Time to change the policy discussion.
Congress has been unwilling to raise the minimum wage despite strong public support for doing so. This blog suggests a concrete approach for getting even broader public support and potentially reducing the need for federal taxes.
As of January 1, 2015 29 states and DC have minimum wages above the Federal minimum wage, which is still only $7.25 per hour. For a worker working 40 hours per week 50 weeks per year, the minimum wage yields only $14,500 per year, which is below the federal poverty level ($15,730) for a family of two in 2014 in all states and DC. At these low income levels, even full time employees still cannot afford health insurance and will mostly be relying on large subsidies for health insurance and the employee earned tax credit (EIT). The insurance subsidy for a minimum wage worker enrolling in a private silver plan is currently at least $4,237 per year for an adult with one child, while the EIT is currently $3,359 for a single worker with one child if earning the minimum wage. Hence an employer paying only the minimum wage is counting on a subsidy from the government of at least $7596 per year for a worker with one child, which is $3.80 per hour.
A simple approach that will encourage more firms to offer health insurance is to raise the minimum wage required for any position that does not include any offer of subsidized health insurance. For concreteness I propose a minimum wage of $12 per hour without health insurance, versus $8 per hour with a job that includes subsidies for health insurance. (Those age 21 and under would also be eligible for the $8 per hour rate.) Whether the job is for 10, 30 or 40 hours per week does not matter, only whether there is subsidized health insurance. This four dollar per hour increment will encourage firms to bear the full cost of their workers, and reduce the burden on federal tax revenue and the budget.
In Massachusetts, the minimum wage just increased on January 1, 2015 from $8 to $9 per hour. The State’s economy continues to do well, and I still see signs in retail windows showing help is still wanted. Plus we still have lots of low-cost food and retail stores and services. Reduced employment is not visible, and would likely be more than offset by the stimulatory effects of reduced taxes. I see no reason why we couldn’t leave it up to states to decide whether they want to use the same or higher minimum wages for jobs with or without health insurance as long as the two minimums are reached.
In Australia, the minimum wage is US$ 13.84 (16.87 Australian dollars), everyone has national health insurance, and the unemployment rate is comparable to the US at 6.2 percent (November, 2014). We rather liked it when we were there in 2011 that our gardener and most restaurant workers were Australian citizens, who spoke English well, not low-paid foreigners and recent immigrants, as they are in the US.
As I write this blog, the US congress is debating whether to partially undo the employer mandate provisions of the Affordable Care Act by allowing firms to not have to pay any penalty for not offering health insurance for employees working less than 40 hours per week. The current standard is 30 hours per week. This would have a potentially disastrous effect since so many workers work about 40 hours and it would be easy for employers to avoid the (modest) ACA penalties by reducing worker hours. Plus, without the employer mandate, many workers will remain uninsured. Having a higher minimum wage for jobs not offered health insurance will greatly weaken the incentive for firms to drop employee hours to avoid offering insurance coverage and eliminate the 40 versus 30 hours as an issue. In fact it would encourage firms to offer full- rather than part-time jobs with health insurance, reducing the need for public subsidies.
This minimum wage policy particularly makes sense if it is combined with the proposal in my next (future) blog #7 to eliminate all family health insurance policies, insure individuals not households, and have all children under age 21 be covered independently of their parent’s insurance policy. Making all children eligible for the exchange coverage options regardless of their (parent’s) income would be one possible approach.
Here are links to my four previous blogs from 2013 on Taxes and fiscal policies. Still the right direction.
#1 All Taxes and Budgets Should be Expressed as Dollars per Person
#2. Include Social Security and Medicare taxes when discussing tax burdens
#3 Tax Bads (or at least don’t subsidize them!)
#4 State Tax Rates are Not Related to State Income or Growth
#5 “Let the Children and Grandchildren Pay?”