The Magazine

Subsidizing Rich and Poor

There are better ways to help workers than the minimum wage.

Dec 23, 2013, Vol. 19, No. 15 • By IKE BRANNON
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There is a vintage Corvette parked on the street nearby, a 1977 canary yellow model in perfect condition. The NADA Blue Book says it’s worth around $15,000.

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Higher wages, fewer earners

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The car is someone’s toy: I know that because it hasn’t been moved for an entire year. I’ve seen the owner visit it a couple of times to rev the engine and give it a sponge bath, but it’s been in the exact same spot since last Christmas.

The Corvette owner and I happen to live in a neighborhood in the middle of Washington, D.C., with a severe parking shortage, the result of a surfeit of nine-story buildings with nominal parking and close proximity to a spate of popular restaurants. The going price for reserved parking spaces in the area is $250 a month.

My neighbor with the Corvette doesn’t bother with a reserved spot in a garage because he’s got a great deal: For a mere $35 a year—the price of a residential permit—he can store his car on the street.

It turns out there are lots of people who are willing to put their cars on the street for $35 a year—way more people than there are spaces for them: By my count over half of the cars currently parked on my block have not been moved in more than two weeks.

As a result it can be almost impossible to find street parking at night or on weekends and fairly difficult at other times as well. On a Friday night about a third of all traffic in our area consists of people trolling the streets, looking for parking, a local politician informed me.

Why doesn’t the government charge more for street parking permits? After all, the D.C. government keeps telling us it needs more revenue and that the wealthy don’t pay their fair share: asking the guy with the Corvette and people like him for $2,000 a year to store their cars on streets owned by the government seems like a good way to extract money from the well-off.

Our city government doesn’t contemplate doing such a thing because there are poor people in the neighborhood who couldn’t afford to pay that much, our elected officials aver. The only flaw with that logic is that there aren’t a lot of poor people in our neighborhood—the going nonsubsidized rent for a one-bedroom in our area is $1,500 a month, and there are only a smattering of subsidized units in our zip code. We’re also well-served by bus and Metro, so I suspect most of those who are poor and live here don’t own a car: Lots of middle-class households get by without one, my own included.

As a result of a well-intentioned desire to help the poor, our government effectively helps my presumably wealthy neighbor—and lots more like him—to marginally benefit a few poor people who need cars to get to work.

When most of the beneficiaries of a policy are not the ones we want to help, perhaps the policy is counter-productive. We want to make it cheaper for poor people to park their car so we make it cheap for everyone to park their car, and we end up with an outcome that few people are happy with, save my neighbor with the vintage car.

The push to increase the minimum wage to help reduce income inequality is a similarly misplaced way to help the poor. While there are working parents making the legal minimum wage, the vast majority of those who work at a job that pays the minimum—almost 80 percent, according to a report by Ben Gitis of the American Action Forum—are not supporting a family with that money. For them, a minimum-wage job is their ticket to learning about the wicked world of holding a job, and represents a step to another, better job. 

But the higher the first rung is on that ladder, the more difficult it becomes to begin climbing it in the first place. Raising the minimum wage by two or three dollars is going to mean some teens are going to have trouble finding a job—never mind Jared Bernstein’s banal argument in the New York Times that if increasing the minimum wage did decrease jobs, then states would not be increasing their minimum wage.

Liberals push for a higher minimum wage in part because a targeted alternative to helping poor working parents—such as tweaking the Earned Income Tax Credit—would cost the government money. But a minimum wage costs the economy plenty, albeit in a less overt way, in the form of fewer jobs for unskilled, inexperienced young workers.

Opposing the minimum wage doesn’t mean an indifference to the plight of the working poor: It’s evidence of a recognition that government cannot simply legislate away this particular problem. If we want to help the working poor we need to help them become more productive and create more jobs and not pretend that merely mandating higher wages for all costlessly solves the problem.

Improving the plight of low-income workers who head a household is certainly a goal worthy of pursuing, but not if we create all kinds of collateral damage while fixing it.

Ike Brannon, a senior fellow with the George W. Bush Institute, is president of Capital Policy Analytics, a consulting firm in Washington.

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