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JOrgePeixoto's Journal: Negative income tax 9

Journal by JOrgePeixoto

I don't understand the minimum wage legislation. By forcefully mandating the minimum wage to be M, the government ensures that people whose productivity is lower than M will be unemployed. This is specially true for youth and unskilled people. And unemployment among youth can create a vicious circle: he is unskilled because he never worked, and he cannot find a job because he is unskilled.

If the government allowed a young man to work for less than M, then he could gain the experience needed for getting a better job.

So it seems that the minimum-wage legislation only achieves unemployment and dependency.

Would it not be better to let a poor person work for less than M, and help that person with a negative income tax? That is, the government would give the person r * (M - W), where M is the minimum wage, M is his actual wage, and r is a positive real number smaller than 1.

This way we would encourage people to work, and gain the experience to get a better job.

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Negative income tax

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  • The theory is that if you aren't paying enough money to live on then either:

    1. The work is of so little value that you don't need it done at all or,
    2. The work is necessary to your business and you're abusing your employees because supply and demand allows it.

    Group 1 work (makework) provides illusory benefit to the economy.

    Group 2 work is just abusing employees because you can. Worse, if your competitor does it at scale then you have to do it in order to remain competitive. So, it's a job killer.

    • by Bill Dog (726542)

      It seems like protectionism would be a better way to keep wages from dropping too low due to supply and demand.

      • by Spazmania (174582)

        Did you know that in Japan, they actually *lose money* on every child that takes a factory job? They actually spend more educating the child than the adult will ever contribute to the economy. To stay ahead, the factory jobs have to go to foreign workers while the Japanese citizens do *something more productive.*

        • by Bill Dog (726542)

          They? Who loses money? I don't see human beings' lives in terms of a cost/benefit analysis for the society, so I'm not forward-thinking enough to understand your point I guess.

    • 2. The work is necessary to your business and you're abusing your employees because supply and demand allows it.

      That would cause the profit margin to be excessively high; and this, in the long term, would cause additional companies to enter this market, so as to benefit from the huge profits. Those companies would compete for the workers, and so the wages would go up until the profit margin becomes normal.

      Is there any logical hole in my analysis?

      • by Spazmania (174582)

        More than one error, but if you're trying to point out an error in my analysis you'll need to be more direct about it.

        The minimum wage supports the unskilled worker. There are more unskilled workers than there is work for them. Most of the work which used to be done by unskilled workers is, if they're paid a wage they can actually live on, cheaper to do with automation overseen by much smaller numbers of skilled workers.

        This poses a dilemma. If you allow supply and demand to fix it, the value of unskilled l

  • Would it not be better to let a poor person work for less than M, and help that person with a negative income tax?

    I don't think so, because then employers would just lower their wages to practically nothing and only hire people who didn't care anyways because someone else was making up the shortfall. So the govt. would have to raise taxes on business to pay for the businesses that sloughed off most of their wage-paying onto the govt. And then the rest of the businesses would have to do the same to be able t

    • I don't think so, because then employers would just lower their wages to practically nothing

      But employers have to compete for the workers. So the wages tend to be close to the worker's productivity.

      • by Bill Dog (726542)

        "But employers have to compete for the workers."

        Not in this new economy. The U.S.'s U-6 unemployment rate is 15%. Spain is at 25%. From now on it's a labor surplus and work shortage.

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