‘Why Work?’

By Dec 9, 2010, 11:05 AM Author's Blog  

Tyler Cowen links to a “scary comparison” that claims that “a one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year.”

Kaiser Fung looks into this comparison in more detail. As Kaiser puts it:

If we concede that the middle-income person would end up with less disposable income than the lower-income person, then we’d expect that the middle-income people will take lower-paying jobs so as to increase their disposable income. But I have not seen reports of such reverse social mobility. Theory needs to fit reality. This hole in the theory needs to be covered.

This argument sounds convincing at first, but I’m not completely sure it’s right. I’d just like to expand on one of Kaiser’s other points, which is that people don’t usually have a choice between a minimum-wage job and a $60,000 job. Also, my impression is that higher-paying jobs are more pleasant than lower-paying jobs.

Let me put it another way. For any particular job, it’s typically less pleasant to work more, so if you can choose your hours, you have a choice between more money and more leisure. But most people can’t typically choose between a minimum-wage job and a $60,000 job. So the short answer to, Why don’t people quit their jobs and work at minimum wage?, is that their working conditions would be less pleasant.

Beyond this, as Kaiser points out, the analysis is completely rigged, as can be seen by this quote from the following paragraph of the link:

Now we finally know that the very bottom of the entitlement food chain also makes out like a bandit compared to that idiot American who actually works and pays their taxes.

The analysis did not actually report what happens at “the very bottom of the entitlement food chain”; rather, it reports a hypothetical calculation of what someone could do. Also, the head of household of “a one-parent family of three” does indeed work and does indeed pay taxes. Unless you think that taking care of two children is not “work” and that sales tax is not a “tax.”

As Kaiser puts it, checking the numbers means more than checking just the numbers. I agree with Cowen that it would be interesting to see a more exact calculation of implicit marginal tax rates.

In the meantime, I don’t think I’m going to sit around being offended that some single parent operating the fry machine at the local McDonald’s isn’t suffering enough.

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