Hacking the Minimum Wage

In a recent post, I posited unemployment insurance should be reformed to offset the minimum wage for new small businesses hires. Please continue in comments to help me brainstorm.

This is a “free stimulus,” because it uses current unemployment payments to actually create new jobs. No tax cuts. No deficit spending. No new government program. And only Main Street gets to use it. When was the last time you heard something sane and immediate?

The Elevator Pitch

Example: A company not currently making new $7.25 per hour hires, can bid $2 per hour and if no other employer in the area bids more, and have deeply discounted workers… with the government making up the difference to $7.25.

The discounted employment contract is for one month, so when a higher bid comes in, the current employer will have to meet the new pay. If no higher bid comes in, the small business continues paying $2 per hour. Highest bid wins.

If the economy improves, the bids from the small businesses will increase as demand for employees increases. As unemployment claims go down, there will be less money in the program, so no free rides. If a business loves a new discount hire, and they are afraid of losing her, they can cover the $7.25 themselves.

Think of the unemployed in your community, their work is a deadweight loss of human capital cannot be recovered. Now imagine what an entrepreneur could do with that capital – if she got it at a discount.

The Ugly Reality

Don’t be fooled. Reducing unemployment is about creating millions of CHEAP jobs. Yes, we need middle-class jobs, but the vast majority of unemployed are the people who lost low wage jobs.

• under $12,499 – 30.8% unemployed
• $12,500-$20,000 – 19.1% unemployed.
• $20,725-$29,680 – 15.8% unemployed

We have to wake up here. Six million people are receiving unemployment. We need a return on that money.

Meanwhile, Sen. Reid is talking about a “bi-partisan” $15B jobs bill that experts say won’t do jack.Even the National Federation of Independent Businesses (NFIB), the folks meant to get this money, admit new hires will only happen when there is greater demand.

“Right now, business owners just don’t have customers,” Rys said. “Until you have work for the employee to do, there’s really less of a reason to hire a new worker.”

And that’s not true at the bottom of the market. According to NFIB:

A higher minimum permanently reduces job opportunities for unskilled and handicapped workers, denying them the opportunity to become productive members of the labor force.

The Judo

At the bottom of the labor market, we’re talking about newly discounted goods and service costs:

• A Day Care Center / Pre-School adds three on staff for the price of one, they can take on more children and can reduce their price per child for all families involved.
• Telemarketers can drop their price per call to compete with India.
• Yard Work, House Cleaning, Dry Cleaning, Car Washes with new lower prices that work for middle class families.

Yes, if we could just get rid of the minimum wage, all of this would occur. The market would solve. Prices on low end goods and services would go down and jobs would be created.

But politically, demanding an immediate end to minimum wage is a non-starter.

This is a workable hack. This is a politically viable approach that increases market forces (price discovery) right away. If the low end economy doesn’t improve this new approach to Unemployment Insurance will drive down the cost of the goods and services we all use, saving us money, and keeping the cheap jobs here.

Republicans and Blue Dogs should prepare this plan and the next time Obama seeks to extend Unemployment Insurance, they should demand this structural change.