Let’s talk about a subminimum wage

Last updated on: February 26, 2015 at 10:54 pm by Jane the Actuary

Let’s talk about a subminimum wage 2015-02-26T22:54:32-06:00 Jane the Actuary

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I had written before, in the post-election postmorteming that everyone was doing, that the Republicans should offer a deal with Obama, a minimum wage boost in exchange for enforcement-oriented immigration provisions. Of course, things got messier with Obama’s unilateral action but my core thought is still the same: the minimum wage boost, with tweaks, is a reasonable concession to make to Democrats in exchange for some other goal.

Yes, I know that there will be winners and losers with a minimum wage hike. Some will see their income grow, some will see their hours cut, or never get a job in the first place, as employers, at the margin, move increasingly to automation or self-service. And some businesses will increase prices, while others, being trapped by customers who would otherwise walk away, or by competition overseas, will cut pay for higher-earning employees, reduce investments, or make do in some other way. It’s a pipe dream to imagine that employers will fund the minimum wage increase by means of pay cuts for CEOs and other overpaid executives. On top of which, there will be ripple effects, as those jobs which pay moderately above-minimum wages will all need to increase as well.

Having said all that, how can I justify a minimum wage hike? Largely because we are a democracy, and, it seems, the large majority of Americans want a minimum wage hike despite these ill effects, being persuaded by either journalists and pundits who cite economists who claim negative effects will be minimal, or by their own wishful thinking. So I’m getting more than a little tired of it all, tired of right-leaning pundits saying, “we know better.” We’ll manage, one way or another, even if we accede to the apparent wishes of the majority.

What would I do to mitigate the impact? A subminimum wage for otherwise-undesirable employees. In my prior blog post, and in a comment on a Reihan Salam piece in National Review, I suggested a lower wage for certain targeted groups. To refine the idea somewhat, I’d say this:

First time entrants into the workforce (based on number of quarters of Social Security earnings history) would be paid at 70% of minimum; increasing to 80%, 90% and 100% after one, two and three years of employment. Same phase-in for the long-term unemployed — 90% for one year of unemployment (as identified via Social Security earnings, so, more of a calendar year than actual year), 80% for 2, 70% for three or more years — again in each case moving up to 100% of minimum over a period of one, two, or three years. And those willing to hire workers over 65 and over 70 (or maybe over 70 and over 75) can do so at correspondingly lower rates — assuming that the good, still energetic 70 year olds are willingly hired at regular minimum wage but that the subminimum gives the ones who need to sit a shot at a job, too.

When I floated this in the comments, a commenter replied, “The aggregate pool of unemployed potential labor that fit in the “under 20s, 62s and up, the long-term unemployed, and first-time workers?” is tens of millions, so why would I hire anyone else. The sub-minimum wage would have to be virtually identical to the minimum wage for it itself to not distort hiring decisions.”

Which is exactly the point. I would back-track on the under-20s, because that fits in with the first-time labor force entrants category, and move the age for the elderly subminimum from 62 to 65 or 70 to narrow these categories, but by and large, my thought is that these categories are the ones who are least desirable to employers, the ones who will have the hardest time finding work if a higher minimum wage reduces the number of minimum wage jobs out there. If a subminimum wage improves their job prospects because the employer is more willing to accept the uncertainty of an unexperienced worker (and I mean “uncertainty” very broadly — does this person have the minimal understanding that you need to show up for work on time?) because of the lower wage.

It’s not ideal, in any case, but it’s the only real solution I see to move forward on this issue.

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