Monday, September 08, 2014

Instead of $10.10 per hour, think of the proposed minimum wage as a $5,700 annual tax per full-time unskilled worker | AEIdeas

Suppose that instead of discussing an increase in the minimum wage by debating whether or how much an increase from $7.25 per hour to $10.10 would affect employment, future hiring, hours worked, etc. we thought about that increase in the minimum wage as a tax on employers hiring unskilled workers as follows:
Increasing the minimum wage from $7.25 to $10.10 per hour would be a $2.85 “unskilled labor tax” per hour on employers, which would be an “unskilled labor tax” of $114 per week and$5,700 per year per full-time minimum wage worker.
When thinking of a minimum wage hike as a $5,700 annual tax per unskilled worker (and $6,170 with additional payroll taxes, see below), is there any doubt that an “unskilled labor tax” that high wouldn’t result in predictable changes in employer behavior that would have adverse effects on workers with no or few skills? Is there any doubt that business-minded employers would have to take steps to minimize the impact on his or her business of an annual tax of $6,000 per worker? Typical strategies to offset some of the tax might include reducing the number of current employees, reducing future hiring, reducing the number of hours employees are allowed to work, substituting skilled workers for unskilled workers, investing in automation, reducing non-monetary fringe benefits, etc.

No comments: