Full time work
needs to be sufficient to earn a living; this is the dogma of many labour
unions when discussing minimum wages. The question is whether this is useful.
In a completely free market demand and supply of labour determines wages. The
demand for some types of labour causes its price to be very low. This does not
necessarily need to be the result of exploitative behaviour of big business. Let´s
look into a simple example. Many hairdressers earn comparatively low wages (not
the top-notch stylists that cater to upper class, affluent individuals, but the
more regular barber shop around the corner on the low end of the market). Some
consumers are not willing to pay a lot for getting a professional haircut. It
is after all quite easily possible to cut your hair yourself (or ask a
non-professional family member or friend). In a free market, some hairdressers
serving such individuals willing to pay rather little for a haircut, will thus
earn very little, eventually less than what is needed to live a decent life.
Now, setting a minimum wage comes into play. If the minimum wage is above the so
called equilibrium price for supply and demand, this business is simply not
going to happen. There will be less professional hairdressers and only those
willing to pay the price dictated by the minimum wage will pay for the service of
a professional hairdresser. This exemplifies just one channel through which
minimum wages can destroy jobs. In many industries work can simply be done
abroad if wages are not competitive.
Developed
economies produce enough to allow everyone that works to have enough money to
get by. Completely free markets can create huge imbalances and some workers get
paid disproportionately low wages. Most would agree that the state has to intervene
and ensure a more equal and fair distribution of wealth. There are different
ways to do this, setting minimum wages is only one of them. Another tool
lawmakers use to re-distribute wealth is tax policy. Workers that earn very low
income pay little or no income tax. In principle, it would be easy to also
imagine negative income taxes. That means if you earn very little, less than
needed to pay your bills, you don´t pay taxes, you get money reimbursed from
the state. This is far less damaging for the economy and its competitiveness.
Some say this is completely unethical and insist that full-time work has to
yield enough for a living. I cannot see any difference between a minimum wage
and negative income taxes from an ethical perspective. Both make sure wealth is
distributed more equally. Economically, it is quite obvious that a negative
income tax is better for the economy. I see it very hard to argue for the
opposite.
In Switzerland,
where referendums are common and influence national politics, they collected
enough signatures to trigger a vote on an unconditional basic income of 2 500
Swiss francs for every citizen. It is actually a small step to go from a
negative income tax to an unconditional basic income. A negative income tax
requires some employment to get government support while basic income would be
paid regardless. Surprisingly enough, the idea of unconditional basic income
schemes has become widely popular and is also very ethical to almost everyone.
The arguments against such a scheme are rather economic and mainly touch upon
the fear that the incentive to work might be too low and nobody wants to work
anymore. I am not sure if this connection is obvious to people discussing these
issues. It is a typical example of how framing an idea makes all the
difference. While both negative income tax and basic income go in identical
directions, one idea is widely popular while the other one is considered even
unethical.
Effectively,
most developed economies have basic income through various support mechanisms.
These mechanisms are often highly complex, time consuming for recipients and
costly to administer. Both a negative income tax and basic income would greatly
simplify things. And both would contribute to a fairer distribution of wealth.
The new government in Germany is poised to introduce a minimum wage. It is hard
to imagine that it will not destroy jobs, especially for the less qualified.
Unfortunately, politicians do not always care about economics. The goal of a
more equal distribution of wealth is beyond doubt a crucial one. Unfortunately,
the chosen policy measure is only second-best.
