By Larry Hincker
Earlier this year, the Virginia Senate thwarted attempts once again to raise the state minimum wage. Skimming conservative think tanks and media, one finds story after story alluding to deleterious effects on the populations that high minimum wages are intended to serve.
Yet, I’ve often wondered if there’s a better way to improve incomes of those on the lower ladders that comport with conservative principles. After all, didn’t Henry Ford make the original case that handsomely paying workers also helps the economy and your company?
Here is one tenant of conservatism: small government is good government. Said differently, the private sector performs certain societal functions better than the public sector.
By just about any measure the U.S. federal government is big. Current national expenditures hover around $4 Trillion, with about $1 Trillion borrowed. Federal spending accounts for 20% of Gross Domestic Product. (All governmental spending in the U.S. comprises about 38% of GDP.) Wealth transfer (Social Security, Medicare, and Welfare) accounts for 56% of federal expenditures. Welfare spending in FY 2018 amounts to $754 billion. Get your head wrapped around those figures.
What if people earned a decent wage and didn’t need food stamps, housing assistance, “earned income tax credits,” Medicaid, and other income-qualified benefits? Could government shrink just a bit?
However, whenever I research this topic, I repeatedly stumble into economic doomsday scenarios, particularly from chambers of commerce, small businesses, and restaurant groups. One pundit writes, “Exposing the minimum wage fallacy – undermining an ironclad law of economics.”
Enter Oren Cass, senior fellow at the Manhattan Institute, author of “The Once and Future Worker,” and one-time advisor to Mitt Romney’s presidential campaign.
Cass writes passionately for a “wage subsidy” not a minimum wage. Both seek to raise earnings of low-wage workers. However, a minimum wage is, in essence, a tax on employers. Whereas, all tax payers underwrite a wage subsidy. He explores the dignity of work and the desire of most people to productively support themselves and their families. I have long contended that one’s vocation feeds self-worth and psychic income.
A wage subsidy comes from the government to achieve a “target wage.” Say the prevailing wage for a worker is $9 per hour and the target wage is $15 per hour. The employer pays $9 and the government covers $6.
Cass contends that a wage subsidy also encourages greater investments in labor-intensive businesses. Whereas, “The minimum wage does the opposite, operating as a tax on low-wage employment that employers have to pay for every low-wage hour they use. We should expect them to respond by employing fewer low-wage workers.” No wonder restaurants and small businesses adamantly oppose absorbing higher minimum wages.
Isn’t is just another form of wealth transfer? Yup. But so is subsidized housing, Medicaid, food stamps, and earned income tax credits. Says Cass, “With a wage subsidy, work, rather than unemployment, draws government support, and that support can flow to a fuller range of productive activities in the community” and the economy. In the long run, workers earn more, employers can be more competitive in the global marketplace, and households share in the dignity of self-support.
Unlike the zany notion advanced by the current crop of democratic socialists for a universal basic income, whether or not one works, a wage subsidy simultaneously rewards individuals and businesses, all the while contributing to healthy economic activity. Cass contends wage subsidy benefits are largest for “industries where the work is most labor-intensive and relies on the lowest-cost labor — in other words, the industries under greatest pressure from globalization.”
Cost of a national wage subsidy program won’t be cheap. Cass estimates a $200 billion price tag. But with the existing national safety net for low-income households hovering in the $1 trillion range (mmm, another T-word), the program could pay for itself. An added benefit: shrinking government overhead to administer all those other programs.
Conservative or libertarian purists might scoff at another government administered wealth transfer program. I’m more of a pragmatist. Something has to be done. Increasing income inequality throughout American society – dramatic by even the standards of the Gilded Age – breeds extreme ideas. Witness calls for universal basic income, free college for all, taxing wealth not income, or guaranteed jobs. Purists, whether socialist, conservative, or libertarian, are usually disappointed when their utopian ideas fail the test of reality.
Conservatives who truly value smaller government and believe in the power of the private sector ought to embrace something like a national wage subsidy.
Last words go to Oren Cass. “Safety-net reforms could proceed much further if the spending debate between those wanting to increase and those wanting to decrease overall budget levels were put to one side and people across the political spectrum were to focus on the question of how best to spend the money already slated to go out the door.”
Larry Hincker is a retired public relations executive and lives in Blacksburg.