Bill Gates on minimum wage hikes

by Walter Olson on January 22, 2014

The Microsoft founder “warned against raising the minimum wage Tuesday on Morning Joe, saying it results in a ‘huge tradeoff’ that can adversely affect households in poverty.” [Free Beacon] Gates has pledged most of his fortune to philanthropic efforts, much of it targeted toward problems of poverty. [Wired]

Related: David Henderson has more on Gates’s point about how the minimum wage is not well targeted to reach poor people, and on how the impact on consumers of things like fast food is itself somewhat impoverishing. William Poole at Cato begins with the oft-repeated War of Economists’ Letters over whether minimum wage hikes do a lot of damage to employment or only a little, and then turns to the ethical questions. Tyler Cowen exposes some of the holes in the relatively new argument that the existing Earned Income Tax Credit (EITC) unfairly subsidizes employers and that minimum wage hikes are somehow an efficient way to recapture part of the transfer. More links: Twitter hashtag #CatoMinWage; James Dorn, Cato (“Hong Kong grew rich without a minimum wage because it undertook the reforms that fuel growth”). And on layoffs following an arbitrated doubling of wages at a New York City casino: “This just in — demand curves slope down.” [Coyote] Plus: Teen employment after minimum wage hikes: “Is there any other issue where the data conforms so strongly to basic economic intuition, and yet is widely written off as a coincidence?” [Kevin Erdmann via Tyler Cowen]

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02.01.14 at 11:59 pm

{ 9 comments }

1 kimsch 01.22.14 at 12:49 am

The Earned Income Tax Credit is a “rebate” of payroll taxes. Medicare and Social Security. And only the part paid by the worker. The employer still has to pay its portion.

The new “theory” is that employers don’t pay more than minimum because their employees can get this rebate on the payroll taxes? Really?

2 tim 01.22.14 at 1:32 am

What does this have to do with the costs of the legal system?

3 Walter Olson 01.22.14 at 2:08 am

Welcome to Tim, who I take to be a newcomer unfamiliar with the site’s habit of addressing many issues beyond those of lawsuits and litigation. Especially regulation, which isn’t actually all that far afield, since changes in labor regulation are exactly the sort of thing employers spend time consulting with their lawyers about.

4 Kirk Taylor 01.22.14 at 8:45 am

Sorry Kimsch, that may have been the original intent, but has not been for ages. Payroll taxes are 7.65% of income, while EIC can result in payments in excess of 30%! Plus, EIC is based on the number of children, which has nothing to do with payroll taxes. It is 100% cash transfer to the struggling poor.

5 Boblipton 01.22.14 at 10:21 am

What renders the poor who receive EIC struggling, Kirk? Are there non-struggling poor? Can middle-class people struggle? Or they always beleaguered and if so, by whom? If the rich, who are always idle, are idle, can they beleaguer the middle class? If so, wouldn’t they be the busy rich? Or is it the poor who are struggling to beleaguer the middle class? If the poor take a break from struggling, will their idleness make them the idle rich, or will they be beleaguered by the struggling poor and become middle class? If the beleaguered middle class leave their homes to go on vacation and the struggling poor show up when they are not at home, then, since they are not beleaguered, are they no longer middle-class? Since there will be no one to defend the home, will the poor be able to take them without struggle and thus become the idle rich? Or are all these modifiers rote attempts to make us sympathize with whatever position the writer holds since one must sympathize with some one who struggles, must feel sorry for some one who is beleaguered and must be contemptuous of some one who is idle, the accuracy of these adjectives notwithstanding.

Bob

6 Ron Miller 01.22.14 at 1:30 pm

Bob, I love a rhetorical questions. I have a patent pending. But c’mom, he just used one word: struggling. I’m not sure the punishment fits the crime here. I think we all use modifiers angled towards our positions sometimes.

Economically, in relative terms, the poor are struggling.

7 Hugo S. Cunningham 01.22.14 at 2:30 pm

The liberal base never accepted Bill Clinton’s signature of the 1996 welfare reform act requiring all to seek jobs, and embarked on a two-pronged strategy to reverse it. One prong is ever-looser standards to qualify for “disability”; the other, not come to fruition yet, is a super-minimum wage. Raise the minimum wage to $15 an hour, forcing restaurants to automate and low-wage manufacturers to emigrate, and then it will be true that there are no jobs for welfare recipients.

8 PaulB 01.22.14 at 9:21 pm

The argument against raising or even having a minimum wage in the first place would be a lot stronger if groups like Cato that take this position didn’t also support unlimited immigration of low skill employees. This policy, which apparently will be enacted into law in a few months, guarantees that the wages of existing citizens with low job skills can not increase via economic growth. A rising tide will not raise the boats of the lowest paid.

9 PaulT 01.23.14 at 4:25 pm

PaulB, the average immigrant actually increases economic growth through productivity. Most of them work hard for low pay and contribute more to the systm than they take from it, leaving more resorces available for everyone else. Inflation has a much bigger effect on the declining purchasing power of the poor and middle class relative to their productivity over the last 40 years, because wages adjust more slowly than prices, as have social security and medicare, because going from 5 workers per retiree and 100 workers per person on disability in 1965 to 3 workers per retiree and 15 workers per person on disability today means every worker has a bigger portion of their productivity used up by people who are no longer producing.

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