Please Discuss Wage Subsidies

Professor Wolff, I was hoping you might be able to discuss the concept of Wage Subsidies more in one if your upcoming videos, possibly Economic Update. Several politicians, most notably Marco Rubio, have suggested the idea of Wage Subsidies as a partial solution to Puerto Rico's economic woes- but the idea sounds surpridingly (given the source) socialist, and like something that might actually be a good idea... Basically the idea would be that the government lowered the official Minimum Wage- but instead set a "Target Wage" somewhat above the current Minimum Wage. When an employer paid its employees it would receive a government subsidy (possibly paid through the government taking up a portion of the employer's required contributions for the payroll tax system) for any employees it paid MORE than the Minimum Wage, up to the Target Wage. So if, for instance, an employer paid its workers $10 an hour, which was also the Target Wage, and the new Minimum Wage were $5/hr, then the government would make up the difference between the two in terms of a $5/hr subsidy to the employer. Most such proposals would also gradually phase out the subsidy as the wage paid reached closer to the Target Wage, so say 100% subsidy up to $8/hr, 50% subsidy up to $10/hr, and only 25% subsidy up to $12/hr for a $12/hr Target Wage. Anyhow, it sounded like a good idea because it would redistribute income to the bottom of the wealth heirarchy without directly increasing employer wage costs and driving up the peice of everyday goods for the poor like raising the Minimum Wage might. Additionally, it might discourage the exploitative use of undocumented immigrants being paid less than Minimum Wage and create new jobs that are only viable at lower pay-rates than the current Minimum Wage without forcing workers to accept lower standards of living. And, of course, to pay for all this we could raise the Income Tax on the highest brackets or levy an extra tax on Investment Income- which would ultimately collect most of the increased profits the increased employment and lower labor costs generated for employers, ensuring that this really did help to benefit the poorest members of society... It sounds like a good idea to me because it partially separates the social and humanitatian good of ensuring workers have a decent Standard of Living from the market forces driving employers to always seek to pay their employers as little as possible. If the government were picking up part of the tab, employers would be willing to pay their workers more and might be less determined to quash unions, for instance. Also, since the system would still provide income in exchange for work, it would provide none of the depressing effect on job-seeking (however minor) that something like a Universal Basic Income or increased welfare benefits might (though these are hardly mutually exclusive- in fact wage subsidies and UBI/welfare *compliment* each other by allowimg the system to still strongly incentivize work while providing a more adequate safety-net for the unemployed and the most needy/vulnerable members of society...) So, Professor Wolff, I was wondering what you think of the idea of wage subsudies, and if you might be able to touch on them (and Rubio's proposal for PR) in a future segment, particularly keeping in mind how this could potentially be used to increase incomes for the poorest workers and generate additional employment by increasing taxes on the rich a little...

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  • Blake Wondrasch
    tagged this with good 2017-04-04 14:23:49 -0400
  • Blake Wondrasch
    published this page in Ask Prof. Wolff 2017-04-04 14:22:13 -0400