Over time, higher minimum wages cannot help but drive capital away from business models that rely on low-productivity workers, whether that means moving the work overseas, automating it, or implementing operations that utilize higher-productivity workers instead. ... If society knew how to instill higher productivity in a worker, that could be good news. Unfortunately, our experience has been the opposite. Our education system struggles to prepare many young people for the job market. A proportion of those who enroll in higher education either fail to graduate or end up in a job that does not require their degree anyway. Government training programs perform poorly.
Florida Republican senator Marco Rubio, a member of the bipartisan congressional task force on Puerto Rico, has proposed a unique approach to these challenges. He is introducing the Economic Mobility for Productive Livelihoods and Expanding Opportunity ('EMPLEO') Act, which would effectively reduce the island’s minimum hourly wage to $5 and use a federal wage subsidy to close half the gap between the wage paid by an employer and a target wage of $10 per hour.
A wage subsidy has the potential to both increase the earnings of low-skilled workers and expand the job opportunities available to them, helping to reduce poverty, increase labor-force participation, and boost economic growth. The ongoing economic crisis in Puerto Rico offers an ideal testing ground for the policy, and the policy offers an ideal tool for addressing the island's woes.
You need economic growth to create jobs but I think it's important to realize that economic growth is a necessary but not sufficient condition. That you can also get an awful lot of economic growth that doesn't create an awful lot of jobs. If you see it as part of the government's mandate to not just maximize GDP but actually make sure that people from their diverse backgrounds with their diverse talents and capabilities can find a place in our economy, then policy needs to do a lot more than just say what maximizes economic growth.
Politically, there is much for both the left and the right to like about a wage subsidy. It does not discourage hiring or raise prices, some of the right's main complaints about the minimum-wage increase. But it also lifts paychecks directly, which is what the left likes so much about raising the minimum wage. Best of all, it would use current government spending in a way that helps the poor find work and better helps the working poor -- which should make everyone happy.
Two wage-support tools typically receive consideration: the minimum wage and the Earned Income Tax Credit (EITC). Both have the potential to significantly increase disposable income for at least some low-income workers. But their mechanisms--and impact--differ dramatically. The minimum wage, a price floor under wages, performs well vis-?-vis an individual worker but poorly in its labor-market and distributional effects. The EITC, a subsidy for income earned, has strengths and weaknesses roughly the opposite. The drawbacks of both tools prevent them from delivering fully on their antipoverty goals. Any discussion of wage-support options should include a third policy tool with the potential to deliver the best of both worlds: a wage subsidy delivered directly to low-wage workers, via their paychecks, as additional dollars per hour for every hour worked.
An ideal policy would look to workers like an increased minimum wage (more pay for every hour worked) but to the labor market and broader society like an expanded EITC (a government subsidy to support the low-income worker). A wage subsidy would do just that.
Instead of vilifying low-wage employers and low-wage subsidies, we should recognize the valuable role they play in our economy. The more we can reorient anti-poverty spending to function as a subsidy for low-wage work, the more effective it will be.
Too often, particularly among conservatives, the anti-poverty issue is actually used as a budget issue, that when we think we're talking about anti-poverty programs, we're actually talking about ways to cut the budget deficit. And that's a fine conversation to have if you're looking across places to cut from the budget ? anti-poverty programs may be one of them, given how big they are ? but it's not a solution to the poverty crisis to cut dollars.
An effective anti-poverty program requires reform in two ways: first, restructuring the funding system to give state-level policymakers the incentives and authorities they will need if substantive reforms are to succeed; second, sharply dividing programs designed to provide a safety net for those not working from programs designed to increase the incomes of those who are working, coupled with reestablishing an income gap by increasing the relative generosity of the latter.