Incentivizing Wage Increases

As a relatively conservative fellow, I’m stunned by the conservative outcry at minimum wage increase proposals.  In theory, conservatives are supposed to believe in the market, but it has become clear that a majority of them don’t actually believe in market forces at all.  Perhaps it is because they don’t have an understanding of basic economics, but that isn’t always true.  As my local representative showed, to the embarrassment of a reporter.

Still, I’m afraid even trained economists try to simplify market forces to the point that they lose sight of reality.  It’s one of the reasons economist are surprised by their own studies time and time again.  The market isn’t simple, so simple changes don’t reflect dramatic results.

So there is little to no evidence that wage increases inflate prices in the market as a whole.  Now we must define wage increases, since it is obvious that wages are part of what sets prices.  But it is only one market force that does.  There are many others that also drive the price of goods and services, some with far less power than wages and some with far more.

So if we want to incentivize wage increases, then we must understand what those other market forces are, and what forces the government actually has control over.  Unless you’ve been living under a rock, you’ll surely come to realize that the government exerts control over many factors of business.  From regulations to laws, conducting business in modern America is a legal, moral and economic quagmire.

The fastest incentive to raising wages would be federal law.  If the government simply mandated that the minimum wage is now $15, then companies would be incentivized to pay their workers that rate or face legal consequences.  However, increasing the minimum wage to that level would not be wise.  A nearly 100% increase in minimum wage would not be modest, and it would have an overwhelming influence on the market.  So are there other was we can incentivize business to increase wages?

Absolutely.  We incentivize large business to be more environmentally conscious by offering either subsidies or tax relief for businesses that move to “greener” methods of doing business.  That’s why Wal Mart has gone toward skylights and environmentally conscious store designs.  Not only does Wal Mart reap any benefit of the lower utility bills, but they get the tax break and subsidy for doing so.

So there are two tools the government could use to increase the minimum wage.  The first, tax breaks, is perhaps the most positive… assuming it is a significant enough of a break.  It would also be a fantastic way for the federal government to subsidize local and state governments.  As wages increase, those people will spend more locally increasing the coffers of sales tax for municipalities, counties and states.

This would have to be some sort of a sliding scale, the goal is to move people off minimum wage.  A high tech company may not have anyone on payroll who make minimum wage, so they shouldn’t be able to get a tax break while a fast food place may have the bulk of theirs at or near minimum wage.  I suggest that the break be tiered.  For every employee you move from minimum wage to $.75 over minimum you get one level.  For every employee you move from minimum wage to $1.50 over you get another.  Better yet, figure out a percentage instead of a flat fee, so as to make this something that can be permanently written into the tax code.

I’ve already written that I think that the minimum wage should be increased.  Using incentives such as tax breaks along with modest, slow increases in minimum wage would be a fantastic boost to our economy and should be implemented as soon as possible.