How To End the Depression Now — Part 2

In an earlier post of the same title, I argued that so far as ordinary folk are concerned, a depression is a time of high unemployment, not some trivial pause or reversal in the upward march of GDP, and that the current Western recession could be ended promptly by eliminating minimum wage laws and instituting in their place a wage supplement that would insure all workers, however low their wage, enough to live on.

To liberals and leftists, belief in the absolute moral necessity of a minimum wage law is so deeply ingrained they are unable to contemplate the reality that minimum wage laws kill jobs, particularly when Western jobs are being either off-shored by the million to the sweatshops of Asia or automated out of existence.

To those of the right of the political spectrum, the idea of any kind of aid to the poor is most often rejected as morally debilitating. Rather, the view seems to be that anyone unable to find a job should spend their lives rummaging through garbage bins for returnable cans and bottles, by which means they should be able to make ten of fifteen bucks a day, easy.

Perhaps, then, a more feasible solution to the now widespread problems of unemployment, involuntary part-time or temporary work, and work-force disengagement is a less radical approach combining a scaled-back minimum wage with a scaled-down negative tax benefit. For example, a one dollar reduction in minimum wage could be balanced by a one-dollar-an-hour negative tax rate, the tax benefit to be clawed back at the rate of, say, 25% on income in excess of what is considered a living wage. The cost of implementation would be minimal, since it would be handled by employers through only minor modifications to the existing tax-remittance and payroll system.

Such a program could be adjusted according to need. If unemployment remains high or increases, the minimum wage can be further scaled back while the compensating negative tax payment is scaled up, whereas in times of rising employment, adjustments might be made in the opposite direction. In this way, opportunities would be created for low-wage employment in areas such as textiles, shoes, electronic assembly, where jobs have heretofore been largely off-shored.

Although there is the great disadvantage with such half-measures that those with the least valuable labor skills will still be denied access to employment, it has the advantage of containing the cost of the program within bounds that politicians can contemplate without panic.

For example, for the United States, with a workforce of about 160 million people, a one-dollar-an-hour tax benefit would cost approximately $240 billion dollars a year, a rather small sum out of a multi-trillion-dollar federal budget, running a half-trillion-dollar deficit. Moreover, most of the cost would be recovered through the claw-back of the tax benefit received by those with hourly wages in excess of the former minimum wage. In addition, there would be substantial savings in welfare costs and in the costs of crime, mental illness and loss of workforce skills that are the consequences of long-term unemployment.

In time, the enormous advantages of a free labor market that allows every willing worker, however limited their skills, the opportunity for employment would become obvious, and the program could be expanded, leading in time to the complete abolition of minimum wage laws that provide jobs only for foreign workers and those at home who must deal with the social havoc created by unemployment.

Related:

CanSpeccy:
How To End the Depression Now — Part 1