Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Why Most Investors LOST Money by Investing in ARK FUNDS - 27th Jan 22
The “play-to-earn” trend taking the crypto world by storm - 27th Jan 22
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

A Novel Way to Kill Jobs and Tax Employers

Politics / Government Intervention May 15, 2015 - 12:58 PM GMT

By: MISES

Politics

Christopher J. O'Connell writes: The state of Connecticut may be embarking on new territory as they seem to be pushing a rather creative way to extract revenue from for-profit businesses. The state legislature of Connecticut has proposed what’s commonly referred to as SB1044. Muddled in the labyrinth known as legal terminology, we find this gem of a sentence in the bill itself:


Any covered employer that employs, or whose franchisee employs, any employee (1) who was listed on such covered employer’s or such franchisee’s payroll for at least ninety calendar days prior to the completion of the most recent calendar quarter, and (2) whose wages paid by such covered employer, or such covered employer’s franchisee, during such quarter were less than or equal to fifteen dollars per hour, shall pay a fee to the Labor Commissioner for each such employee. Such fee shall be assessed quarterly and shall be equal to one dollar for each hour such employee worked for such covered employer during the previous quarter. Such fee shall not accrue until January 1, 2016.

“Covered employers” apparently includes for-profit businesses that include 500 or more employees, because of course the legislators don’t want to be seen as hurting small businesses. But the fact that they even created the 500-employee minimum is a de facto admission that the firms that are affected by this bill will feel at least some negative impact.

The Down Side of Mandated Wages

What are these negative impacts? Obviously, the bill seeks to impose higher wages — or at least to punish employers that pay wages deemed to be too low — by raising the cost to the employer (via a state-imposed fee) of retaining an employee below the target wage of $15/hour.

Will this benefit employees? In Human Action, Mises had this to say about wages:

What the employer buys on the labor market and what he gets in exchange for the wages paid is always a definite performance which he appraises according to its market price. … In weighing the pros and cons of the hiring of workers, the employer does not ask himself what the worker gets as take-home wages. The only relevant question for him is: What is the total price I have to expend for securing the services of this worker?

We immediately see that the Connecticut proposal will have the effect of raising the cost of hiring an employee while adding no additional benefit for the employer. Thus, we can conclude that a mandated increase in wages will eliminate jobs from the workplace because fewer workers will be able to offer services that are greater in value than the cost of employing them.

A Tax on Low-Wage Employees?

But this bill is no ordinary minimum wage law, because in many cases, the extra cost to the employer will not necessarily go to the employee. In many cases, the new mandate simply acts as a tax on low-wage employees.

How would this work exactly? To put it simply, certain employers would be mandated to raise wages to $15/hour for those employees who currently earn less than that. Or, the employer can pay a penalty of one dollar per hour, per employee. Let’s say a worker earns the minimum wage in Connecticut which happens to be $9.15/hour. The employer could keep the wage at $9.15 and pay the penalty which would effectively mean the employer’s cost is now $10.15/hr. The employer presumably would choose this price to $15/hour.

Naturally, the employer could choose to fire this employee if the employer figures the marginal productivity of this worker is not worth $10.15/hr. If the employer decided to keep this minimum wage employee and pay the per hour tax, however, that extra dollar goes not to the employee, but to the government. Even if the employee earned, say, $12/hour, we’re faced with a similar problem. The employer can pay the extra dollar fine making their effective cost $13/hour or decide it’s not worth the hassle. If the pre-existing wage is closer to $15/hour (i.e., $14.50/hour) of course some employees may find that their wages would increase to $15/hour.

The Real Goal Is Government Revenue

What makes this bill especially peculiar can be found in the bill’s title: “An Act Concerning the Recoupment of State Costs Attributable to Low Wage Employees.”

In other words, lawmakers are pushing this bill as a way to recoup the costs of subsidizing employees who are paid wages but still qualify for public assistance programs. Of course Wal-Mart is at center stage for the advocates of this bill. Nina Liss-Schultz writes:

Walmart in particular has become a target for lawmakers looking to raise wages, as the company has gained national attention for its low wages. The corporation, which employs 1.5 million people across the country, has about 825,000 employees who make less than $25,000 annually … [and] the company’s employees make up 18 percent of the Supplemental Nutrition Assistance Program (commonly referred to as SNAP or food stamp) market, according to a 2014 report by Americans for Tax Fairness. … Walmart, even after the wage increases, remains a burden on taxpayers. Taxpayers spend $6.2 billion every year on public assistance for Walmart employees who make too little money to make ends meet, according to one estimate.

Lawmakers for the state of Connecticut want you to hop on their merry-go-round of logic. Because money is expropriated from taxpayers and handed to low wage employees, we must then expropriate funds from law abiding firms to “recoup” some of those costs. The money taken from Wal-Mart and similar firms is not given to the taxpayers, of course, but is retained by the state.

The funds taken from firms via this legislation would then be spent toward state programs for the elderly and children and on programs like the Office of Early Childhood. So, we take money from employers that would have been spent on wages, and the state spends it on government programs instead. Many workers lose their jobs, but a few get lucky and see their wages bumped up to a “living wage.” Those who become unemployed can then go on public assistance. It’s win-win for the state, and if that strategy doesn’t win votes and get the politicians behind it re-elected, I don’t know what will.

By Christopher J. O'Connell

http://mises.org

Christopher J. O'Connell graduated in 2011 from Ball State University with a degree in finance, and now works in the financial services industry.

© 2015 Copyright Christopher J. O'Connell - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in