Forum Post: “Double the incentive to work without increasing employer expenses: The Young Debtor’s Enhanced Minimum Wage”

“Double the incentive to work without increasing employer expenses: The Young Debtor’s Enhanced Minimum Wage”

An oft-cited economic problem is that jobs for young people, when available, pay at or near the minimum wage, increasing the incentive to collect unemployment benefits rather than work. Another oft-cited problem is the rapid escalation in the cost of education, and the anticipated difficulty that many young people will have in repaying their accumulated debts (the average debt for 2009 graduates was about $24,000). My proposal* for a “Young Debtor’s Enhanced Minimum Wage” is intended to address these two issues specifically, and will substantially increase the incentive to work without increasing expenses to employers and thus reducing their incentive to hire.

Simply put: when young educated debtors are unable to find work paying at least $25/hour, the federal government will supplement the worker’s wages up to $25/hour – with all federal contributions being directly routed toward the repayment of educational debts. For the working debtor, this will free up some money for other expenses and economic activity, while also alleviating their long-term debt burden, ensuring that today’s youth can still think big and have a shot at pursuing the American dream.

As a matter of good social policy, I believe this proposal has a strong case. Many young people “invested in themselves”, taking out tens of thousands of dollars in loans to educate themselves, based on the premise that doing so would increase their value on the job market, and result in a net positive long term financial result. Unfortunately, this potential seems unlikely to be realized for many in the current climate. The students are not to blame – the federal government and society at large have a long and emphatic track record of encouraging higher education for all citizens, and to judge students as guilty of the “folly” of paying for higher education essentially means that we should never have trusted our parents, teachers, or other leaders in the first place. Had students known that their college degrees would potentially hold so little value after graduation, many undoubtedly would have “gone cheap” with their education or skipped it altogether – an outcome that is clearly not in line with this administration’s values, nor the values of America in general.

As a matter of long-term planning, this proposal’s merits are also substantial. By encouraging people to accept what work they can find and at least develop some new work skills instead of staying unemployed and angry, their long-term earning potential and thus the federal tax base will grow significantly. This benefit is multiplied when considering the country’s evolving demographics and federal entitlement programs; when John Boehner and the rest of today’s Congress reach retirement age, they will depend on today’s young people to be the workhorse pulling the economy and paying taxes. This end is far more likely to be achieved if these future workhorses spend their 20’s and 30’s working and learning new skills, rather than growing increasingly desperate under a mountain of debt and increasingly cynical under inactive, self-interested, and ostensibly corrupt government.

This proposal is not meant to solve all of the country’s problems, and without careful planning it could create thorny issues as a long-term program (e.g., even faster-rising tuition, incentives to take out even bigger loans). As a short-term program, however, it will not be a “handout” or a “reward for irresponsibility”. It will reward work and restore trust. It will demonstrate that the federal government, which had a large role in creating today’s economic problems, will not hang ambitious, educated, hard-working young people out to dry, expecting them to endure hardship today with their own debts and then also labor for the rest of their days to pay off the tremendous federal debt accumulated by their parents’ generation. It will demonstrate that Congress is still capable of doing something for the good of the people.

*This proposal was inspired by Occupy Wall Street protesters, and by lessons learned in the University of Maryland’s Sustainable Development graduate program, particularly from economist Herman Daly. Thanks to STT for insisting I translate my ideological sympathies into a tangible proposal.