Sunday, January 5, 2014

An Increase In The Minimum Wage Is a Tax On Firms That Hire Unskilled Workers

"Help the Working Poor, but Share the Burden" by N. Gregory Mankiw:
Taxing businesses that hire unskilled workers would alter their behavior in ways that would hurt those we are trying to help.

To avoid the tax, businesses would have an incentive to hire fewer of these workers. For example, they would have greater incentive to replace workers with labor-saving machines.

In addition, some of the tax would be passed on to customers in the form of higher prices. These customers, in turn, would have an incentive to spend more of their income elsewhere. Over time, these businesses would shrink, reducing the job opportunities for the unskilled.

All in all ... sounds like a pretty bad idea. Why, you might wonder, did I bring it up? Because it is the one favored by President Obama. He calls it an increase in the minimum wage.

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