By far the most common criticism of minimum wages is that they cost jobs. This is incomplete—the data often show smaller job losses than one would expect after minimum wages go up. This is because workers earn more than wages—they also get non-wage pay such as insurance, free food and parking, and more. When regulations cause wage pay to go up, employers cut non-wage pay to pay for it. Job cuts happen, but they tend to be a last resort. I recently wrote a paper on these underappreciated tradeoffs.
The most underappreciated minimum wage tradeoff is a tax increase on the poor, which for some people would exceed $2,000. When untaxed non-wage pay is converted to taxable wages, workers pay higher taxes, without necessarily making more money. If a $15 minimum wage passes, it could cost some workers more than $2,000 in taxes, in addition to all the other non-wage pay cuts that come with a minimum wage increase.
I try to shine some light on this in an op-ed for Inside Sources:
To afford higher wages, employers cut back on other benefits, like health insurance, workplace leave flexibility, free meals, free parking or tuition reimbursement. That’s a real loss to workers, considering that non-wage pay is mostly tax-free.
By incentivizing employers to convert nonwage benefits to wages, minimum wage advocates are, probably unknowingly, proposing a massive tax increase on the poor.
For some workers, this would mean a tax increase of up to $2,370 per year at a $15 per hour minimum wage. Depending on which state a worker lives in and other factors, shifting untaxed non-wage pay over to taxable wages could also expose some minimum wage earners to income tax liability, sales taxes and other taxes.
Read the whole thing here. My paper “Minimum Wages Have Tradeoffs” is here.
Over in the Washington Examiner, I have a piece about the Ex-Im reauthorization bill that the House of Representatives will vote on today. I argue that even if this year’s battle ends in defeat, it has already been a significant nearly five-year-long victory, with guaranteed chances for victory in the future:
The Nobel-winning economist Ronald Coase once wrote, “An economist who, by his efforts, is able to postpone by a week a government program which wastes $100 million a year (which I would call a modest success) has, by his action, earned his salary for the whole of his life.” Over the period from 2014 to 2018, Ex-Im’s reduced activity spared taxpayers from nearly $48 billion of risk exposure, or nearly $12 billion per year. Ex-Im’s total portfolio decreased by $52 billion, or an average of $13 billion per year. This is more than a modest success.
Due to Ex-Im’s reauthorization requirement, reformers will have another opportunity in a few years — a lesson in institutional design that should be applied to other agencies.
Read the whole thing here.
Over at CNS News, I argue that conservatives should favor closing the Export-Import Bank, even though President Trump supports the agency:
Finally, an underappreciated point is how Ex-Im can make some U.S. businesses less competitive. When Ex-Im offers favorable financing for a foreign airline to buy a Boeing plane, that airline often directly competes with U.S. airlines such as American, United, or Southwest. Often, Ex-Im can only help one U.S. business by hurting others. Besides being zero-sum, this opens up a fierce lobbying game with predictable ethical consequences. The Trump administration supports Ex-Im as part of its larger trade agenda. In practice, Ex-Im turns out to undermine it.
Read the whole piece here. My recent paper on Ex-Im is here.
The Export-Import Bank is up for reauthorization by September 30. It should be shut down, as I’ve pointed out before, but reauthorization will almost certainly pass. Ex-Im was either shut down or sharply limited for nearly five years, from October 2014 until May of this year.
Over that time, assuming Ex-Im would have maintained a constant activity level had it not been hampered, taxpayers were spared from $47.9 billion of risk exposure, or an average of nearly $12 billion per year. Ex-Im’s total portfolio also decreased from $112.3 billion in 2014 to $60.5 billion in 2018. This reduced taxpayer exposure by a total of nearly $52 billion, or an average of just under $13 billion per year.
These are big savings, and Congress will almost certainly end them this month. In a new study, while emphasizing that shutting down Ex-Im is the best policy option, I put forward some second-best reforms that would make Ex-Im less problematic until the next reauthorization cycle. These include:
- Ending the bank’s reinsurance pilot program
- Cutting the bank’s portfolio cap to $60 billion from $140 billion
- Maintaining Ex-Im’s board quorum requirement for transactions over $10 million
- Using the same accounting standards as other federal agencies
- Instituting a 10 percent cap on what percentage of its business can benefit a single firm
- Removing its quota for green projects
- Lowering the definition of a “small business” to 100 employees from the current standard of 1,500 employees
While Ex-Im reauthorization is a setback regardless of any positive reforms it incorporates, incorporating these reforms can limit the cronyism and waste Ex-Im is capable of generating.
The whole study is here. For a short summary of the main findings, a press release is here.
The Raise the Wage Act, which passed the House on Thursday, would raise the federal minimum wage to $15 by 2025. The bill now moves to the Senate. Over at Inside Sources, I point out some reasons why the tradeoffs would outweigh the benefits:
Workers are paid more than just wages; they often receive non-wage compensation such as employee discounts, free meals or parking, flexible hours, insurance, tuition assistance and more. One way employers can find a way to afford government-mandated higher wages is to cut this non-wage pay. Some workers might see a higher paycheck, but they wouldn’t necessarily be better paid. They would also have less flexibility in how they are paid.
Read the whole thing here. See also this CEI press statement from Trey Kovacs and me. As the Senate mulls the bill, conservatives and progressives should be more mindful of the tradeoffs a minimum wage increase would impose on workers.
The 2019 edition of Wayne Crews’ Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State is out now. It contains basic data on the regulatory state that is harder to find than it should be: how many regulations agencies issue, how much they cost, and what is coming up next. Wayne also has several reform ideas, from a regulatory budget akin to the government’s sending budget, to improved disclosure and cost accounting standards, to more congressional involvement in the rulemaking process.
If you prefer a shorter version, Wayne and I have a piece at National Review sharing the main findings and making the case for re-prioritizing regulatory reform:
President Trump, who made regulatory reform a priority early in his term, claims to have reduced federal regulatory burdens by $23 billion in fiscal year 2018. That’s the good news. The bad news is that he has hinted at declaring premature victory and given indications of abandoning the issue altogether.
Congress should also be on board:
Congress has shown interest in executive-branch transparency in matters concerning Trump himself. It should extend that interest to regulatory agencies over which President Trump wields power.
Read the whole piece here. The new 2019 edition of Ten Thousand Commandments is here, and a summarizing press release is here.
Both parties are making antitrust regulation a 2020 campaign issue. Neither President Trump nor most of the Democratic candidates are proposing improvements. Over at the Washington Examiner I take a closer look:
After a two-decade lull following the Microsoft case, big antitrust enforcement cases are back in vogue. Both political parties are making antitrust regulation a 2020 campaign issue. Regulators, politicians, and voters have reasonable concerns about concentrated corporate power. But few policies are easier for big companies to game than antitrust regulation. Reformers should favor having fewer regulations for special interests to capture, not more.
Read the whole piece here. See also Wayne Crews’ and my new paper, “The Case against Antitrust Law: Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era.”