Saturday, August 26, 2006

Don Boudreaux on Minimum Wages

Don Boudreaux have a good reply to those who send him angry e-mails after he argues against raising the minimum wage, asking him "How would YOU like to live on a job paying just $5.15 [per hour]?":

"Well, obviously I wouldn't like to make less than I earn now, which is substantially more per hour than $5.15. But this fact is utterly irrelevant to the argument...

...Suppose a witch doctor insists that he can cure cancer merely by doing a dance. If someone who is skeptical of this claim expresses his or her skepticism, does the skeptic lose credibility if he or she isn't a cancer victim? Would a believer in the witch-doctor's supernatural powers score intellectual points by rhetorically asking the skeptic "How would YOU like to have cancer?!" Does the obvious benefit, the great goodness, of curing cancer patients of their disease increase the likelihood that the witch-doctor's dance will actually cure these patients of their cancers?"

Similarly, if you believe that raising minimum wages will not in fact help the poor, then the question of the unpleasantness of living on a job that pays just $5.15 is just as irrelavant as the unpleasantness of having cancer is to the question of whether it will cure cancer.


Blogger Physiocrat said...

What is the point of having a minimum wage when tax is payable on this wage? No tax should be payable by anyone working a standard working week of 35 hours at the minimum wage.

If you want to help the poor

(1) Do not levy taxes on essentials like food, clothing and medication.

(2) Keep tax thresholds as high as practicable ie 35 weekly hours at the minimum wage.

(3) Have the same threshold for payroll taxes.

(4) Taxation at marginal locations should be reduced to reduce the geographical component of unemployment eg North-East England and Cornwall.

This gets rid of the tax wedge and makes it cheaper to employ people on benefit, thereby reducing welfare dependency.

Yes, every country in Western Europe will need to completely reconstruct its tax system to achieve this, so the next question is how is the state to get its revenue?

The first point is that states will need less revenue as their welfare bills will fall. The second point is that taxation can be shifted onto a tax on the rental value of land, the so-called jordvärdesskatt, which also cuts tax havens out of the loop altogether and chokes of the tax avoidance "industry". If this is done is an orderly way over a decade, the whole economic system can be transformed for the better.

12:26 PM  

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