The Minimum Wage: a Democratic dilemma Posted by: Jon Henke
on Sunday, May 14, 2006
One common argument for single payer, universal health care has been that employer-provided health care is inefficient — wrote Kevin Drum, a "car company should be a car company, not a healthcare supplier." — and disadvantageous, since offloading the burden for health care onto employers puts US employers at a competive disadvantage against employers in countries which subsidize universal health care. Paul Krugman has argued that US workers ultimately suffer when US employers are forced to pay the costs of social welfare policies which, in other countries, are subsidized instead by the government. From a competitive view, that's a good point.
Let's commit libertarian heresy and stipulate that the public will demand social welfare programs and they will get them. The only question then is how will they get them. Add to that the Democrats argument that offloading the responsibility for social welfare policies onto private businesses is inefficient and competitively disadvantageous, and we come to an interesting Democratic discrepancy.
Stipulating that the government Must Do Something about poverty by subsidizing the low-income earners, why is the preferred policy solution to distort the labor market by forcing businesses to pay the social welfare costs? Why do the Democrats insist on having government pay for our medical welfare policies, but businesses pay for our social welfare policies?
Leaving aside the rapidly diminishing role of the minimum wage in the first place — the percentage of hourly workers at or below prevailing Federal minimum wage has declined from 6.7% in 1997 to 2.7% in 2004 — the minimum wage is, as Jane Galt [Megan McArdle] has argued, "an exceptionally blunt instrument." A large proportion of minimum wage earners are teenagers or are merely supplementing the income of an already relatively well-to-do family. If the goal of increasing the minimum wage is to help the poor, then surely the policy should have something more than this scatter-shot efficiency? It's as if we proposed occassionally throwing cash from cars on the theory that 1 out of every 4 dollars would probably be picked up by somebody who needed it.
But don't take the word of inveterate libertarians like McArdle and me for this. Paul Krugman, too, has argued that "trying to raise the incomes of the unlucky by raising minimum wages is at best a crude and double-edged strategy." In addition to the inefficient distribution, Krugman pointed out that such a policy would result in some of the very people it was intended to help being "priced out of the market." What's more, he argued, "new benefits should not be financed by new charges on employment".
And yet, this is exactly what proponents of a hike in the minimum wage would have us do. Remove the cost of one social welfare (health care) from employers, but impose the cost of another social welfare (minimum wage) on employers. If we absolutely must subsidize the lower end of "output inequality", then let's do so with minimal intervention and careful targeting. The negative income tax, for example, would do less harm than would increases in the minimum wage.
In the meantime, the Democrats ought to decide whether they want businesses to bear the cost of social welfare or not. If their argument for universal health care is correct, then it it ought to apply equally to the minimum wage.
Well since this is politics, not social policy or social science I think this is an argument that most Democrats will avoid... simply put they’ll tell you it’s the "right" thing to do. As far as health care goes, really that’s the FIRST time I’ve heard the Democratic/Liberal/Progressive side make that argument. Again Health Care is just the "right" thing to do.
I really don’t think you’re going to phase anyone with this philosphic discussion of why certain things are or aren’t Ok or logically consistent or inconsistent. I believe Atrios or MK wuld say Walmart or ANY business OUGHT to pay a "living wage" and that they out to provide health care, and if they can’t then the government SHOULD. As I say I’ve never heard anyone advance the argument that health care ISN’T Walmart’s or Maggee’s Bakery forte , but only the argument that health care is a right.
I believe that the argument about what is a business’ core competency is merely the latest reason for the government to provide health care, according to the Left. If they could link it to National Security or the GWoT or tax cuts, they would. As I said, it’s POLITCS , this is about justifying a particular policy, not about philosphic reasoning.
I don’t think a VAT is good at all... As I understand it it’s a tax on the value-added at every stage of production... bad idea, too complex. I realize that this board is against it, and make excellent arguments, but a Sales Tax or the Fair Tax would be preferable.
The problem with arguing against healthcare because a "car company should be a car company, not a healthcare supplier" or the like is that corporate America generally subcontracts their health care plans to healthcare providers. So your car company or chemical business or steel foundry generally just pays a given healthcare insurer like Blue Cross to do that work for them. Very few companies actually operate their own internal benefits divisions. They quickly realized that a car company’s job is to make cars not run the company health plan.
In any case the real problem is that that same turn of phrase completely turns the whole liberal logic on it’s head. Shouldn’t governments be actively in the business of governing i.e. providing for the common defense, passing laws, and running a legal system, not providing other fundamental services for the people?
The fact that a policy is inefficient, doesn’t work, or has bad side effects is irrelevant. For liberals, the goal is to be able to say "I care and am therefore morally superior to you." It’s about narcissicm, not altruism.
"offloading the burden for health care onto employers puts US employers at a competive disadvantage against employers in countries which subsidize universal health care."
I’d like to see some numerical analysis of this hypothesis, because I’m skeptical. If healthcare is subsidized by the government, it’s really subsidized by the wealthy, which - surprise, surprise - is a block made up largely by business owners. So in the aggregate, what’s the difference? The same people pay one way or the other.
That aside, I have to laugh at the mock-concern the libs express for business competitiveness in order to advance their universal health care cause. Are they really that dumb, or do they think we are?
Allow all US companies that provide 100% of their employees with some kind of major medical coverage 100% relief from Federal taxation. The government could then replace Medicaid AND Medicare with a universal medical indemnity policy for anyone not so employed.
US companies would become more competitive when they no longer have to pass the cost of their taxes to consumers, and the system retains an incentive for employment since employee coverage is better than the governments indemnity coverage. Coupled with a Fair Tax, the government could take the cost of their indemnity coverage from the annual rebates of the unemployed thus making the system pay for itself. It also allows companies to decide which is more cost effective for them, taxes or employee coverage.
By the way, cognratulations Jon for your recognition by Cato for your Cato-Unbound commentary!
Jon, this is an intelligent post. I think the intellectual leaders among Democrats might have been open to a serious alternate solution regarding "the lower end of output inequality". I don’t know much about the negative income tax, but hey, worth a look. I’m not certain that a yearly lump-sum is neccesarily the best way to help poor people, though. The good side of a minimum wage is that a) it arrives in increments and b) it is inherently related to working - avoiding some of the problems with welfare. There may be other ways to target the minimum wage to avoid kids and other people whose incomes appear to be low but have lots of assets and few costs.
As for the crowd of monkeys in the comment section, responsible liberals don’t in fact consider lowering the competitiveness of American businesses to be an inherently good thing. Besides, we have this naive idea that we could, I don’t know, actually address whatever the serious concerns of people who disagree, as if they might then consider the larger problem rationally instead of digging into their bull**** hysteriaprejudices like so many bloodsucking ticks.
Of course, having to pay for health care is cripping American businesses. My father the small businessman and the people he can’t afford to insure know this first hand. No, unknown, your slipshod arguments that "paying from out of government revenue" = "paying from out of corporate budgets" aren’t worthy of serious discussion. And no, subcontracting out to health care corporations is still massively inefficient, because it’s the entire corporate-funded health-care system, subcontractors included, that is causing us to spend 3 times as much on overhead and administration as any other rich country in the world. Much of that cost ends up on corporate bottom lines. If contracting out to health care companies made providing health-care cost-free for businesses, there wouldn’t be the steady drumbeat of decreasing benefits, unless said businesses are just tormenting their workers for fun, which usually they do not.
Of course, having to pay for health care is cripping American businesses.
What country are you talking about? US companies don’t "have" to pay for employees health care. They do it to be competitive in the labor market.
And no, subcontracting out to health care corporations is still massively inefficient, because it’s the entire corporate-funded health-care system, subcontractors included, that is causing us to spend 3 times as much on overhead and administration as any other rich country in the world.
The fact that the health care markets are the most government regulated markets in the country (with the possible exception of the nuclear industry) probably has more to do with the inefficiency of market as anything else. Then add to that Gresham’s law (bad money drives out good) with government dumping hundreds of $billions into the market every year and the inadvertent price fixing that occurs with a similarly regulated insurance industry and programs like Medicare determining what is to be paid for which services and voila: there’s your cluster-f*ck.
Peter, Congradulations on a substantive argument, but it’s still a wrong one. Insurance and health care are inherently crappy markets. One is highly inelastic, meaning that demand does not change much due to changes in income, wealth, relative cost of other inputs, etc. The other, insurance, because it markets risk, is inherently less efficient the smaller the pool.
The quick demonstration of this is that America’s regulation is a lot lighter than almost every other first-world state, and yet those other states get more actual health care per equivalent US dollar.
This is not something serious economists dispute. They may attempt to come up with fancy reasons why it’s okay, or just a function of some other liberal thing, but they don’t dispute that we’re on the bottom third of health care output per dollar input on the industrial-world curve. And the systems above us are more regulated.
You’re relying on general principles which may have some general utility, but do not work well in these cases. Free-marketers could stand to learn about this.
unknown, per exhibit A above, I’m as cordial as the environment I arrive in, specifically when it’s not full of people like you filling your contents with ad homimem, off-topic, spleen-venting characterizations of liberals lacking relevance to the current topic and intellectual substance.
"That aside, I have to laugh at the mock-concern the libs express for business competitiveness in order to advance their universal health care cause. Are they really that dumb, or do they think we are?"
Is there some sort of objective or factual hypothesis here that doesn’t fall into a bull**** character-type smear? Did I miss something?
"Is there some sort of objective or factual hypothesis here that doesn’t fall into a bull**** character-type smear? Did I miss something?"
Sure there is. Perhaps you’re too busy being offended to notice. I wasn’t, however, writing a thesis statement, so I didn’t feel compelled to be particularly careful and precise with my wording. Here’s what I’m saying:
Liberals tend to be anti-business. Not all, of course. I’d say they are generally muddled on this, having no consistent principles. For example, the corner bookstore is a celebration of all things wonderful in commerce whereas the chain store is - to exaggerate only slightly, the epitome of evil.
Liberals tend to disdain competitiveness in the marketplace, seeing only the negatives and never weighing tradeoffs. Not all, of course. At the same time many liberals can’t stand the thought of a monopoly. But they have no problem with government monopolies. Many just simply don’t know what they believe.
So, it’s amusing when a liberal plays the "universal health care is better for business" card because I don’t think most of them give a rat’s *ss about business. Not all, of course. But, being people who really want something (universal health care) they will say just about anything if they think it will achieve their ends. Liberals by no means have a monopoly on that behavior, but they are skillful practitioners of it.
So, I ask if they (those liberals pretending to care about business in order to get Universal Health Care) are really that dumb because they think their transparent ploy will work, or do they think opponents are really dumb enough to fall for it?
"This is not something serious economists dispute."
Unknown, I’m not prepared to undergo my own scientific literature review, either, and I suppose I could be wrong, but I’ve read several books quoting statistics to this effect, and quite a number of articles, most of which quoted studies. I invite you to disprove my point with your own review of the literature. If you can find, let’s say, three peer-reviewed economic articles in the past 5 years attempting to empirically demonstrated that our health care output per dollar input isn’t in the bottom third of, let’s say, OECD countries, I will admit to being overpresumptous
I highly doubt that you could do that. And if you did, I might come up with twenty times that number who disagree.
It’s like global warming - or, for that matter, the Big Bang - no amount of scientific consensus can force you to believe it. Someone will always be willing to tell you otherwise, because you want to be told it.
You’re missing the point. I’m not suggesting you are wrong on the point at all. I don’t know if you are and I’m not going to go looking because I don’t care.
Your use of the word "serious" is an attempt to end debate by dismissing your opponent as non-serious. That’s not factual, it’s just needlessly insulting. You should have perhaps said "many" instead of "serious."
Finally, you may be comfortable resting your beliefs on a consensus of opinion. I am not. The majority is often wrong. That’s reason enough to be skeptical every time.