You may remember Old Fezziwig as a young Scrooge’s generous employer in “A Christmas Carol.”
But, according to author and political commentator Michael Lind in a recent opinion piece in the New York Times, today’s employees cannot count on employer generosity for jobs with good wages or benefits. He believes that policymakers have abandoned the goal of good jobs and replaced it with a goal of “good lives” by providing federal subsidies for low-income earners.
This fatalistic perspective comes at a time when the median income has essentially remained stagnant for nearly two decades, consumer demand has flat-lined, interest rates are near zero, health care benefits have been spread unevenly, and retirement savings are, to say the least, precarious. All of this has led to an understandable feeling of insecurity about the economy, jobs and the future and in calls to have the government adopt programs to get the economy moving.
Suggestions for governmental stimulus include financial support for renewable energy, massive infrastructure spending and an increase in the minimum wage. While renewables and infrastructure spending are certainly worthy of consideration, nothing would stimulate a consumer, demand-driven economy more quickly and more broadly than a significant increase in the minimum wage. One study suggests that, for every dollar added to the minimum wage, there would be a corresponding increase of $2,800 in consumer spending.
Increasing the minimum wage to provide an annual income well beyond the poverty level would aid the “working poor,” stimulate the economy and give many more an opportunity to leave poverty behind. A stimulated economy would likely also increase the income for those in the stagnated middle as demand, profits and the need for labor would all increase.
Those who oppose raising the minimum wage and those who support a gradual increase put forward valid reasons to be wary of significant minimum wage increases. One concern is that employers will make investments in new technology rather than pay more money in wages and, in doing so, reduce employment. For example, a fast-food company might further mechanize its processes and decrease the number of its employees. Likewise, there is a concern that an increased minimum wage will mean higher product costs, fewer sales, less competitiveness and more business failures, reducing employment. The Congressional Budget Office predicted that thousands would lose their jobs if the minimum wage were increased. With these valid concerns, how can government nudge employers to pay an increased minimum wage of $15 dollars an hour?
It can do so by combining the mandated $15 minimum wage with a reduction in employer taxes through a doubling of an employer’s expense deduction for employee wages up to the amount that a full-time, $15 minimum wage worker would earn (a little more than $30,000 a year). The proposed deduction would be applicable to all wage deductions regardless of an employee’s total wages. The deduction for an employee making more than minimum wage and earning, for example $50,000 annually, would be $80,000 ($60,000 for the first $30,000 in wages and then the additional $20,000 difference). The money saved by an employer from the increased deduction and the resulting lower tax might also provide an impetus for an employer to raise that higher earner’s salary.
An increase in consumer demand could be expected because much of the extra money earned by an employee receiving the $15 minimum wage would go directly into the economy since low-income earners spend a high percentage of their income. The greater consumer demand would improve the economy and likely increase employment. It could also be argued that the doubling of the deduction might actually increase federal tax revenues because of increased employer income and new employees being added to the tax rolls, while reducing government (i.e. taxpayer) costs for public assistance, food stamps, Medicaid and health care subsidies. Similar revenue increases and reduced expenditures could also be expected for many state and local governments.
The same nudge of lower employer taxes through a doubling of the expense deduction could be applied to employer-provided health care and employer-sponsored retirement programs. A reduction in taxes might be particularly helpful in nudging small businesses to provide these benefits. In the long run, reducing employers’ taxes, in this manner, will save the government the cost of further subsidies for health care and public assistance.
It is unlikely that employers will turn into Fezziwig or wake up Christmas morn like a thrice-visited Ebenezer and provide the needed “good jobs” with good wages and benefits. But a mandated $15 minimum wage and a reduction in taxes for employers based on that increased minimum wage will provide the opportunity for the good jobs that Mr. Lind believes the public should give up on and give the economy a much needed boost.
Mike McCarthy previously headed a statewide business organization and held numerous positions in and out of state government, most recently with the Pennsylvania Public Utility Commission.
