Meanwhile, some economists continue to point out that raising the minimum wage doesn't really do a good job at helping poor people. Frank McIntyre, an economist at BYU, wrote about the issue recently in Times and Seasons. He writes that the minimum wage, "Is very poorly targeted towards the poor we are most interested in helping. In fact, the benefits are essentially randomly distributed across the income distribution."
He proposes an alternative solution involving the Earned Income Tax Credit. From what I can gather, it is sort of a negative tax that shows up in your weekly paycheck.
So what would this look like? Well, take everyone below say $9/hour and pay them a subsidy of 20% (or whatever) of the difference between their current wage and $9. They still have a good incentive to fight for better wages, because they get 80% of it. And they still have the incentive to work lots of hours, because they don’t hit a benefit takeaway like exists in the current EITC from $15,000-30,000.Employers receive the money from the government and it goes directly into the paycheck of the worker. (I don't follow the 80% part of Frank's argument.)
Times and Seasons also put up a side link to a post citing economic research (and a graph!) that shows the minimum wage doesn't actually cause an increase in unemployment. This may or not be true, though the graph in that post is less than compelling, because so few people actually work at the minimum wage.
A couple of comments on Frank's post were particularly insightful. One commenter, "sr", wrote the following in opposition to replacing the minimum wage with a government wage subsidy.
There is a real sense of dignity that comes from having your salary paid by the people you serve (instead of the government). This is something conservatives should be able to understand. My impression is that poor people consistently indicate that they prefer minimum wage increases over other forms of poverty assistance. If my impression is correct, then as an economist, you must place some value on their preferences.A very valid point to my mind. DHofmann, another commenter responded by saying, "I’m sure they do. You can’t pay the cable or satellite TV bill with food stamps." That link goes to a really eye opening report about how many luxuries many (not all) "poor" people in America have.
Frank responded with the following in two separate comments.
Minimum wages are not actually good for poor people. They are good for a few poor people and bad for the rest of them (ie, for the vast majority of them). They spur unemployment and raise the prices for everyone, and precious little of that money actually goes back to the poor. The program I discuss here helps poor people using the income tax system, which means that it is paid for overwhelmingly by the rich. It also does not encourage unemployment, rather it encourages employment.
Certainly there is an issue of diginity here. But, as you may have noticed, this is not a welfare handout. This program would come through their paycheck, just like the minimum wage. The main difference is that now the government reimburses the employer for the higher wage he is providing. In fact, perhaps that would be the way to make you happy, just have the money go to the business as a tax credit for hiring these workers. The market result is that the money gets passed to the worker just the same. This solves the preference argument, although let me point out that the preference you mention is almost surely saying that people prefer wage bonuses to welfare style handouts like food stamps. The program I proposed oringinally is no such thing– show me that they prefer wages coming through line A on their paycheck as opposed to line B and then you’ll have an argument! Then you would want to consider the preference effect on people who were disemployed because of the minimum wage.It looks to be almost certain that the minimum wage will be raised. I'll admit that I am somewhat uncomfortable with the minimum wage--though I'm also uncomfortable with exploitive wages. (This is one reason I'm opposed to undocumented workers: they get no protection!)