Communities shouldn’t reward businesses that pay inadequate wage

Job quality, especially with respect to wages and benefits, will be a central part of the next national election. With job creation strong but wage growth lagging, we should expect tough questions about a variety of labor market policies.

This will be especially true in the few states that have experienced mostly low-wage job growth in recent years. With Indiana growing low wage jobs at a disproportionate rate, we should think through what “good” jobs might look like in a modern economy, and what role government could take in promoting them.

I’m a free market economist, so I think the best definition of a good job is one that a firm will offer and an employee will take. But, there are two sides to that definition. Labor markets match workers and employers, who both have a say in job quality. Workers need to obtain more education and skills when they cannot find the jobs they desire. Likewise, businesses need to offer better pay or benefits when they cannot find the workers they want. Workers and businesses are equal parties in labor markets, and government should treat them as equals.

Mostly, workers and businesses make labor markets work well, but there is a role for government. The state has an interest in making workers better educated, more productive and earn a higher wage. The reason for this has absolutely nothing to do with favoring some particular employer, or making sure a particular industry has enough workers. Rather, it is because the state spends a great deal subsidizing low-wage work in an effort to limit the effects of poverty. The numbers should prove shocking to many readers and employers.

For a family of four, with only one person working, it takes $24.50 per hour to lift the family from the rolls of public assistance. At $12.25 or lower, that family is eligible for almost every state and federal benefit, as it falls beneath the poverty line. Fortunately, this is a low wage, and summer lifeguards can often command $15 an hour in Indiana. Still, we should be very watchful about wages, and think long and hard about the wisdom of training young people for occupations that cannot support them or their families. Here’s why.

That family of four earning $24.50 or less per hour is costly to the public purse. Their kids will receive a subsidized meal or two each day at school. The family might be eligible for Medicaid, which will cost $18,000 or more per year. They are unlikely to receive food supplements unless someone is pregnant. This family won’t pay any income taxes and will receive some Earned Income Tax Credit. Their kids will have free college through both federal and state grant and scholarship programs.

The closer that family’s earnings slip to $12.25 per hour, the more generous the benefits. Taxpayers will pay most of their rent, all their medical care, all their school lunch costs, a large Earned Income Tax Credit, and literally dozens of other programs. Now, I’m open to a broad debate over the size and incentive effects of these benefit programs, but apparently Congress is not. This is what we now have, for better or worse. This realization should inform our state and local policy towards jobs and job training. Sadly, we seem never to think through this in an adult way.

We need all kinds of jobs, but it is bad policy to incentivize a business that that pays on average less than $24.50 per hour. We already subsidize these jobs through direct payments to workers. In fact, most jobs we incentivize at the state and local level are well below this level.

We should be even more careful about promoting job training in careers that pay less than $24.50 an hour. In fact, we should dissuade young people from entering any career that won’t pay well enough to lift their family from the rolls of public assistance. It continues to shock me that this simple idea is the opposite of today’s message to Hoosier schoolchildren. Fewer than a quarter of the “Hot Jobs” without a high school diploma or less pay more than $24.50 an hour.

Moreover, even this list is suspect since it includes such careers as “Air Traffic Controller” that Indiana says needs nothing better than a high school diploma. The U.S. Department of Labor tells a very different story.

Perhaps the most important role of government is in ensuring that all students master the more fundamental and enduring skills of middle school mathematics and literacy. Over the coming two or three decades, no occupation will be left unchanged by technology. Workers who lack the fundamental skills of literacy and mathematics will be unable to adapt. Yet, stunningly, Indiana is shifting funds out of K-12 schooling and into job training.

Finally, we need to send a clear and consistent message to young workers. You should seek substantial education and training beyond high school if you wish to raise a family in Indiana. If you don’t, you should expect financial challenges throughout your life. Consider moving elsewhere.

We must also send a clear message to employers. If you pay adults less than $24.50, do not ask for more incentives or complain about a skills gap or worker shortage. Your business plan already depends upon generous subsidies from Indiana taxpayers. If you cannot make it without more subsidies, move elsewhere.

If Indiana really aspires to be a place of growing prosperity, we need to be much more aspirational with our children’s education and ask more of the businesses that employ them.

Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to [email protected].