wage magnification

Wage magnification is a form of redistribution from rich to poor. I may have alluded to it in previous posts, but here I focus on it (and just imagine a blog author writing about the same thing twice - unheard of!)

Suppose your minimum wage is the (quite low) figure of $5 an hour. The government ponies up directly, into the worker's paycheck, $7 an hour to give them a wage of $12 an hour. If the job pays $10 an hour, the government pays another $5 an hour to make it a $15 per hour job. Perhaps it would also turn a $15 an hour job into an $18 an hour job, the magnification rather quickly falling off to zero as the rate of pay goes up.

A key premise is that people like to feel useful, and for many of them this involves work. As with ordinary work today, with wage magnification the more they work, the more they earn. If they get a job that pays a bit better, then they earn a bit more. This means that people are rewarded in accord with their effort and performance -- they have control.

It compares favorably with a minimum wage for a couple reasons. One is that the minimum wage is paid by the employer, and creates an incentive for them to cut jobs and hours. (Compared to the world as it is now, raising minimum wage is a good idea, but I propose that wage magnification would be even better). In contrast to a minimum wage, wage magnification is paid by the government. If employers have useful work to be done for even $5 an hour, they can hire people to do it, and the incentive for labor-saving technologies and procedures is much less. The work gets done, it is truly useful work, and they feel good about doing it. Another problem with a minimum wage is a sort of "floor effect". You imagine that a whole lot of jobs that would otherwise pay varying amounts less than the minimum wage will all get paid at that rate, so finding a more responsible job would at the low end of the scale not be rewarded with more money.

A guaranteed basic income is a decent idea, but it very much removes any incentive. You get the money no matter what you do, which once again removes control over that aspect of your earnings.

An example of wage magnification that is already in place is the earned income credit. It is very limited, and its effect is delayed, visible only after you file your taxes for the year. And it is tied to your overall financial situation.

Wage magnification could be made simple to administer. You don't look at someone's overall financial situation, the magnification just happens in the paycheck.

By improving people's incomes, wage magnification should reduce somewhat the need for other social programs. At that level of pay, people spend most of their income, improving the economy.

In tax policy, we need a place to look very carefully at someone's overall financial situation and make our taxes progressive, and we have it today in two places: the income tax and the inheritance tax. That is where we tax the rich more heavily (and could do so more effectively by closing loopholes). It is unnecessary complexity and overhead to do "means testing" in other programs, though there is a natural political pressure against giving things to the wealthy.

There are plenty of other ways we could make things fairer by reducing regressive taxes -- eliminating sales tax would be one. No longer making prisoners and criminal suspects pay hefty fees is another.

We also have in place a variety of other programs to help the less-well-off, and I am not proposing replacing them, such as disability insurance, Medicaid, Social Security and Medicare. Universal health insurance is a good idea. Credits for help in raising children also seem like a good idea. What wage magnification competes with most directly is the minimum wage, which could be kept low or possibly even lowered.