Interesting idea. It's in the same family as the Earned Income Tax Credit and the Negative Income Tax.
The immediate potential downside I see is that this would effectively institute a very high marginal tax rate on income below 'x'. For every additional dollar that someone who makes less than x earns, they lose 0.5 dollars of social security. That's a 50% implicit marginal tax rate, on top of whatever the official marginal tax rate is. By comparison, the highest marginal tax rate for federal income taxes in the United States is 35%, which is only applied to household earnings beyond $370,000 (source). The implication of standard economic theory is that many people would simply choose not to work and earn .75x.
Minimum wage has the side effect of leaving unemployed, the people who do not possess the requisite skill to command the minimum wage in the market
That is indeed what economic theory predicts. Treating a theoretical prediction as a fact is generally a mistake, except with extremely well-tested theories (physics at Newtonian scales with a small number of objects is the only example I can think of). This is particularly true of economics, which shows worrisome heuristics as a field and especially true of the minimum wage / unemployment link which has been specifically looked for and not found
A better argument for the minimum wage is that empirically it doesn't have much of a negative effect on employment - see below - but it placates the political demands of a largely uninformed populace that might otherwise try to get much worse policies enacted.
(I seem to recall that Bryan Caplan originally made this argument, but I can't source with a quick google search.)
This seems both not very developed and not particularly on-topic. I would suggest removing it from the main page, perhaps to discussion.
That's a bit harsh. I think the problem is just that Vijay hadn't heard of Friedman's negative income tax proposal, and is reinventing the wheel. Also, it's not polished enough for the Main section.
That was when were discussing things which are true on balance of evidence which are universally tribally disbelieved, so you can use them as a litmus test.
And all data says that communist countries were economically just as successful as non-communist countries on average in terms of growth and convergence. I even linked to data showing exactly that.
I no longer believe it's a particularly good rationality litmus test, people just compartmentalize way too much for there to be any good rationality litmus tests as far as I can tell.
As pointed out by orthonormal, Milton Friedman already came up with this decades ago. This is definitely an improvement over minimum wage laws, but has not been implemented because its primary improvement is over welfare programs, which are too entrenched to be replaced.
One possible problem with this is it's effectively a government subsidy for low-paying employers. Anyone currently on minimum wage, their wage will drop and be made up by the government. Not necessarily the intended effect.
To me this seems just like a slightly more complex way of doing the citizens' income idea, which is one I like in theory and would be easier to implement (as well as probably more popular).
Minimum wage has the side effect of leaving unemployed, the people who do not possess the requisite skill to command the minimum wage in the market. This follows from basic micro-economic theory
This is not technically true. Even in idealized economics, stuff gets non-basic quite quickly.
I think you should replace "earnings" with "hourly wages". It makes more sense, given perfect information, to have a system which tops up hourly earnings rather than earnings generally because this incentivizes work rather than earnings.
We don't, for example, want to issue subsidies to people who work part time at high-payed work just because they'll be topped up by the scheme.
There are very few people whose work is worth between zero and minimum wage; most people's labor is either worth more than minimum wage, or has negative value because of the non-wage costs and risks associated with hiring someone.
So... what we have here is a kind of minimum and maximum entitlement: x/2 and x, with incentives to work more to get more back. Interesting
Let's look at the actual intent of your article - it is not to propose 'the' solution to improve the productivity of the economy, but to device methods to improve it. After all, the fact that you say that you have not spent time thinking about the implementation (and from the depth of the article, the issue itself) reiterates my opening line. Firstly we have to remind ourselves that productivity of an economy is not even a non-linear problem, but a transcendental problem. So linear proposals like the one you attempt will barely scratch the surface. For ...
It's worth pointing out that a couple countries have that sort of social security and still have a minimum wage, and they seem to do just fine. (Australia, I believe UK too?)
It's also very worth watching the politics that go in to that - a mathematically ideal policy is useless if you can't get people to accept it. Proving that it's mathematically ideal is very rarely compelling, either.
bouncing around as variables in your mind
I communicated my thoughts poorly.
Your preferred method of writing and talking
The reason why this kind of writing is sub-optimal is the following...It is not necessary to get verbose and guard yourself against any possibly misinterpretation in the world...this approach is extremely sub-optimal for communication.
To some extent, I assumed you wrote it as you thought it, considering how the other things were variables and just as a general sense I had. The sign that it's not abstract and that you are likely not holding off on proposing solutions is in how one thinks about it regardless of how one ultimately writes it.
I'm not primarily arguing that writing abstractly is always optimal (it admittedly may not have been here), but that thinking concretised is suboptimal, and writing concretised is correlated with concretized thinking. It's like Solomon's Problem.
So I have no large beef with how you wrote it, and I think you wrote the idea you had in a more than adequate way, but I and many others see it as not on topic. I think that that is because it is too specific. If this (ideal?) way of writing was a reflection of your thoughts, that should have been a hint that the thoughts weren't general enough.
My judgement is very susceptible to being wrong insofar as you may have thought about it totally abstractly and been good at avoiding too abstract writing; perhaps you have the good habit of translating the general thoughts in your mind into exemplary exemplary (sic) words, in which case you wouldn't have had this specific hint that this post was fairly off topic by its narrowness.
Again, I wasn't proposing a final solution that should be implemented tomorrow!
This confused me for a while. In my opinion, it is more specific ideas that are better prepared to be implemented, i.e. the applications of more general forms. I hadn't expected as a defense against a charge of being too practical and not theoretical enough an emphasis of the distance between the idea and its implementation. In general, one isn't concerned with perfection in the initial presentation of any idea, that makes sense, and one brings up the distance from implementation to show critics (that's me) are nitpicking (me?) and misguided (could be me) when they treat a floated idea inappropriately by subjecting it to a standard suited for smoothing a refined idea by removing the tiniest flaws.
As in this particular instance, I was arguing for generality as against practicality, I was truly confused when you spoke to the idea of differing standards being appropriate at different stages of an idea's life by using the language of distance to implementation. Eventually, I got it ;)
| perhaps you have the good habit of translating the general thoughts in your mind into |exemplary exemplary (sic) words,
Yes I do and it has served me very well with regard to being a clearer communicator. It's all the more helpful when communicating with people less used to talking abstractly. I strongly suggest you try it. You'll save time and be more clear 95% of the time unless the people you are communicating with are some really biased sample.
| in which case you wouldn't have had this specific hint that this post was fairly off topic by its narrowness.
I have no idea what you are saying here :)
Minimum wage has the side effect of leaving unemployed, the people who do not possess the requisite skill to command the minimum wage in the market. This follows from basic micro-economic theory and here is nice short video of Milton Friedman, the renowned United States economist arguing against minimum wage laws. To offset this problem, it is essential to have some kind of social security safety net for the unemployed.
Instead, I would like to propose the following scheme which seems to me as more efficient (please let me know in the comments if you know of any country that tried this or something close): Set x= 1.5 * min_wage. Have no minimum wage laws. And folks who earn y which is below x, receive (x-y)/2 in social security. This way, we have (1) lower "skilled" people contributing to the country's GDP in their own small way instead of being unemployed and contributing nothing. If we have a significant number of these guys, the numbers could really add up. (2) The min wage like concerns are taken care of with the government safety net. (3) There is still incentive for people earning below x to work. If we set the social security to something like (x-y), no one earning below x will have any incentive to work since their net in hand compensation would then always be x regardless of what they do.
This above scheme looks almost like a pareto improvement to me compared to minimum wage laws, supported by social security for the unemployed, because it does roughly as good with regard to supporting those whose skills are below the minimum wage, while ensuring less government spending on social security, since many of the formerly unemployed would now be in low wage jobs and the government simply has to top up their current salaries which might be well above zero. This is of course a good thing, because the government then has the option of either using the extra money to reduce the budget deficit and ensure better economic health of the country, or use the money for other worthy endeavors. There is also greater contribution to the country's GDP which is a good objective in itself. Lastly there is reason to believe that people being gainfully employed is better for their physical and mental well being. It will also likely reduce their propensity to indulge in anti-social activities, compared to a scenario where they are unemployed with a lot of idle time on their hands.
I haven't spent much time thinking through the implementation and whether there is greater potential for such a scheme to get scammed and exploited etc. At least at first glance it seems to me that this scheme is no more exploitable compared to welfare benefits for the unemployed, which must necessarily go with minimum wages for it to actually be humane and better for the poor. Some people can probably get away by earning a living and still claiming to be unemployed and collecting welfare checks under the min wage + unemployment welfare method. The same people can do it under the new proposed scheme as well, so I am unable to see any more vulnerabilities and loopholes in this system compared to the previous one.
Thoughts?