Tag Archives: minimum wage

Reduce Homelessness

Problem: Homelessness exists. Untrained workers might be worth too little to hire, and they cannot receive training. This is how the cycle of joblessness starts.

Solution: Break the cycle by allowing workers to take jobs even when they pay less than minimum wage; and give them a tax break until they gain financial momentum. Specifically: eliminate the minimum wage and increase the standard tax deduction to $25k.

Implications: A huge new number of low-paying jobs would open up, offering an opportunity for training and experience to young or untrained workers. And everyone earning $25k/year or less would have no tax bill at the end of the year. The large number of new workers and jobs would rapidly grow the economy. This might not completely eliminate homelessness, but it would help a great deal. Far more jobs would be created than would be filled, so those earning the minimum wage now should expect that the job market would become more attractive, and offer better income to those with some experience or training.

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Is Global Free Trade Always Good?

As long as trade is at will by both parties, it is good, right?

Not necessarily.

Innovation has led to great developments in goods and services, and led to amazing increases in productivity and capacity utilization. International trade is distributing value more efficiently than ever.

Peter Weiss raises an important counterpoint:

“[clip] The dislocation is often painful and some people cannot make the transition for any number of reasons – I don’t minimize or ignore their pain, or loss. As people living in a community, however we define it, we should consider how we respond to them [clip]”

Throughout history, the waves of displaced workers have ranged from negligible to crisis levels. Displaced workers are typically older workers who are highly skilled in a shrinking industry, or people of all ages who do not have economically rewarding skills. The first set of people is generally easier to define because they had and lost their jobs, while the second set may be far more difficult to quantify.

In the transition to the industrial age, displaced farmers, craftsmen, and tradespeople went through fairly desperate poverty, but there was a large industrial complex forming, ready to hire people with a wide range of skills. In the information age, and with a far larger and more anonymous society, we are dealing with new dynamics. Automation is increasingly replacing labor in production, putting a greater emphasis on capital. The economically rewarding skill set is becoming more cognitive, scalable, and competitive. The highly scaled production of the globally efficient producers displaces less efficient producers throughout the rest of the world.

Why would this be a problem? Clearly, we already acknowledge that some trade should be illegal: monopolistic mergers are restricted by the Federal Trade Commission. Even overly concentrated industries may have restrictions on further consolidation. With information services and assets, marginal costs fall to about zero, and this economy of scale is a strong force for monopolies within each product or service class. Innovation can be stifled if monopolists prevail. However, this dynamic cannot be controlled globally by the US Federal Trade Commission.

But it goes further than that: whenever productivity rises faster than production, fewer workers are required in aggregate. Production may still be growing, but the non-working population and increasing concentration of wealth means that the median utility may shrink. Recent drops in interest rates has promoted refinancing and debt, enabling continuation of consumer spending, but factoring out this externality implies a scary economic reality.

I’m afraid I can’t offer a comprehensive solution, but as policy makers (or simple commentators), the goal should be maximizing the growth rate of the median utility, right? The Fed and international trade policy are currently influenced by an optimization problem that maximizes total GDP growth. Changing the nature of the optimization has the potential to imply that free trade might not always be good. Similar to the measures put in place to avoid the downsides of monopolistic trade in the US, legal and financial policy reform may be due in the next decades to enforce rules as a Global Trade Commission, and also to target disadvantages from productivity growth overwhelming production growth.

Solution to Outsourcing

Outsourcing is a problem. There will be an estimated 406,000 US jobs outsourced in 2004.

Let me float a possible solution: Let everyone in, give everyone a tax ID card, and eliminate the minimum wage. Give us your tired, your poor, your huddled masses yearning to breathe free, and let them work and pay taxes like everyone else. They would not be citizens yet, but they could live and work here legally.

These legal aliens would not be citizens, but should be offered some of the minimal public social services and protections, reserving the highest level for citizens. If they are in good standing after some number of years, then they would be eligible to become citizens.

Right now, illegal workers in America are willing to take unfair pay, receive no benefits, and tolerate unsafe conditions because they don’t pay taxes and they are afraid of being deported. Given legitimacy, they would demand reasonable pay, reasonable benefits, and reasonable working conditions, finally putting them on a fair playing field with the rest of us. And there is very likely a huge pent-up demand in this population to join organized labor.

With the increase in newly recognized labor tax revenues would increase substantially. And with this reorganization of immigration and the elimination of the minimum wage, businesses would rapidly grow and hire right here in the United States.

Elimination of the minimum wage would mean that employment would go WAY up. There would no longer be this structural unemployment at the bottom of the economic scale where a person is not yet worth more than a few dollars per hour, and so they can’t get a job and the experience they need to advance.

The standard of living for Americans would increase substantially. The fall in unemployment would reduce homelessness and poverty. Rapid business growth and the rise in domestic consumer spending would continue the cycle of increasing domestic labor force growth. Stocks and bonds would increase in value with the growth in businesses and business credit. Inflation would be pushed up by the increasing growth in businesses, employment, and immigration, but these are good reasons for inflation (easily controlled with the Federal Reserve overnight lending rate).