Wage Slaving 101

Former Obama economic adviser and current UC-Berkeley econ professor Christina Romer all but pours cold water on the notion of even having a minimum wage, let alone raising it to $9 an hour as the President suggested in his SOTU speech last month.

First, what’s the argument for having a minimum wage at all? Many of my students assume that government protection is the only thing ensuring decent wages for most American workers. But basic economics shows that competition between employers for workers can be very effective at preventing businesses from misbehaving. If every other store in town is paying workers $9 an hour, one offering $8 will find it hard to hire anyone — perhaps not when unemployment is high, but certainly in normal times. Robust competition is a powerful force helping to ensure that workers are paid what they contribute to their employers’ bottom lines. 

One argument for a minimum wage is that there sometimes isn’t enough competition among employers. In our nation’s history, there have been company towns where one employer truly dominated the local economy. As a result, that employer could affect the going wage for the entire area. In such a situation, a minimum wage can not only make workers better off but can also lead to more efficient levels of production and employment. 

But I suspect that few people, including economists, find this argument compelling today. Company towns are largely a thing of the past in this country; even Wal-Mart Stores, the nation’s largest employer, faces substantial competition for workers in most places. And many employers paying the minimum wage are small businesses that clearly face strong competition for workers. 

Now, I'm not a economics professor, but the problem isn't production, efficiency, or competition.
It's cost of living.  It's the fact that minimum wage doesn't begin to cover a place to live anywhere in America.




And Romer's solution is increasing the Earned Income Tax Credit.

It’s precisely because the redistributive effects of a minimum wage are complicated that most economists prefer other ways to help low-income families. For example, the current tax system already subsidizes work by the poor via an earned-income tax credit. A low-income family with earned income gets a payment from the government that supplements its wages. This approach is very well targeted — the subsidy goes only to poor families — and could easily be made more generous. 

By raising the reward for working, this tax credit also tends to increase the supply of labor. And that puts downward pressure on wages. As a result, some of the benefits go to businesses, as would be the case with any wage subsidy. Though this mutes some of the direct redistributive value of the program — particularly if there’s no constraining minimum wage — it also tends to increase employment. And a job may ultimately be the most valuable thing for a family struggling to escape poverty. 

Not if the job doesn't cover the cost of rent in the first place.  Even here in Kentucky, one of the cheapest states to live in,  you'd need to be pulling down $11+ an hour to afford a two-bedroom apartment.

Ohio's $7.85 a hour minimum wage still means you'd need $13+ an hour, same with Indiana's federal minimum.  The $9 an hour the President is talking about is a solid first step, but more tax credits for the poor isn't going to fix the problem.

Talking about minimum wages without talking about cost of living problems is a ridiculous waste of time and space, and frankly I'm more than a little peeved at Professor Romer for forgetting that:  nowhere in the piece does she mention a living wage.

Just annoying as all hell.

Basic Mathe-Manics On Taxes

Stephen Olemacher at the Associated Press reminds us that you should take some time out of your busy schedule to feel sorry for America's most put upon resource, our obscenely rich one-percenters.

President Barack Obama and Democratic leaders in Congress say the wealthy must pay their fair share if the federal government is ever going to fix its finances and reduce the budget deficit to a manageable level.

A new analysis, however, shows that average tax bills for high-income families rarely have been higher since the Congressional Budget Office began tracking the data in 1979. Middle- and low-income families aren’t paying as much as they used to.

For 2013, families with incomes in the top 20 percent of the nation will pay an average of 27.2 percent of their income in federal taxes, according to projections by the Tax Policy Center, a research organization based in Washington. The top 1 percent of households, those with incomes averaging $1.4 million, will pay an average of 35.5 percent.

Those tax rates, which include income, payroll, corporate and estate taxes, are among the highest since 1979.

The average family in the bottom 20 percent of households won’t pay any federal taxes. Instead, many families in this group will get payments from the federal government by claiming more in credits than they owe in taxes, including payroll taxes. That will give them a negative tax rate.

‘‘My sense is that high-income people feel abused by being targeted always for more taxes,’’ Roberton Williams, a fellow at the Tax Policy Center, said. ‘‘You can understand why they feel that way.’’

Indeed, the top 20% of income earners pay 78% of all income tax according to the article, which in America means we have people earning six figures who have to scrape by.  What the other 80% are supposed to do, well who knows, we don't matter.  As Sam Knight over at Washington Monthly puts it...

...yahoo!

It’s oh so difficult to feel even a subatomic iota of sorrow for the rich here for so many reasons: 1979, of course, marks two years before the start of the Reaganite consensus on executive worship and corporate tax cuts; much of the rich’s income is derived from “unearned” rent-seeking; the elites should be happy to help pay for a society that has helped them prosper; and, due to offshoring and the weakness of organized labor among other factors, lower income workers’ wages haven’t kept pace with their productivity explosion over the past few decades. In short, the wealthy have the money to comfortably pay these “historically high” tax rates — lower still than the high marginal rates that were commonplace throughout the rapid growth post-war era.

Moreover, high tax rates might actually spur growth, in the words of John Judis, by discouraging “the wealthy from rerouting their savings into the kind of speculative activity that helped create the Great Recession,” and, in the words of one small business owner, by encouraging businesses to reinvest their profit before the end of the year.

Or as Duncan Black puts it, America is a country where people are poor if they are making $250,000 a year, but we can't afford to raise the minimum wage to $9 an hour.

StupidiNews!

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