The New York Times reported over the weekend that the Obama administration is starting to throw its support behind a Senate proposal to raise the minimum wage to approximately $10 per hour. That would be higher than the $9 Obama called for in his State of the Union address, and would nearly match the high water mark of the historical minimum wage, adjusted for inflation.
Buried in the article, however, was a troubling detail:
Democratic senators from more conservative states favored an increase to $9 an hour, but including the expensing provision was enough of a sweetener to bring them behind the $10.10 proposal.
Under that provision, small businesses would be able to deduct the total cost of investments in equipment or expansions, up to a maximum of $500,000 in the first year. Including such a provision helped persuade the Senate to vote overwhelmingly in favor of the last two minimum wage increases
Pairing a minimum-wage hike with a small-business tax break makes sense, since as Noah wrote just about a year ago exactly,
A hike in the minimum wage would disproportionately impact small businesses. It would make sense to couple it with a pro-labor reform that would disproportionately benefit small businesses – such as a permanent cut in the employer portion of the payroll tax (offset by an increase in taxes on consumption, such as a VAT or carbon tax).
Unfortunately in the Senate proposal outlined above, the small business tax cut is not a cut in the employer portion of the payroll tax, or some other salutary benefit to ease the effects of the wage hike. Instead, as Jordan Weissmann noticed over at The Atlantic:
In other words, this bill would make it more expensive to hire workers and cheaper to buy the technology to replace them. From a political horse-trading perspective, this makes total sense. From a job-creation perspective, it’s a little alarming.
Increased automation is one of an employer’s options in deciding how to respond to a minimum wage hike. After all, robots don’t receive wages (yet), so one of the biggest obstacles is the large upfront outlay for purchasing and installing a robot in that (presumably) low-skill worker’s place. What the Senate proposal does, and apparently has done twice previously in minimum wage hikes, is to explicitly subsidize that outlay, to the cool tune of $500,000 in the first year. While one would hope that the increased productivity from automating certain tasks would be beneficial for the economy as a whole, that will be little consolation to any replaced workers.
At stake here is not whether we should use robots and approve of ever-increasing automation in out economy. That’s another discussion for another day. What’s at issue here is whether we should be deliberately pairing an incentive to one of the more potentially damaging responses to a minimum wage increase with that very increase. It seems unwise to drop in a double dose of nudges toward the elimination of low-skill jobs in a low-skill job market already under great stress.