The wisdom of Garett Jones

On wage subsidies:

True, would likely boost employment rates. But note: if it works, it means current low employment rates are largely supply-side & voluntary.

Here is the link, and here is Garett’s follow-up tweet.  Here are previous installments in the series.

I would note that it is oh so hard for people to keep consistent views on labor markets (e.g., minimum wage vs. wage effects of immigration, or how about minimum wage vs. nominal wage stickiness?).  Those moods and emotions keep on getting in the way…

Comments

Does the analysis assume that tax is raised to fund the subsidies? If not, magic money tree.

It also assumes working is cost free to worker. Ie, a worker who is living in a shelter can travel 35 miles for free to work at will and that not working at minimum wage has nothing to do with not being able to buy a car, but merely says he's lazy.

I took classes at community college with lots of young adult workers. The biggest problem was cars breaking down so they couldn't get to work, class, and then they were headed toward dropping out.

voluntary choices are often horrible choices between bad alternatives. i value anecdotes, and part of valuing anecdotes is noticing anecdotes about low wage workers who find a way to make it to work and school and noticing other anecdotes about other people who do not.

i won't bore you with anecdotes from my own extended family or from the people in neighborhoods where i have lived--they would, of course, just be anecdotes!

Garrett,

I think ii is a mistake to discount the information content of anecdotes - they can help interpret raw data.

Here's a personal anecdote about anecdotes:

I once managed a large technical support team for software development tools. I collected data about the type of technical support request. At the same time, I was personally involved in the resolution of many of the issues - I talked to many irate customers and directed the resolution of their issues. The combination of the information contained in each customer problem scenario - anecdotal - with the data from the tracking system was very powerful, more so than either in isolation.

Of course, you have to correct for confirmation bias via decorrelation by inviting conflicting viewpoints.

Later, in order to effect change on behalf of the customer, you combine the anecdotes and the data into a narrative, present the data to the suits, reinforce the message with the narrative, and fix the problem.

You know you have succeeded when the customer noise goes away.

Anecdotes and narrative are important - we are a story telling species.

Eggheads, as evidenced in most scholarly journals, talk at each other with data and graphs, which is why nobody but them reads what they write. It's a game played in an empty stadium.

Fortunately, we have wrested control of our nation from the eggheads. Otherwise, someone would have to write "The Best and the Brightest" all over again. Worse yet, we would have to read it.

I have experienced many similar scenarios. You make a good point.

tax one person to distribute to another person. no money tree, just likely making life worse for the person who didn't fit into 140 characters

"if it works, it means current low employment rates are largely supply-side & voluntary"

I think "voluntary" may imply a little more freedom of the will than exists here. Perhaps "the utility-maximizing choice given the currently extant economic, political, social, and cultural systems and environments" would be more accurate.

Sure, but you could just as easily make the claim that "Voluntary" and "self-will" are illusions. So why make the comment a word salad. Just go with the simple term and let your audience understand that no term is perfect.

Because "voluntary" has the added implication that it isn't a problem. We tend to think letting people voluntarily do what they want to do is a good thing. But if people are "voluntarily" not working because of policy flaws that remove their incentive to work, perhaps it is a problem.

True.

But "voluntary" in that context implies a moral defect and does not adequately describe the complicating factors. For example, there are many low paid service jobs where I live in Silicon Valley. Housing costs are astronomical, low-cost housing scarce, commutes from lower-cost housing are long and arduous, imposing stress on people and vehicles. Gas is expensive in CA (carbon tacx on fuels, special CA formula). Used fuel efficient cars sell at a premium. Commute times of 2-4 hrs/day are common. Childcare is expensive. Transportation for school children is unavailable or very expensive. Much of the area is effectively unreachable by public transportation.

There are many obstacles to employment for lower income workers in this area. Those jobs go unfilled.

Anecdote Warning!!!!

I have a relative that went on disability after a very long period of unemployment. He is a highly skilled mechanical technician but his industry moved to Asia and no longer exists in Silicon Valley. He is 59 years old and unmarried. Until recently he was still looking for work but the equation has changed. Now he has to consider the value of his potential wages minus the cost of his commute in time and money and compare that to his known lifetime disability benefit. So far it makes sense to stay home. He would have to make a lot of money to make it worthwhile to make that long commute. So, he stays home, watches lots of tv, eats, drinks beer and spokes pot, gains a lot of weight (>70 lbs), has lots of health problems, and becomes more unemployable by the day.

How many more people are in that situation? What do we do about it?

^^^ this ^^^

not just in a world of 140 characters, in the real world as well: brevity is worthwhile

I'm not a tweeter, so I don't know what it's like. Brevity has a value and a cost.

I didn't mean to be critiquing the structure of the tweet anyway. Just to point out that the face-value interpretation of it may not accurately convey the reality, in a situation where I think many will just take it at face value and think "true, it is voluntary, so all's well."

To boost wages at the low end, make it as easy as inexpensive as possible to hire people.

1. Cut employer-paid employment taxes, maybe even to zero.

2. Make hiring someone (after we've come to agreement on job conditions and wages) as straightforward as going to amazon.com. It will take a while to get here, but in the end any citizen should be able to hire any other citizen by clicking a few web pages.

3. Cap the downside. Keep workmen's comp, the insurance for which maxes at $1/hour for the most dangerous jobs, but stop all the other things that could make hiring someone a legal nightmare. This includes whatever is necessary to make employers not feel they are not signing up for the end of their business if they hire a felon.

4. Boost the EITC.

Pay for it with 100% tax on profits because government is making hiring 100% risk free.

Better yet, nationalize the business.

You define being an employer as hiring qualified workers without paying for their skills development or ability to access your business, in such quantity the are off the shelf, and you can treat them like a consumption good.

This is why nothing can ever get solved. I've talked about my willingness to make my taxes go up to pay for the EITC, but then morons like this show up.

because government is making hiring 100% risk free

No, you idiot. There are still business risks. The employee could be a flake and not do his job. The industry could turn out to not want what the company is selling. Those risks still exist.

But if the employee hits someone, don't make the company pay.

A jack-in-the-box that knows only how to parrot "the government is socializing private losses, squak!" would say what mulp just said. But this is about socializing the costs of the bad behavior of citizens. When you try to push this cost onto businesses, you get the current situation where many companies simply refuse to hire felons, and then mulp tsk-tsks them for being so mean and driving down wages for felons.

Soh, you will pay 100% of the cost of training workers for another employer and insuring them in his unsafe workplace out of your income so he can make a big profit or not lose money being an incompetent manager?

So, why doesn't your employer do the same so your wage isn't high enough to pay the tax?

Taxes on businesses are the cost of services, like a supply of workers, roads for them to get to your business. Work comp is the cost from workplace lack of safety.

Workers need clothing and hygiene which is not free but you say employers should not pay for it. Transportation, but employers should not pay. Food to work, but employers should not pay.

What is the point of wages if not paying for the availability and maintenance of human Capital?

Why should businesses pay the full cost of its delivery truck, and pay for gasoline and tires and depreciation and accident Insurance?

Why not you pay taxes to subsidize his capital asset costs?

The nonsensical trolls really weigh down this blog's comment section.

They do that in every blog's comment section.

Yes but I think: 1) A major strength of this blog is that posts are good fertilizer for discussion, rather than the post content per se being a knockout. By comparison I like Brad DeLong's blog as well, but I basically accept that most of the comments there are not very good or substantive; and 2) When the comments here are good, they are quite good, and it would be nice to not have them interspersed with a bunch of incoherent unreadable ramblings.

Agreed, but it's not that hard to ignore certain posters. And there's even a killfile I think.

"The nonsensical trolls really weigh down this blog’s comment section."

killfile allows you to remove the worst offenders. I use it lightly, so for example, I don't have mulp included. But it does allow you to miss the worst of the mental garbage according to your own parameters.

It's available as a chrome extension (and probably IE).

I know it adds complexity, but set a cutoff on this for workers earning under say 2.5 or 3 times minimum wage. This makes it clear politically that it is a "get people back to work" scheme.

That is such a high proportion that in the end a lot of those programs will die anyway because they will only include higher wage workers.

The one portion of this that is the biggest problem is the part about no liability for misbehaving employees, especially those with criminal records. This will be a huge argument against the entire plan.

I agree in general. If we wanted to increase consumption of apples, subsidize apples. Same for labor.

"I agree in general. If we wanted to increase consumption of apples, subsidize apples. Same for labor."

I don't think Daniel Weber is saying remove the labor taxes. He's shifting the tax and regulatory burden away from businesses towards more general funding. To make the marginal cost of labor cheaper. The total societal cost will (ignoring regulations with a NPV) remain the same.

Agreed. There is no magic 'subsidy' tree on which we can draw.

I didn't mean to imply any of this would be free. I anticipate my taxes going up with all this. Less than they would go up without this plan, though, because we otherwise seem determined to disemploy as many people as possible and end up with a growing class of people that never have and never will have worked.

I wouldn't mind paying more in taxes for a higher EITC and lowering or eliminating national minimum wage laws.

But that requires finding uses for apples beyond eating and food ingredient. Say fuel for vehicles.

We have too many workers because we have decided we have too much transportation, too much education, too good water quality, too good air quality, too good desirable landscape so we will let roads, bridges, water sewer, schools, and can save money polluting air, water, destroying land..

After all, unlike $100 Saudi oil from Iran sanctions generating $80 profit, costly environmental regular means cost increases paying workers to comply and not pollute.

Trump is promising to increase coal mining by letting coal ash ponds flood towns at not cost to coal industry, mines make drinking water unsafe to drink, ash trees get killed with acid rain, etc so fewer workers need to be paid mining and burning coal.

Capping maximum insurance for dangerous jobs might not be better.

Cut employer tax expenses to zero for expenses related to employees. Tax *ALL* goods at a low level to make up for the lost revenue. That way imported goods and domestic goods are on a level playing field, and the costs for social security/disability/unemployment aren't being levied against employers and employees. It wouldn't be a tariff, but those imports would be more expensive to pay domestic benefits. Functionally it would put a thumb on the balance.

"I would note that it is oh so hard for people to keep consistent views on labor markets "(e.g., minimum wage vs. wage effects of immigration..."

Bingo. I've never understood how anyone could for instance disagree with the results of Card's minimum wage paper but accept his findings on immigration. Both papers ultimately try to conclude that the demand curve for low-skilled labor does not slope downward. Either this is true or it is not.

"Bingo. I’ve never understood how anyone could for instance disagree with the results of Card’s minimum wage paper but accept his findings on immigration. "

Could you provide a synopsis of the two results? Here's my brief summary, but I'm mostly ignorant of the subject.

Card's paper (A 16% increase in minimum wage between NY and NJ, showed no significant changes in low wage employment).

Card on immigration: low skilled immigration does not impose a significant cost on low skilled workers in the host country.

The word "significant" might be relevant.

A low skilled worker that competes with low-skilled immigrants can still get the lower prices that this immigration affords, in part through the wealth effect this has on others who make use of this lower cost labour (contradiction - yes, this necessarily implies that they will earn lower nominal wages), which can then be redistributed through diverse means.

One approach being the earned income tax credit, which does not address the situation of those who are no longer employed and maybe are too old to bother retraining.

Supply side yes, but everything is ultimately voluntary. Is Garett Jones trying to bait us into a morality argument? If so, I don't see the wisdom in that...

The response to Garrett's post: "Because if it's literally "so some people can get very rich" then we might as well go back to the caves." Perfectly encapsuled the idiocy of the left. Delicious.

Thank you Garrett!

glad to serve!

that said, people shoot off their mouths on twitter, i don't take it as the typical tweeter's peak intellectual contribution--i know i've had some mediocre-to-bad tweets myself...

Oh everyone makes mistakes, no doubt. But I don't think it was a mistake. I truly believe that this is a position that many on the left would be willing to take to the mat.

"Those moods and emotions keep on getting in the way…"

Luckily EconBot3000 will soon be taking over the job :D

I would note that it is oh so hard for people to keep consistent views on labor markets

Well, maybe. Or maybe the model against which these views are inconsistent is oversimplified when one looks at how labor markets function in reality, as opposed to those lovely graphs.

I actually don't know. But I do want to see data, not theory.

Probably a lot of the confusion in having consistent views about different wage-related policies is related to the type and extent of disaggregation. Also, ignoring the supply response to higher wages probably affects what outcome might be expected.

I don't understand the dichotomy between "incentives always matter", but then somehow once you talk about paying lower wage workers more money, the whole incentive and supply-stimulus effect goes out the window.

Not so long ago this blog was obsessing over the 'zero marginal product' worker. But the cases here are clearly low marginal product workers since you're only going to be 'voluntarily' unemployed if the value of your labor is not sufficient to overcome the negative incentive towards working.

So this raises a question, why should we obsess over this? It isn't for the benefit of the voluntarily unemployed person. Since their product value is low they aren't going to make a lot of money with a job. It likewise can't be for our economic benefit, again low value means the economy isn't going to expand much if we get a few more people ringing up food at McDonalds. Is it 'fairness'? We are fine with life being unfair everywhere else. It isn't like life on the dole in the US is all that wonderful, esp. when you consider if you factor out non-cash benefits (i.e. health coverage), the 'dole' is even smaller.

"It isn’t for the benefit of the voluntarily unemployed person."

I think it is. I'm sure a small percentage of the voluntarily unemployed are able to find useful, fulfilling ways to occupy themselves. My shockingly healthy 83 year old dad is actually a good example of this. And I reckon there's a connection between his ability to make himself useful and his rude health.

I don't think he is the rule, though. A large percentage of the voluntarily unemployed, I suspect, are on the path to enervation, becoming dispirited, broken people or wireheaded lotus-eaters.

I worked a bunch of crummy jobs in my youth, but I always thought basically any job confers a sense of dignity, worth, usefulness that isn't easy for a lot of people to find otherwise, even if it's also true that almost every job sucks sometimes and a lot of jobs suck a fair amount of the time.

That's what work is: it's giving some of your time to others. It satisfies a basic need.

Today, we can carry 10-15% of society. As technology progresses, that number will be 30%, 50%, higher. It won't be our inability to provide materially for people, it will be the sad, unfulfilled lives these people will lead.

Wearing the economics hat here, why do you think so many of the voluntarily unemployed are incapable of seeing things as clearly as you do? Your 83 yr old dad enjoys working....but are all the other 83 yr olds just too silly to run their own lives?

Perhaps some in the labor force are in soulless dead ends just as some who are mooching off parents, friends, or significant others are too. On the other hand perhaps some are ok just being supportive to others and keeping them company while they earn the money.

"Today, we can carry 10-15% of society"

Errr not really. If you look at labor force participation before 1970 or so it was less than 60%. The big hub bub people are making about it today is about a drop from about 66% to 63% or so. The norm it seems is for only slightly more than half of people to actually bother working. As GDP continued to expand, that might have increased because opportunities for consumption increased (there was more stuff you could buy in 1980 than 1970) but it also creates an incentive to drop out.

Brian,

" It won’t be our inability to provide materially for people, it will be the sad, unfulfilled lives these people will lead."

You nailed it.

Boonton,

"...fine with life being unfair..."

No problem. We just have to realize that they can vote.

If something can't go on forever it will stop.

You underestimate voters ability to deceive themselves. The Tea Party is filled with Welfare Queens and Kings who balk at a subsidy to help someone working two low wage jobs buy health insurance while collecting their Social Security checks and using Medicare for everything they can get it to pay all while telling themselves that they more than paid for the benefits they take out because the gov't took $7 out of their $100/wk check back in the 70's when they worked at a record store.

Because everything must have one cause and one effect.

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