Why a Minimum Income Might Work Better Than a Minimum Wage


NEW YORK (MainStreet) — Although it's a little hard to imagine in today's politics, once upon a time America actually considered its labor something to celebrate. Workers built powerful groups like the Teamsters Union, got weekends off, earned their own national holiday and, most important to this article, changed the face of employment forever with two simple words: minimum wage.

At this time of year just post Labor Day--after having cooked our burgers and enjoyed a Monday all to ourselves--let's take the opportunity to think about this landmark achievement. Is a minimum wage really the best way to fight poverty and poor working conditions in America? Instead of requiring a minimum wage, what if the government simply handed out cash, guaranteeing a minimum income to all Americans no matter who they are or what they do?

Bear with me. It's not that crazy.

First and foremost, a guaranteed income has the virtue of simplicity. Instead of trying to solve poverty by indirect routes (help with housing, food stamps and minimum wages), this would ensure everyone enough money on which to live the easy way: by just giving it to them.

As Martin Luther King, Jr. wrote in Where do We Go From Here: Chaos or Community?

"In addition to the absence of coordination and sufficiency, the programs of the past all have another common failing -- they are indirect. Each seeks to solve poverty by first solving something else.
"I am now convinced that the simplest approach will prove to be the most effective -- the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income."

Poverty is a problem of people not having enough money, so let's just give them some.

From an economic standpoint, there's value to getting that much money into circulation. A minimum income shares the virtue of a minimum wage in that it creates a nation of much more viable consumers.

As David Cooper, from the Economic Policy Institute argued, "When you raise the minimum wage you shift money from corporate profits to low income people... The thinking is if we get more money into the pockets of people who are going to spend it right away. Then we get more economic activity."

Like a minimum wage, a minimum income ensures more tenants, customers and clients, which can only help business owners and the employees they hire. This especially goes for small businesses that are far more likely to provide day-to-day goods and services. When someone doesn't have much money (take it from a writer) their money doesn't go into a complicated investment account, it goes to the grocery store.

The difference is that a minimum income would apply to everyone. A minimum wage only boosts spending power for people who can get a job. A minimum income leaves nobody behind. In addition to the economic benefit, there's even something to be said for the humanitarian bonus: no more Americans homeless, poor and hungry. People might make bad choices, but everyone would have a shot.

We can't say the same right now, with three job seekers for every opening nationwide.

A guaranteed income policy would also effectively replace the minimum wage and eliminate yet another set of patchwork policies across the country. Any employer would have to either pay more than the national income or offer enough intangibles to beat the lousy pay, otherwise why would anyone take the job?

Competition in the marketplace is a good thing, and this would arguably create much more of it. Right now, the open marketplace only has to compete against abject poverty and homelessness. If we raised that threshold, employers would have to compete against a viable option. Job applicants would start from a position of relative strength instead complete vulnerability, and could negotiate their terms of employment accordingly.

Nobody bargains well when his walk-away position is starving on the street.

It's also unlikely that this better bargaining position would hurt employment any more than the minimum wage. As Cooper points out, marginally greater costs for labor generally don't increase unemployment.

"This is probably one of the most, if not the most, highly researched area in economics, or at least labor economics," he said. "[A large number of studies showed] in the 1990s, when you had New Jersey raising their minimum wage and Pennsylvania not raising their minimum wage, and they looked at the border counties... What they found was actually the exact opposite of what the conventional thinking had been, that when New Jersey raised their minimum wage employment actually went up compared to the Pennsylvania counties."

In fact, according to Cooper, since the 1990s, many studies have replicated these original results. A comprehensive paper published from the University of California at Berkley even looked at every single instance where one state raised its minimum wage and a neighbor did not and found no real change in employment at all.

"The best research we have now," Cooper said, "shows that raising the minimum wage has little or no impact on employment."

If making labor more expensive through federal regulation (a minimum wage) doesn't hurt employment, it's unlikely that making it more expensive through stiffer competition (a national income) would either.

Of course, if everyone gets paid for nothing, why would anybody work at all? Wouldn't we end up just rewarding unemployment?

"Earlier in this century," Dr. King wrote in Where do We Go From Here, "this proposal would have been greeted with ridicule and denunciation as destructive of initiative and responsibility.

"At that time economic status was considered the measure of the individual's abilities and talents. In the simplistic thinking of that day the absence of worldly goods indicated a want of industrious habits and moral fiber.

"We have come a long way in our understanding of human motivation and of the blind operation of our economic system. Now we realize that dislocations in the market operation of our economy and the prevalence of discrimination thrust people into idleness and bind them in constant or frequent unemployment against their will... We have come to the point where we must make the nonproducer a consumer or we will find ourselves drowning in a sea of consumer goods."

It boils down to asking why people don't work. If we assume that unemployment is the product of laziness, a minimum income should cause no change: that's a category of people who won't work regardless of pay, so we might as well at least keep them in the marketplace as consumers. If we assume that unemployment comes from necessity, not morality, a minimum income would create a straightforward safety net while someone gets back on his feet. Either way, it's unlikely that we'd create a nation of starving artists and professional video gamers.

Of course, our thought experiment doesn't address the problems such a policy could create. For example, it's fair to ask whether this would shift too much power to employees. Even if we assume that people would rather work for more than slack on less, would this incentivize people to quit over the smallest provocation, or job hop whenever they got bored? On the other hand, would this foster innovation and lead to more risk takers?

How many great ideas have died stillborn because someone couldn't afford to quit his job and follow a dream?

What's more, do we need the stick of unemployment to get people to do unpleasant jobs? After all, if the alternative is a basic level of comfort and security, is there any realistic amount of money that could get someone to put up with midnight janitorial duties or frying potatoes at a fast food restaurant?

Now, this is just a thought experiment, so I'm not trying to solve these problems. Nor am I trying to figure out the political realities that a minimum income would have to swim against, or even touch the single biggest question: where would the money come from.

Still, with Labor Day just behind us, it's an interesting idea to ponder. We've tried a minimum wage and welfare for a long time. Is it worth considering another way?

--Written for MainStreet by Eric Reed, a freelance journalist who writes frequently on the subjects of career and travel. You can read more of his work at his website www.wanderinglawyer.com.

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