[[{“value”:”No, the idea doesn’t make sense, in part because too much current wage income would, one way or another, end up reclassified as “tips.” But there is a deeper problem with the Democratic Party version of the idea. As you likely know, the Democrats, and to some extent the Republicans, favor hikes in the minimum
The post Tax-free tips appeared first on Marginal REVOLUTION.”}]]
No, the idea doesn’t make sense, in part because too much current wage income would, one way or another, end up reclassified as “tips.”
But there is a deeper problem with the Democratic Party version of the idea. As you likely know, the Democrats, and to some extent the Republicans, favor hikes in the minimum wage. They do not think that will induce much unemployment, so in other words, they think the demand for labor is relatively inelastic.
Whether you agree or not on the inelasticity point, let’s just run with that one for the moment.
If the demand for labor is inelastic, the value of a wage subsidy is captured primarily by the employer. The wage subsidy arrives, and the employer does not start trying to hire more labor as a consequence. After all, the demand for labor is inelastic. Since the demand for labor has not gone up, the net wage does not go up in the final equilibrium. The employer can just keep the subsidy, or if the subsidy is given to the worker, the employer can lower wages (or the quality of working conditions), leaving the previous net wage intact and the worker will not leave.
So if you think minimum wage hikes are a decent idea, you also ought to think that non-taxed tips will benefit the boss, not the workers.
And yet mood affiliation reigns instead.
#TheGreatForgetting
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Economics, Uncategorized
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