Reihan Salam on Low-Wage Employers

He writes,

McDonald’s and other low-wage employers…are taking on a task that many American families and schools are failing to perform. To put it bluntly, McDonald’s is a company that hires large numbers of people with limited skills, many of whom are teenagers and young adults, and it introduces them to the ways of the workplace.

…Perhaps the employers who makes a risky bet on a raw employee, and who take the time and effort to train her, should be entitled to a small portion of her lifetime earnings as she moves on to more lucrative employment. That would create a powerful incentive for employers to devote real resources to building the skills of their workers.

At this point, the working title for my economic priorities project is “Setting National Economic Priorities.” “Setting National Priorities” makes a grandiose idea seem even grandioser. “Setting economic priorities,” which is another alternative, might not refer to economic policy at all.

I am currently most comfortable with the following three priority areas:

1. Improving labor supply and demand incentives for low-wage workers. Improving labor supply means making sure that the structure of means-tested benefits does not create high implicit marginal tax rates for low-wage workers. Improving labor demand means lowering the cost to employers of hiring low-wage workers, particularly health insurance mandates and payroll taxes. I think it also means removing barriers to entry in the education and health care industries. I think it also means reducing the economic friction caused by occupational licensing.

2. Reconfiguring for the 21st century the regulatory missions and mechanisms for dealing with industries that have undergone significant technological change. This includes telecommunications, medicine, the electric grid, and eventually probably should include air traffic and motor vehicles (because of drones and self-driving cars).

3. Reducing the risk of a fiscal train wreck. I suspect that bringing this risk down to what I would consider a reasonable level requires taking steps on Social Security and Medicare that are more radical than what is politically feasible. I would aim for more modest goals, such as indexing the eligibility age for both programs to longevity (hardly a modest goal from a political standpoint!) and developing budget reporting mechanisms (accrual accounting? stress testing?) that provide important information not currently used in the budget process.

Anyway, Reihan’s column fits in with (1).

12 thoughts on “Reihan Salam on Low-Wage Employers

  1. The largest employer of SS# 000-00-0000 workers is in Illinois. McDonalds isn’t training large numbers of low-wage workers, it is training a large number of low-wage foreign workers.

  2. There was an industry run exactly along these lines …

    “Perhaps the [record company] who makes a risky bet on a raw [artist], and who take the time and effort to train her, should be entitled to a small portion of her lifetime earnings as she moves on to more lucrative employment. That would create a powerful incentive for [record companies] to devote real resources to building the skills of their [artists].”

    How’d that work out?

      • The medieval apprentice + indenture system arose in a society that had very little ability to generate human capital. Today we’re putting 20% or more of our output into institutions designed to build human capital but we need an apprentice + indenture system slightly retooled for the market economy?

        We’d rather create a new class of less than free persons than reform our institutions? I’m a big fan of Reihan, but making poor people less free so public institutions don’t have to reform just can’t be the answer.

        • Uh, did I miss something? I took the quoted policy recommendation as a reductio ad absurdum with regard to all the overly centralized people imagine the less employable should be educated, trained, or interned at the expense of the taxpayer.

          I haven’t RTFA — and won’t right now to preserve my priors — but I expect the tone is, “Why doesn’t the state just let this extremely valuable service of giving people their first true job skills happen of its own accord and stop hassling companies that pay low wages.”

          • Okay, I just RTFA. It wasn’t a reductio, but it was a future speculative notion.

            I’m with andrew’. If an employee untrained is worth $5 an hour and trained is worth $10 an hour, and if training costs the company $2 an hour, then the company should be able to pay $3 an hour, rising toward $10 over a couple months as the effect of the training kicks in. A $10 minimum wage makes all of this impossible.

            What the market will bear. Such a radical concept.

  3. What befuddles me most is the lack of curiosity from some why it takes these franchises to reach the lower rungs of the ladder.

  4. “Perhaps the employers who makes a risky bet on a raw employee, and who take the time and effort to train her, should be entitled to a small portion of her lifetime earnings as she moves on to more lucrative employment.”

    The only way I anyone “should be entitled” to that “small portion of her lifetime earnings” is if the employee agrees to that contract. I’m very uncomfortable with allowing 16 year olds signing lifetime contracts.

    If this were required, I would expect a giant increase in the number of unpaid internships. The discounted value of a tiny portion of my lifetime earnings would likely swamp the small amount paid by that employer.

    • What if it worked the other way. Companies start saying, “we don’t hire anybody who doesn’t have some on-the-job acquired, real-world-relevant human-capital. In our line of work, we’re no longer willing to take high-attrition risks on probationary initial-entry employees. We want more vetting in our pipeline.”

      A credential that signals, “I’m already vetted the way you want” is going to be worth a lot of money to a lot of young people. Without being able to sell off lifetime-earnings equity, there are only a few ways for them to pay that price. One is to hand over a huge sum of money to a selective university. Another is to pay their vetters all their wages – the unpaid internship.

      Another is to take a low-paid or unpaid detour into a kind of job that is typically broken up into chunks of a few years, and where a competitive individual has a good chance of getting an initial-entry job, but which is still high-status enough to signal general emotional resiliency, independence, teamwork, coping skills, flexibility, adaptiveness and discipline and thus warrant respect. So, like the military or peace corps.

      If the progressives were serious about both inequality and education reform, they’d figure out a way to provide high quality vetting credentials for free, channeling people into the best vetted signal that their individual talents are likely to help them achieve. Maybe you could have ‘Vetting Inc.’, and the government gives every kid a voucher to pay for it. But of course, this is one of the states aims and purposes of public education itself – to help put young people onto the pipeline to success in the adult world of work. Apparently there’s some problem in the system.

      • An employment bond of sorts where you somehow guarantee your clams on your resume.

        It would need SOME aspects of aca (how bout that!) Whereby employers couldn’t do rescission against individuals…except now it is starting to sound like a trade union.

Comments are closed.