How to ‘Manage’ a $15/hr. Minimum Wage

The primary “practical” reason why a statutory Minimum Wage of $15.00/hr. is a bad idea is because some workers are “not worth” that much to some employer, who has to use the workers’ productivity somehow to get paid by a customer.

Employers discriminate against “losers.” They shun workers who do not meet minimum “qualifications,” which mostly the employers choose (barring race, et al.).

How to ‘Manage’ a $15/hr. Minimum Wage

Employers are not going to pay and continue to pay, after perhaps a trial probationary period, for an employee who “is not worth it.” But the “social welfare” aspect of the Minimum Wage seems to be outweighing, politically, the logic of economics.

How might a Political Economist solve this problem? It is clearly a problem for the School of Public Choice economists, of whom I am proud to have known some personally (Coase, Buchanan). A simple institutional structure might work here, to divide the “employment” part from the “welfare” part of the costs.

Under current law, every State has a “work training and unemployment compensation” system of some sort. Workers who apply for unemployment compensation after losing a job can apply for it but they have to attend training programs in most jurisdictions. It is a subsidized process.

Perhaps the solution is a structural reform, replacing the current Unemployment Insurance and job training programs.

Proposal for Handling the Minimum Wage

Let the Minimum Wage be paid to the workers directly by the State labor exchange, if they get their jobs that way. Otherwise no Minimum Wage shall be mandated. Employers do not have to pay any such thing any more, and we ought to hope the State governments follow this deregulation, and repeal their implicit excise taxes on hiring sub-par workers.

Employers Decide how much to Pay

Employers would submit a “bid” for workers, and the labor exchange would choose which ones to send for an interview, based on whatever they do “to train” workers about job-finding skills, and assessing their level of skill.

    Let the employers come to the State labor exchange to interview workers, or workers can be sent to interviews, and the employers would be inviting them. Guaranteed interview, and possibly a guaranteed job.

    The employer would reply directly to the State labor exchange whether s/he wanted to take on that employee for a trial 30-days and option to renew the worker for a year at an agreed fee (like a temp agency contract). The wage will be paid to the State labor exchange and the State would pay the worker his or her $15/hr. It would also do all the Social Security withholding, etc. including ACH compliance (Medicaid) and workers compensation, and any other local taxes on employers who hire workers.

The implicit Excise Tax on an employer, who hires workers whose productivity may be sub-par with experienced and better trained workers, would be eliminated – and paid by the taxpayers through the labor exchange “minimum wage” – as all welfare payments ought to be paid, not mandated on others to pay.

And . . . the Moral Argument

Finally, the primary “ethical/moral” reason why a statutory Minimum Wage of $15.00/hr. is a bad idea is because the government does not have any legitimate right to command an employer to pay any particular worker any particular amount that the worker has not earned that day.

But retired intellectuals like me can understand why most people want to survive in a world dominated by State laws. This “compromise” idea would give everyone a way out of the Minimum Wage issue, and separate (i) the “welfare” part from (ii) the wage an employer pays. [The social democrats get their “living wage” paid (social justice?) and employers get a more free labor market with no wage controls.]

The Philosophical Argument (phronesis)

It is precisely that “wedge” from the elementary supply & demand graph (the “burden” of welfare), imposed by the government on the private employer; this causes “unemployment.” Since the employer can choose not to hire, that law causes unemployment. [law of demand – demanders move upward on the curve, for a smaller quantity demanded] It is an implicit Excise Tax on employers who hire sub-par workers, thus fewer of those workers are hired.

Yet if we could divide the welfare payment from the wages paid by an employer, then “unemployment” goes away. Taxpayers would pay the “welfare” part of $15/hr. and the employer would pay to the State labor exchange what the employee is worth. The employer’s payments would be under a contract with the State labor exchange; it would pay $15/hr. to the formerly “unemployed worker.”

“Unemployment” goes away. That’s a good result. Employers might figure out how “to chisel” the system by bidding low to get a good worker, and pay the employee less than the $15 the taxpayer is stuck with, but why care about that? Workers get jobs, employers get workers to train, and social democrats get higher taxes “to redistribute wealth” without requiring employers to pay all those taxes themselves, which a mandated Minimum Wage like today’s does do.

Today’s Minimum Wage laws are just a form of Excise Tax on an employer who might hire workers whose productivity is sub-par compared with experienced and better trained workers. When we tax something, we get less of it. Stop taxing job creation.

Note: Nothing in this proposal would restrict direct employer hiring of a worker, and no minimum wage laws would apply when such “Excise Taxes” have been repealed. Workers who do not want the State $15/hr. wage could work for less directly with an employer.