Andrew Coyne: Guarantee a minimum income, not a minimum wage

 

 

 

With a new government — the first really new government in 44 years — Alberta politics is alive with possibilities for new directions and fresh approaches. Two ideas in particular have the province’s political class abuzz.

The first is the possible introduction of a guaranteed minimum income, known to be an area of interest to the province’s new finance minister, the former city alderman and poverty activist Joseph Ceci. The second is an increase in the province’s minimum wage to $15, as promised in the NDP’s election manifesto.

The two might be thought to work in parallel, both with “minimum” in their name, both aiming — or professing to do so — to improve the lot of the worst off in society. In fact, they are opposites.

The guaranteed minimum income has been the desideratum of generations of economists and welfare theorists, from the left and the right. The idea is to combine a number of existing income support and benefit programs into one, for which every citizen would quality as of right: no forms to fill out, no eligibility criteria, just a basic entitlement.

The benefit would start at a relatively low level, for those with no income at all, but would be withdrawn relatively gradually as earned income increased, thus ensuring recipients were not unduly penalized for taking a job and advancing themselves. The easiest objection to the guaranteed minimum income — that it would leave people with no incentive to work — is thus the most easily rebuffed. The real disincentive to work arises not from giving money to people who don’t work, but taking it away from them when they do.

But notice how it works. The benefit is a social obligation; thus, it is socially financed, i.e., through the tax and transfer system. Everybody pays for it (though the more you make the more you pay) and everybody is eligible for it (though the more you make the less you receive). It is available whether you are in work or out, and has no impact either on the willingness of workers to supply their labour or the willingness of employers to demand it.

The market can do many things, but one of the things it can’t do is bring about a just distribution of income

Now contrast all this to the minimum wage. This makes no pretence to be available to all. To benefit from it, you must have a job. Moreover, rather than being financed collectively, through a levy that all must pay, the cost is borne entirely by employers — at least in theory.

But of course, employers have a simple means of avoiding this obligation that the rest of us have seen fit to thrust upon them: by hiring fewer workers. And the higher the minimum wage, the greater an employer’s incentive to take this exit. It need not mean actually laying people off; it may simply be that they take on fewer new hires than they otherwise would. But all the legislation in the world can’t force a company to pay a worker who isn’t in their employ.

Of course, the minimum wage benefits some workers: those who are employed make more than they otherwise would. Surprisingly few workers are actually at the minimum wage — just five per cent of the labour force — and few of these work full-time or serve as a family’s principal source of income. But there’s also some evidence that minimum wages tend to push up wages at higher levels, to the extent wage bargainers work off the difference between the two.

But this is hardly social justice. A just society concerns itself first with the lot of those worst off, and the very worst off are surely those, not on low income, but no income at all; not those in work, but those out of work, priced out of the market by the tariff the state has thoughtfully placed on their labour.

A government that wanted to help those whose lack of skills or experience left them unable to earn what the rest of us would regard as a decent level of income would therefore prefer the minimum income to the minimum wage — that is, a government that valued results, rather than just good intentions, would do so.

Indeed, it wouldn’t bring in a minimum income in addition to the minimum wage, but as its replacement, acknowledging that, just as the estimation of what is the decent minimum anyone should be expected to live on is a collective judgment, so the fulfilment of that objective is a collective obligation. It’s simply not good enough just to fix wages, cross our fingers, and hope for the best.

Why, then, do we do that? I think it is out of a desire to pretend that we are not intervening in the economy when, in fact, we are. A guaranteed minimum income sounds like utopian socialism (it was first proposed by Milton Friedman, who called it a “negative income tax”). Whereas a minimum wage, well that’s just the market at work, isn’t it — albeit with a little “help” from the state.

Well, no. The market can do many things, but one of the things it can’t do is bring about a just distribution of income. Markets are about the fulfilment of individual wants, not collective judgments. That doesn’t change because you start messing about with wages and prices. In fact, it makes things worse: so far as we are preventing wages from doing what they are supposed to do, which is to bring the supply and demand for labour into balance, the result will be surplus labour, or what is more usually called unemployment.

Distributional equity is the state’s work. The tools for achieving it are taxes and transfers. Allocating resources efficiently is the market’s job, the tools for which are prices. Wages are prices: let them do what they can do, and help the poorest through the state instead. It’s a minimum income we should wish to guarantee, not a minimum wage.

 

 

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