Raise the minimum wage or subsidize wages?

A blog posted by Larry Harris on February 21, 2014 in the LA Times is intended for unemployed people and low-income workers. The author Larry Harris holds the Fred V. Keenan Chair in Finance at the USC Marshall School of Business. He was chief economist of the SEC from 2002 to 2004. The blog is about an alternative plan to President Obama's proposal on Congress raising the minimum wage. The argument the author is trying to make is instead of raising the minimum wage, we could institute wage subsidies.

The author claims, "raising the minimum wage is the equivalent of taxing employers for the work done by their employees and giving the proceeds to the workers. And that works against employment, not in favor of it." I agree with him because employers will offer less labor when wages are high and they'll offer more employment when labor is less costly to them. The authors evidence is a report by the Congressional Budget Office. The analysts in the report predict that the proposed increase in the minimum wage to $10.10 an hour would cost the economy 500,000 jobs. No one actually will know how much people will lose their jobs or not, but in my opinion I believe that unemployment will be higher than it is now. I assume this because I believe that most of the employers are going to employ the least possible amount of workers to save as much money as they can.

The author then proposes to do away with minimum wages altogether and institute wage subsidies. He suggests that the government should provide vouchers to unemployed workers looking for low income jobs and the vouchers would provide wage subsidies to employers who hire them. I agree with the author here because the subsidies would lower labor costs, thereby increasing the number of jobs employers offer. He then claims more jobs would reduce welfare grants and increase payroll taxes, which could help fund the subsidies. In my opinion, I agree with his idea on wage subsidies. The only problem would be getting the money to start up the wage subsidy plan. They could increase taxes, but I don't think many people would approve of that.

The earned income tax credit is somewhat a form of the wage subsidy plan. The only problem with the earned income tax credit is that it doesn't help people who are unemployed. The wage subsidy plan would be better because it would immediately lower the cost of employing workers, so the number of jobs increases. Overall, I agree with the author when he states, "Subsidizing wages would be much better for the economy than raising the minimum wage."