who produce $2000 in revenue"?
There are inefficiencies in scale (like communication/bookkeeping overhead) that might disincentivize a business from growing, but generally speaking, I think it's fine to model decisions as rational cost/benefit ones.
Workers who are only "worth it" at some wage. Nobody is going to pay you a million dollars to go sell a hundred dollars worth of stuff. If the value you can earn on the market is sufficiently lower than what someone is allowed to pay, they simply won't hire you. That's bad for everyone.
Comparing someone's wage to the value they produce is a fine way for a company to decide whether to hire someone, but I didn't think that was the question you were trying to answer, was it? Perhaps I misunderstood, but I thought you were asking something like, what policy would help people who are at the margins, which is an economy-wide question that can't be answered from one employer's perspective. Workers may only be "worth it" at some wage, at some point in time, but that wage is subject to supply and demand just like everything else. A policy intervention like raising the minimum wage will alter that supply/demand curve.
For example, suppose janitors all make the minimum wage. If we increase it, there might be some company at the margin that will go without janitorial services, but most companies will pay their janitors the new wage, which (from the "a worker costs $X and produces $Y" model's perspective) will look a lot like the nation's janitors suddenly started producing more value. Ergo, it's not to say that that model is wrong, just that it's not useful in answering a question like should we increase the minimum wage.
Except an employee's contribution isn't static, while their cost is.
$7.25 x 8 hours = $58 for the day. However what they create is based on output, which for most businesses, varies day by day along with their sales.
A McDonald's could sell 500 burgers in one day at one location, but only 300 at another. In this case the employee at the larger restaurant generates 2/5 more value than the employee at the smaller one, even if both can output at the same speed and quality. So, in reality, the employee at the larger restaurant is being exploited by 2/5 more than the employee at the smaller location. Which also means the employee at the smaller location is getting paid more for doing 2/5 less work than an equally capable employee.
Profits are multiplicative yet unpredictable, while labor is static and predictable.
I have a family member that is severely disabled. She used to be on a program where the government would supplement her wages - she worked at Jack in the Box, where her employer would pay like $3/hr and the government would top that up to $10/hr.
Now that program is gone and minimum wage for fast food is $20/hr. She simply cannot perform $20/hr worth of work, so she's unemployed (and living on government assistance).
The previous arrangement was fantastic because the work gave her a purpose and something to do all day, and she contributed to society while saving the government money. Now she stays home and watches TV endlessly.
This has informed my ideas - I think supplementing minimum wages could be a better alternative to UBI (with some exceptions).
There's usually carveouts for people with certain disabilities. It allows companies to pay them below the minimum wage. I would be surprised if that was abolished with the increase in minimum wage.
A rather low hanging fruit is smoothing out welfare cliffs so poor people don't feel stuck in an position of a local maximum of utility near the bottom. The problem is that these initiatives are very complicated, and you get more public support just blindly throwing money at the problem.
The real issue is that a few people have accumulated a lot of wealth and property, and they use it as a tool to extract even more money. It's basically the late stage capitalism money vacuum hoovering up everything. In the past the only levers we had against this were breaking up firms and enforcing anti-monopoly and preventing capital from even entering certain parts of our economy. We could, for example, ban private equity companies from buying houses and healthcare companies, break up national monopolies into regional companies, and eliminate a lot of the consolidation that has traditionally enhanced the bargaining power of the company owner against the employees.
In the short term it would make a lot of stuff less efficient, but when people talk about "efficiency" they really mean driving costs down and driving income up. So we really don't want an efficient capitalist economy, we want a capitalist economy that is just efficient enough to meet our needs while not being so efficient that a few people can exploit that efficiency and run away with our things.
I don't think it works if we're narrowly focused just on wages, but I don't know why that has to be the only focus. If we as a society want to support people having a baseline quality of life, then let's pay for it together rather than pushing it all on employers.
>If we as a society want to support people having a baseline quality of life, then let's pay for it together rather than pushing it all on employers.
Baseline quality of life isn't decided just by pay. I find that society doesn't support people having a baseline quality of life when it comes to areas other than pay, so it makes me question the motives of society in the case of pay.
There's a strong case to be made that a minimum wage helps people whose value approaches the minimum while hurting people above or below (e.g. $12 and $18 wages in an unlimited market both round to $15 with a minimum, while someone who only produces $7 of value is no longer employable). Similarly with cash infusions - giving people more money is inflationary.
Nobody wants to live in a world where people are trying to participate in society and failing. That's truly heartbreaking.
At the same time, naive solutions (decide a "living wage" and force people to pay it, set up and enforce rent control, give out stimulus payments) seem to have a lot of second-order effects/unintended consequences without actually solving the problems they're meant to solve.