John Stossel discusses minimum wage and its unintended consequences. It might remind you of Milton Friedman’s well know statements on the issue or the 50 years of Congressional research on the impact of minimum wage.

Harvard economics professor Greg Mankiw has been reviewing data recently released by the Congressional Budget Office (CBO), and this is what he found:

Because transfer payments are, in effect, the opposite of taxes, it makes sense to look not just at taxes paid, but at taxes paid minus transfers received. For 2009, the most recent year available, here are taxes less transfers as a percentage of market income (income that households earned from their work and savings):

Bottom quintile: -301 percent
Second quintile: -42 percent
Middle quintile: -5 percent
Fourth quintile: 10 percent
Highest quintile: 22 percent

Top one percent: 28 percent

The negative 301 percent means that a typical family in the bottom quintile receives about $3 in transfer payments for every dollar earned.

The most surprising fact to me was that the effective tax rate is negative for the middle quintile. According to the CBO data, this number was +14 percent in 1979 (when the data begin) and remained positive through 2007. It was negative 0.5 percent in 2008, and negative 5 percent in 2009. That is, the middle class, having long been a net contributor to the funding of government, is now a net recipient of government largess.

I recognize that part of this change is attributable to temporary measures to deal with the deep recession. But it is noteworthy nonetheless, as other deep recessions, such as that in 1982, did not produce a similar policy response.

Comments

  • Gesongbird

    I never really thought about how minimum wage can affect the hiring of teenagers but Stossel talked about that when he said that employers were less likely to hire teenagers because they were forced to pay minimum wages, interesting. So these teenagers are then less likely to learn how to work because no one wants to hire them.

    There was another show on Fox that talked about why it is wrong for the government to require employers to pay interns. (I am not sure what my personal opinion is on this subject since I was never an intern). They had a group of interns and former interns talk about how when they have to “pay” interns how companies are less likely to have as many openings for interns because they can’t afford it. The result is fewer students are given the experience as an intern which lowers their abilities to acquire a job after graduation because they don’t have experience. 

    The move the government puts a choke hold on business, the fewer people that business is able to hire.

  • Gesongbird

    I never really thought about how minimum wage can affect the hiring of teenagers but Stossel talked about that when he said that employers were less likely to hire teenagers because they were forced to pay minimum wages, interesting. So these teenagers are then less likely to learn how to work because no one wants to hire them.

    There was another show on Fox that talked about why it is wrong for the government to require employers to pay interns. (I am not sure what my personal opinion is on this subject since I was never an intern). They had a group of interns and former interns talk about how when they have to “pay” interns how companies are less likely to have as many openings for interns because they can’t afford it. The result is fewer students are given the experience as an intern which lowers their abilities to acquire a job after graduation because they don’t have experience. 

    The move the government puts a choke hold on business, the fewer people that business is able to hire.

  • Anonymous

    Today’s Afterburner with Bill Whittle puts the whole “you didn’t build it” mentality into perspective.  Of course The Obamanation doesn’t think you built it, he had it all handed to him on a silver platter from day one.

    http://www.youtube.com/watch?v=QXEoQJ7ZMZs&feature=player_embedded 

  • Anonymous

    Today’s Afterburner with Bill Whittle puts the whole “you didn’t build it” mentality into perspective.  Of course The Obamanation doesn’t think you built it, he had it all handed to him on a silver platter from day one.

    http://www.youtube.com/watch?v=QXEoQJ7ZMZs&feature=player_embedded 

  • dw

    Yeah, so the top one percent should be paying even more, right? (sarcasm)

    Seriously, these numbers are frightening. This is well beyond a progressive tax system. 2/5 of the population not only fund 100% of the government, they also are paying part of the cost of living for the other 3/5 of the population.

    I’d also like to see the transfer payment numbers for businesses. Too many industries and businesses get transfer payments. Take the recent solar-industry examples and ethanol subsidies as examples. 

    We not only have an individual welfare state, but also a corporate welfare state. That economic cliff is getting closer and closer…

  • dw

    Yeah, so the top one percent should be paying even more, right? (sarcasm)

    Seriously, these numbers are frightening. This is well beyond a progressive tax system. 2/5 of the population not only fund 100% of the government, they also are paying part of the cost of living for the other 3/5 of the population.

    I’d also like to see the transfer payment numbers for businesses. Too many industries and businesses get transfer payments. Take the recent solar-industry examples and ethanol subsidies as examples. 

    We not only have an individual welfare state, but also a corporate welfare state. That economic cliff is getting closer and closer…