was discussed in the previous post in these pages, finding the right minimum
wage for the entire United States is no easy task. I do think it is safe to
conclude that what will amount to a living wage will differ according to
circumstances and locality.
I have heard from those who suggest that a living, family wage shouldn’t even
be the goal of a minimum wage. It is difficult to respond to such people,
because it seems to your humble servant that a law that ratifies paying
employees less than what is needed to support their families is simply
irrational. The reason why people work is to support their families, or at
least themselves if they have no family. Allowing businesses to pay less than a
living, family wage defeats the whole purpose of work. And it’s no argument
that wages should be decided by the market, because there is no market when it
comes to wages. Adam Smith himself recognized that employers have a decided
advantage when it comes to bargaining, and that they often collude among
themselves to hold down employee compensation.
We have now the scandal of people who are gainfully employed full-time, but require the assistance of the government to live. Employers who take advantage of the social safety net, such as it is, to supplement what they pay to some of their workers are really receiving a public subsidy for their workforce. And while I’m hardly the first to mention that, it seems that the situation continues unabated. Legislators, by and large, don’t seem to consider people thus victimized a viable constituency.
course, there are those who would solve the problem by eliminating public
assistance. I have to think, to hope, that such people aren’t thinking things
through. Widespread malnutrition wouldn’t just be bad for those experiencing
it; it would be bad for society as a whole. Those for whom human empathy is
simply a stick thrown too far for the dog should consider how indefensible our
country would become in the face of such a situation, and how much more crime
would be engendered. Those for whom the law mandates starvation no longer have
a stake in the welfare of the society promulgating that law.
with the recognition that this plea will fall on some deaf ears, I will move
on. For there is one objection to a living minimum wage that has some weight,
and that is that it might serve as a discouragement to the start-up, or even
the continuation, of some small businesses. We are considering, here, the
possibility that there are people who would consider starting a business if they
were required to pay X, but not if they were required to pay X+1.
And it is certainly the case that large companies more often are able to pay
better wages than smaller ones.
is an extant idea that the minimum wage approach is not the best to ensure a
decent standard of living for working people. The alternative suggested is
something called a “maximum ratio.” I’ve discussed the ideas mentioned in this
post previously, and have shamelessly plagiarized my own work. But it should be
discussed in the present series of articles. So, without further ado, this is
how it works:
The basic idea is that “the salaries of the top earners within a company” should not “be more than a stated multiple of the lowest salaries.”  This is an idea pioneered by Ben & Jerry’s, the ice cream maker, which had a company policy saying that no employee could earn more than seven times that of another.
this would not require the government to set a mandatory ratio between the
highest and lowest paid employees. Instead, it could be implemented by basing a
business’s tax rate on its compensation ratio; the wider the ratio in a
company, the higher would be its tax. So a company that paid its CEO
four-hundred times what it paid its lowest paid employee would pay at a higher
tax rate than a company where the ratio was 20:1. The maximum ratio would be
the point at which the tax rate reached one-hundred percent. The rates would be
set in such a manner so as to discourage overly wide ratios.
that the rates were properly set, this would help start-ups and other companies
with fewer means by allowing them to pay wages they could afford, but would
also disincentivize businesses paying their employees less than they are able
to pay. Of course, to make it work humanely, there would have to be a
sufficient system to supplement incomes where the wages were low. But it would
be expected that, given that this system would be of assistance to start-ups
and small businesses, total welfare expenditures could be reduced without
hurting those who need the assistance.
cannot assume that every business owner claiming that he or she cannot sustain
a raise in the minimum wage is engaging in bad faith. The maximum wage approach,
combined with a sufficient income supplement system, can relieve some of the
labor cost burden of honest small business owners, while at the same time
removing the scandal of people working for a living but still living in
it comes to supplementing incomes, simplicity is key. And the simplest approach
is what is called a “negative income tax,” or NIT.
The basic idea of the NIT is that an income threshold would be established. Only income above the threshold would be taxable. But if a person’s income fell below the threshold he would receive payment from the government to make up the difference. This approach would eliminate the need for the multitude of agencies that have proliferated under our current system. The “government could effectively ‘cut out the middleman,’ and transfer funds directly from taxpayers to welfare recipients at a substantially lower cost to taxpayers.” 
this is how the NIT could work in conjunction with the maximum ratio (MR) idea.
The percentages and dollar amounts to be used are for illustration purposes
only and are provisional. Others may turn out to be preferable upon further
analysis. For example, I will be using the 2021 HHS Poverty Guidelines for the
48 contiguous states and the District of Columbia , even though those
guidelines have been criticized for inadequately assessing a livable income.
But the purpose will be to show how the NIT and the MR can interface and work
1965, during the “golden age of capitalism,” “the ratio between the CEO in a
company and the average worker was a respectable 20:1. For every dollar earned by an average
employee, the CEO would rake in $20.” 
Now this was the ratio between the CEO and a given company’s average employee.
But I’m concerned about those receiving the least pay, so I want to establish
tax rates for businesses based on the ratio between the pay of a given
business’s CEO (or any other officer or owner most highly compensated) and the
lowest paid employee. So let’s say that we will set a company’s tax at 20% if
that ratio is 40:1. That means that if we start at zero tax if the ratio is
1:1, the tax will be 1% for a 2:1 ratio, 2% for a 4:1 ratio, and so on. The tax
will reach 100% when there is a 200:1 ratio.
will, obviously, keep CEO pay in line. But it will also help small businesses
and start-ups by reducing their tax burden if only they narrow their wage
Now the maximum ratio is intended to replace the minimum wage. But we really don’t want people making $1.00 per hour, because they can’t live on that. So if a company can only afford to pay below what an employee needs to live on, the government will supplement employee pay according the HHS Poverty Guidelines. So if a given employee has a family of four, he needs to make $25,500.00 per year (in the 48 contiguous states and the District of Columbia) in order for his family to not be in poverty. So, under this plan, if the employee makes only $15,000.00 from his job, he will receive the difference in the form of a negative tax from the government (plus more, as I discuss below).
NIT and the MR work in conjunction here. We don’t want companies that can
afford to pay good wages cheating the system by paying low wages and having the
rest supplemented by the taxpayers. The MR controls for this, because a company
with a wide ratio will pay a higher tax than a company with a narrower one. A
business owner, therefore, will not be incentivized to compensate himself at
too greater a rate than what he pays his workers. What he pays his employees
will limit how much he can pay himself.
if a person is unemployed and has a family of four, the government will, under
this plan, be sending him the entire $26,500.00. And we don’t want a situation
where lower wage workers will have the same income whether they work or not. We
don’t want a single individual to be in poverty, but we do want there to be an
economic incentive to work in all cases.
poverty line according to the guidelines increases by an amount of $4,540.00
for each person in the household. A person who is working, under the plan,
would be treated as if he had one more person in his household than he actually
has. A full-time employee with a household of four, would be treated as if he
had a household of five. So our worker with a four person family would be
brought up to the level of $31,040.00 instead of $26,500.00. Part-time
employees would be so elevated according to their hours worked. So, for
example, an employee with a four person household working half-time would be
treated as if he had 4.5 people in his household, and have his amount brought
up to $28,770.00.
the NIT and the MR in this manner would ensure that no one was in poverty, that
work was incentivized, that start-ups and small businesses could hire more
people, and that unscrupulous employers would pay a tax to compensate for the
burden they inflict on the community.
And that is how the plan would work.