Wednesday, 20 February 2013

Countering the job destroying effect of minimum wages.

The U.S. minimum wage is rising from $7.25/hr to $9. The obvious advantage is improved income for low skill employees who keep their jobs, and the obvious disadvantage is increased unemployment amongst the low skilled.
There is actually an escape from that dilemma. It’s to let employers pay any wage they like, even $1/hr (with the state making up the wage to the minimum acceptable take home pay). But where the wage is below some threshold, (say $9/hr), the state has the right to nab the employee and allocate him/her to a job where the relevant employer is prepared to pay more, or where state employment agencies think the skills of the employee would be better used.
The nuisance involved in having reasonably productive employees nabbed would induce employers to pay those employees the min wage or more. I.e. it’s only the genuinely unproductive employees who would get subsidised.

One advantage of the above system that is that there are an almost infinite number of potential jobs if you count an activity with an output of $1/hr or less as a “job”. Thus the latter system has the potential to bring about a HUGE REDUCTION in unemployment.
Second, the better availability of jobs makes it easier to impose some sort of workfare sanction on the unemployed. That is, if there is a dire shortage of jobs, it’s a bit difficult to say to a member of the dole queue “get yourself a job within a month, else your unemployment benefit stops”. In contrast, if there are ten million $1/hr jobs to choose from, it’s relatively easy to impose the latter sanction. And that in turn means a significant number of the unemployed, instead of doing $1-9/hr jobs, or remaining unemployed, would get themselves normal / regular / unsubsidised jobs.

As to disadvantages, an obvious one is the bureaucratic expense of having state employment agencies allocate labour.
Second, if the system was run in any sort of a lax way, it would encourage unproductive work.
Third, labour turnover would increase. On the other hand there is no harm in those who temporarily cannot find a job to which they are well suited trying a variety of different jobs: the very fact of their being unemployed may be evidence that their previous type of employment is obsolete or demand for the relevant skills has declined, and thus that they are going to HAVE TO try something different. And the latter point applies particularly to youths: it’s a good idea for youths to try a variety of different types of work so as to see which type suits them.
Plenty of millionaires started their working lives with a series of dead end jobs.

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