Where does America rank in terms of top rate?

Taxes are fiendishly complex, so this post might have some errors.  I’m trying to see where America ranks in terms of “top income tax rate.”  Just to be clear, I am not including wage taxes, or corporate income taxes.  Nor am I interested in the maximum MTR associated with benefit and deduction phaseouts.  You’d have to be a rocket scientist to figure all of those out.  I’d like to rank countries according to the MTR as one’s income goes out towards infinity.  I believe the top 6 countries are:

1.  Aruba  58.95%

2.  Sweden  56.6%

3.  Denmark  56.4 55.6%

4.  Netherlands  52%

5.  Spain  52%

6.  US  51.4%  (but only in California.)

[Sources here and here]

Our top rate in a typical state is about 48%, which is roughly 10th in the world.  The top federal income tax rate is 43.4% (39.6% plus the 3.8% medical income tax.)  I got the California number by assuming their 13.3% top rate was deductible against the 39.6% federal rate, but not the 3.8%.

Update:  Mark Sadowski points out that California also trails Belgium and Portugal.

Update#2:  Steve points out that with the Pease phaseout California’s top rate is actually 52.6%, still number 6, but trailing Portugal and Belgium, not Netherlands and Spain.

Canada seems to have a top rate of 54.75% in Quebec, but only about 45% in a typical province, and about 42% in populous Ontario.  Their top federal rate is 29%.  (I assumed local taxes are not deductible at the Federal level, otherwise their rates would be lower.)  Progressives want Canada’s health care regime.  I want their banking system, military, and income tax regime.  And their sound public finances.  Oil-rich conservative Alberta’s top rate is 39%, versus 43.4% in oil-rich conservative Texas.

Recently a lot of zombie ideas have been resurrected by progressives (and even some conservatives.)  These include 75% tax rates, much higher minimum wages, and guaranteed annual incomes.  I realize that lots of people are worried about inequality.  But there are sensible ways to address the issue (i.e. wage subsidies.) Let’s not shoot ourselves in the foot.  There’s a reason that Aruba is the only country in the world with a top rate above 57%.

PS.  The New York Times did a story on the Swiss referendum on a proposal that would pay every Swiss couple $67,ooo/year to do . . . nothing at all.  Just for existing.  They left the impression that it was a good idea. How did they accomplish that seemingly miraculous task?  Simple, they “forget” to mention the size of the guaranteed annual income.

PPS.  I have a better idea for the Swiss.  Instead of giving $33,500 to each Swiss adult, at a total cost of $200,000,000,000, why not give $50/year to each human adult?

Regarding the minimum wage, here is some data for Western Europe:

There are nine countries with a minimum wage (Belgium, Netherlands, Britain, Ireland, France, Spain, Portugal, Greece, Luxembourg).  Their unemployment rates range from 5.9% in Luxembourg to 27.6% in Greece.  The median country is France with 11.1% unemployment.

There are nine countries with no minimum wage (Iceland, Norway, Sweden, Finland, Denmark, Austria, Germany, Italy, Switzerland.)  Five of the nine have a lower unemployment rate than Luxembourg, the best of the other group.  The median country is Iceland, with a 5.5% unemployment rate. The biggest country in Europe is Germany.  No minimum wage and 5.2% unemployment.

Still want to raise our minimum wage to $10?  Germany used to have really high unemployment.  Then they did labor reforms to allow more low wage jobs, combined with subsidies for low wage workers.  Now they don’t have high unemployment.

Still want to raise our minimum wage to $10?


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52 Responses to “Where does America rank in terms of top rate?”

  1. Gravatar of Jonathan Jonathan
    17. November 2013 at 09:27

    Top tax rate in Israel will be 52% from 1st January 2014

  2. Gravatar of Mark A. Sadowski Mark A. Sadowski
    17. November 2013 at 09:50

    Scott,
    Far be it from me to quarrel with such sterling sources of data as CNBC and The Telegraph, but in my opinion there’s an error and a couple of omissions on your list.

    According to the European Commission, the top personal income tax rate in Denmark is actually 55.6% this year. Furthermore, according to the same source, Belgium’s top rate is 53.7% and Portugal’s is 53.0%. See table 2 on Page 35:

    http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_structures/2013/report.pdf

  3. Gravatar of Dustin Dustin
    17. November 2013 at 09:59

    Those minimum wage vs unemployment rate figures are very interesting! Wonder if the same info is reflected in trends through recent history.

  4. Gravatar of Saturos Saturos
    17. November 2013 at 10:32

    Guess which Nobel Prize winner just said the following:
    “Historically, there is no reason to fear deflation.”

    http://www.zerohedge.com/news/2013-11-16/nobel-winner-dares-go-there-no-reason-fear-deflation-greece-may-benefit-gold-standar

  5. Gravatar of Ironman Ironman
    17. November 2013 at 10:39

    The U.S. has a slightly higher top marginal tax rate (51.8% for California, followed by 50.2% in New York). The Tax Foundation recently featured a map showing where each state falls – the data for sole proprietors is the same as for the highest income earning individuals or households.

  6. Gravatar of Tom M. Tom M.
    17. November 2013 at 10:48

    No, I don’t want a 10/hr minimum wage. I want a 15/hr minimum wage and I think Seattle will be the first to do it:

    You’re day is coming, plutocrats:

    http://abcnews.go.com/Politics/wireStory/seattle-elects-socialist-city-council-20907644

  7. Gravatar of Tom M. Tom M.
    17. November 2013 at 10:51

    lol…your day.

  8. Gravatar of Tom M. Tom M.
    17. November 2013 at 10:58

    By the way, this is an awesome paper busting the jobs trade-off myth

    http://www.irle.berkeley.edu/workingpapers/157-07.pdf

  9. Gravatar of ssumner ssumner
    17. November 2013 at 11:30

    Everyone, Thanks for that information.

    Tom, It doesn’t seem like you actually read that paper.

  10. Gravatar of RJ RJ
    17. November 2013 at 11:36

    42% looks low for Ontario. See: http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2013-Personal-Tax and some details http://www.ey.com/Publication/vwLUAssets/Tax_Rate_Card_-_2013_Ontario/$FILE/Tax-Rates-Ontario-2013.pdf

  11. Gravatar of Vivian Darkbloom Vivian Darkbloom
    17. November 2013 at 11:55

    I think New York City would top California’s rate if you are a sole proprietor:

    “In 2011, Cuomo raised rates on the wealthiest residents to 8.82% “” temporarily through 2014 “” while cutting taxes on married couples earning less than $300,000 a year. New York City and state’s combined top tax rate is currently 12.70%; factoring in the 4% UBT on business puts the rate at 16.70%. Mayoral front-runner Bill de Blasio proposes raising the NYC top rate from 3.876% to 4.41%.”

    http://www.forbes.com/sites/greatspeculations/2013/09/17/not-easy-for-new-yorkers-to-escape-the-big-apples-tax-bite/

  12. Gravatar of Mattias Mattias
    17. November 2013 at 12:00

    For Sweden 56,6 is an average top rate. The state tax has a top rate of 25% and the rest is the local tax rate which varies between 28,89-34,52% depending on where you live. So the top MTR in Sweden is actually close to 60%. Most high earners though live in parts of the country (like Stockholm) where the top MTR is around 55%.

  13. Gravatar of Mark A. Sadowski Mark A. Sadowski
    17. November 2013 at 12:04

    Scott,
    Off Topic.

    Your most recent Free Exchange article evidently got the attention of L. Randall Wray:

    http://neweconomicperspectives.org/2013/11/circular-logic-behind-scott-sumners-claim-feds-policy-contractionary.html

    http://mikenormaneconomics.blogspot.com/2013/11/l-randall-wray-circular-logic-behind.html

    By my count this is the 100th time that Free Exchange has either published one of your articles, discussed you in an article, or linked to your blog (the fact that The Economist maintains a separate “Scott Sumner” Topic Index category makes this accounting relatively easy), and yet until two weeks ago L. Randall Wray maintains he never heard of you. (Incidentally I’m reasonably certain The Economist has never heard of L. Randall Wray.)

    Do you think he only recently started reading The Economist?

  14. Gravatar of ssumner ssumner
    17. November 2013 at 12:33

    RJ, Interesting. Mine was from an official Canadian government web site.

    Thanks Vivian and Mattias.

    Mark, Isn’t Wray a MMTer? He probably travels in very different circles from me.

  15. Gravatar of benjamin cole benjamin cole
    17. November 2013 at 12:59

    I wouldn’t mind high top rates if applied to consumption, not income…
    That said, the USA economy boomed through the1960s, top MTR 90 percent…
    Even 1976-79, four year period, USA economy grew by 20 percent real terms…70 percent MTRs…
    High MTRs did not prevent robust economic growth in the past…but then we did not have a central bank targeting 1 percent inflation…

  16. Gravatar of Steve Steve
    17. November 2013 at 13:10

    “6. US 51.4% (but only in California.)…I got the California number by assuming their 13.3% top rate was deductible against the 39.6% federal rate, but not the 3.8%.”

    This is incorrect. If you are going to assume the CA tax is deductible, then the federal tax is subject to the Pease phaseout, which adds another 1.2% to the MTR, bringing the top MTR to 52.6%.

    Additionally, they may be subject to the PEP phaseout which could add another point or more over a certain income range, although asymptotically the 52.6% would be correct.

  17. Gravatar of Mads Llindstrøm Mads Llindstrøm
    17. November 2013 at 13:15

    Writing that Denmark do not have a minimum wage is technically correct, but it is not the hole truth. First, most Danish jobs have a minimum wage negotiated between employee and employer unions. Second, high Danish unemployment insurance creates for an effective minimum wage, though not a legal one.

    On the topic of Denmark, it is not just the high marginal tax rate which is problematic, it is also the 25% VAT. It seems to me, that VAT in the long run is just another kind of income tax.

  18. Gravatar of Steve Steve
    17. November 2013 at 13:18

    “But there are sensible ways to address the issue (i.e. wage subsidies.)”

    Most liberals oppose wage subsidies because they view them as “McDonald’s corporate profit subsidies”.

  19. Gravatar of Geoff Geoff
    17. November 2013 at 13:57

    Wages were more flexible under the (pseudo) gold standard.

    Still want to impose central banking?

  20. Gravatar of ssumner ssumner
    17. November 2013 at 14:43

    Ben, You said;

    “I wouldn’t mind high top rates if applied to consumption, not income…”

    I agree.

    Thanks Steve, I did an update. Regarding liberals, do they also oppose Medicare and Medicaid because these programs subsidize wealthy doctors and hospitals.

    Mads, Thanks for the info.

  21. Gravatar of Bill Ellis Bill Ellis
    17. November 2013 at 15:44

    How do you pay for real wage subsidies without raising taxes?

  22. Gravatar of Bill Ellis Bill Ellis
    17. November 2013 at 16:04

    Steve says…”Most liberals oppose wage subsidies because they view them as “McDonald’s corporate profit subsidies”.

    I agree that many liberals don’t like the Idea of subsiding labor costs for firms. Who does?

    But I would say that many of us liberals are realizing that we are already doing just that. Food Stamps, Medicaid, etc allow companies to pay low wages. So I think that we will see more acceptance for subsidized labor…as long as wages for the bulk of Americans remain stagnant.

    Really anyway we do it, from direct subsidies to firms allocated to labor– to direct payments to everyone as a minimum income– it ends up subsidizing labor for the firms. They are in fact “McDonald’s corporate profit subsidies”

  23. Gravatar of Bill Ellis Bill Ellis
    17. November 2013 at 16:25

    Here is a thought…Why not take subsidizing labor to it’s ultimate form ? What if we severed the traditional connection between labor and Firms ?

    The firms would get all their labor from a pool of workers paid by the government– The workers would get wages based on a scale depending on how much demand the firms have for them– the more in demand the higher the government wage would be bid up.

    The “Free” labor for the firms would not really be free of course, because all the taxes to pay for the labor would have to come from the firms.

    Just an idea.

  24. Gravatar of JP Koning JP Koning
    17. November 2013 at 16:42

    “I want their banking system, military, and income tax regime.”

    While your at it, why don’t you take our mayor too. We don’t want him anymore.

  25. Gravatar of Alexei Sadeski Alexei Sadeski
    17. November 2013 at 17:32

    @benjamin cole – Effective rates were lower in ’60s due to myriad loopholes.

  26. Gravatar of ssumner ssumner
    17. November 2013 at 18:02

    Bill, You asked:

    “How do you pay for real wage subsidies without raising taxes?”

    The money we save from no longer paying people not to work, can be spent on paying them to work.

    JP. I wish they’d leave the guy alone. The past three US presidents were all dope smokers. The press acts like he’s a bank robber or something.

  27. Gravatar of Bill Ellis Bill Ellis
    17. November 2013 at 18:47

    Scott says… I realize that lots of people are worried about inequality. But there are sensible ways to address the issue (i.e. wage subsidies.)

    How does paying people the same amount to work as we pay them not to work address inequity ?

  28. Gravatar of benjamin cole benjamin cole
    17. November 2013 at 19:23

    Alexei–
    Maybe so. But the tax code is so complex, are you sure? Romney reported paying 13 percent of income in taxes…
    At any rate, Sumner is (understandably comparing the legal MTR across nations without regard to loopholes…Aruba’s “real” tax rate might be much lower..or higher I suppose…
    For better or worse I do think the lower MTRs of today have created huge pools of capital and a billionaire class absent in the 1960s…but the economy is not doing better…I think it goes back to the central bank…

  29. Gravatar of benjamin cole benjamin cole
    17. November 2013 at 19:25

    Alexei–
    Maybe so. But the tax code is so complex, are you sure? Romney reported paying 13 percent of income in taxes…must be some loopholes today…
    At any rate, Sumner is (understandably) comparing the legal MTR across nations without regard to loopholes…Aruba’s “real” tax rate might be much lower..or higher I suppose…
    For better or worse I do think the lower MTRs of today have created huge pools of capital and a billionaire class absent in the 1960s…but the economy is not doing better…I think it goes back to the central bank…

  30. Gravatar of Alexei Sadeski Alexei Sadeski
    17. November 2013 at 22:14

    @benjamin cole –

    Romney’s infamous “12%” was before state taxes, before medical tax, before tax hike. Much of his income isn’t taxed right now because it comes from tax shelters – it’ll be taxed when repatriated. Some of it wasn’t taxed because it was donated to charity. Some of it is taxed at the lower cap gains rate (thus isn’t income in the traditional sense).

    US tax enforcement is generally far far far far far far stricter with fewer loopholes than other nations. In early 80s when tax code was changed, loopholes were closed in exchange for lowering rates. Now people want to raise rates to previous levels without bringing back the loopholes. Ha.

  31. Gravatar of J.V. Dubois J.V. Dubois
    18. November 2013 at 00:40

    While I find your blog very interesting I find your coverage of Minumum Wages very Krugmanesque. Random strikes with broad brush supposedly revealing shocking “facts”. Comparing countries with minimum wage and their rate of unemoloyment? Come on, it really comes to this?

    For instance just for starters – many of your non-minumum wage cuntries have something much more insidious. Like forcefully applying industry-wide collective bargains! This is the story of Austria for instance. So yes, they do not have one minimum wage – but they effectively have hundreds of tailored minimum wages! These wages are anualy bargained for between captains of industry and powerful labor unions. And now some real facts.

    1) Collective bargains cover 95% of Austria workforce
    2) Virtually no collective wage contract pays less then EUR 1000

    So now please tell me, how is this different from an actual minimum wage policy of EUR 1000 as you have in France. It is worse! Because there are industries where this minimum wage is much higher! Oh and another little detail – Austria has below 5% unemployment for several decades (and it was below 4% for larger part of this time). This system is used in most northern countries (Sweden, Finland etc.) even though Austria is probably an example where labor unions have most power.

    And there is also a flip side to countries with legal minumum wages. Let us take Slovakia as an example. It is a country with minimum wage, but:

    1) With only 33% it has the lowest ammount of workers who’s wages are set by collective bargaining – and this is calculated even localy, we did not even start to speak about industry level bargaining such as in Austria.

    2) Out of 2 million employed people there are almost 400,000 people working as self-employed where it is technically impossible to impose any kind of minimum wage. Additionally it is a long practice in Slovakia to use a special contracts aimed for students and part-timers for regular employees. There are almost 400,000 such contracts in Slovakia. And no, minimum wage is not the primary reason why this kind of “inovation” is rampant in Slovakia – high payroll taxes combined with highly advantageous taxation of some forms of income (20% flat tax) is the main culprit.

    Nevertheless minimum wage while still technically a law is almost never any problem. As far as I know virtually the same is valid for Greece, Portugal and Spain.

  32. Gravatar of libertaer libertaer
    18. November 2013 at 05:10

    There will be a minimum wage in Germany. The future Grand Coalition is already negotiating it, only the precise amount is still under discussion, the social democrats want 8,5 euro (around 11$).

    Scott said: ” I realize that lots of people are worried about inequality. But there are sensible ways to address the issue (i.e. wage subsidies.)”

    I’m against wage subsidies. It sets a bad incentive for low productivity work. Why educate yourself if you can have the same lifestyle by doing a “Mac Job”?

    Isn’t the whole inequality topic really about rent seeking? “Bad” inequality is almost entirely based on rents. Since economic rents, if you can’t abolish them straightaway, can -by definition- be taxed at 100% without incentive effects, the solution is easy.

    If you make a list of rent seeking activity, you get: tight money (which can be construed as a kind of rent seeking), closed borders, land value (natural resources in general), intellectual property, occupational licensing, excessive government spending (on military, education, healthcare…) genetic endowment (IQ, motivation, health, attractiveness…,) and plain luck. The first 6 points can be solved through good policy (abolishing artificial monopolies and taxing away returns on natural monopolies), the last one by insurance companies, only “genetic endowment” is a tough problem, almost impossible to tax and can’t be abolished until genetic engineering makes some progress…

    Now, imagine all inequalities -caused by the items on the list- are gone, the only inequality left will be “good” inequality: different outcomes caused by different choices based on different values. Some people don’t value consumption goods as much as others, this is a cultural issue: a devout Christian, a Buddhist monk, hippies, the surfer dude, crazy artists… Hey, it’s a free country! You don’t have to keep up with the Joneses.

    So let’s abolish rent seeking but don’t subsidize the surfer dude.

  33. Gravatar of LK Beland LK Beland
    18. November 2013 at 07:09

    Concerning Quebec, the top federal income tax rate is lower than in other provinces (because of negotiated transfer of responsibilities in the 1940s). The top combined federal/provincial MTR is 49.97%.

    http://www.taxtips.ca/taxrates/qc.htm

  34. Gravatar of ssumner ssumner
    18. November 2013 at 07:55

    Bill, Because their total income will be higher with wages plus subsidy, than subsidy alone.

    JV, Slovakia was not in my sample.

    I agree that cross-sectional results are tricky, which is why I put a lot of weight on the German case. They actually shifted to a policy of encouraging low wage jobs, and their unemployment rate fell sharply, against a backdrop of sharply rising unemployment rates in most other developed countries.

    Libertaer, I fear you are right. A few months back I said that Merkel made a big mistake in giving the cold shoulder to the FDP in the election, and now she is paying the price. Or perhaps she actually (secretly) favors a minimum wage.

    You said;

    “I’m against wage subsidies. It sets a bad incentive for low productivity work. Why educate yourself if you can have the same lifestyle by doing a “Mac Job”?

    Isn’t the whole inequality topic really about rent seeking? “Bad” inequality is almost entirely based on rents. Since economic rents, if you can’t abolish them straightaway, can -by definition- be taxed at 100% without incentive effects, the solution is easy.”

    You could not have the same lifestyle working at McDonalds, I don’t know where you got that idea. And your definition of “easy” is obviously different from mine.

    Thanks LK.

  35. Gravatar of genauer genauer
    18. November 2013 at 08:36

    MTR in Germany is 45% * (1+ 5.5% solidarity surcharge) or

    45% * ( 1+ 5.5 + 8%) if you belong to organized religion.

    Even the FDP came around to some sort of minimum wages.

    One more thing complicating the minimum wage discussion in Germany is the impact of eastern european “Werksverträge” which then pay only eastern european wages for work in Germany, replacing the local work opportunities

  36. Gravatar of genauer genauer
    18. November 2013 at 09:04

    I would like to emphazise this in general, that many changes in the social system in Germany in the last 40 years, were not so much the result of some general, stand-alone principled thinking, but necessary reactions to special circumstances.

    – The turkish immigration into our welfare system (“Familienzusammenführung”) in the 1980ties
    – Reunification, and the subsequent breakdown of most of eastern German industry in the 1990ties
    – Full freedom of movement for ever more eastern european countries, for whom it now becomes clear, that they will not have similar wages any time soon, after 2000

    The Hartz IV social minimum system, without minimum wages, a.k.a. wage subsidies by some, might be the better solution, if thought about in isolation.

    With government supported export of social problems of EE into our social system, other ways might be the more social and cost controlling solution.

  37. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    18. November 2013 at 09:19

    Luxembourg is a funny example bc most unemployment in Luxembourg happens to non-residents.

    Many workers in Luxembourg [and certainly a majority of those who work close to min wage] will live in lower-cost countries and commute.

    (Many Luxembourgian statistics need to be taken in this context, btw; like the fact that we’re supposed to be the biggest consumers of alcohol in Europe actually just reflects the fact that everybody else is crossing the border to get low-tax liquor).

  38. Gravatar of Bill Ellis Bill Ellis
    18. November 2013 at 09:39

    Scott says… “Because their total income will be higher with wages plus subsidy, than subsidy alone.”

    I don’t see how this works without creating more jobs in the first place. Does subsidizing labor create more demand for jobs somehow ? (Keynesian multipliers? )
    Seems like you are into Morgan’s plan territory…and you have stated that you don’t think that will work here in the US.

  39. Gravatar of JohnB JohnB
    18. November 2013 at 09:40

    The guy who proposed the high basic income in Switzerland said “Think of it for yourself and not other people.” Presumably this is his counter to the idea that people would become lazy. Well, ok, here goes. Damn near every cent I’ve made would go to the government and be put into a kind of common pool and redistributed equally. There would be no incentive for me to contribute anything to this common pool since I’m guaranteed virtually the same amount (most of my income would be taxed off) NO MATTER WHAT I DO. It wouldn’t matter if I found the cure for cancer or sat on the couch watching Jerry Springer. Well there would be things I would like to do, there is no guarantee that I would do anything of benefit to other people. I’m not about to work 70 hours a week out of pure altruism. People that say otherwise are lying their butts of 99% of the time.

  40. Gravatar of J.V. Dubois J.V. Dubois
    18. November 2013 at 09:42

    Scott: I used Slovakia because I know the facts more intimately. But I know from some talks with other people that very much the same is valid for southern countries. I do not say that you are “wrong” – you as well might be, but it seems that you are not getting there correctly.

    I for instance like what you say about inequality. Data is not complete, analysis is naive and therefore we cannot get any meaningful policy response. And you convinced at least me! But then I see post like this and I start to wonder if you apply the same level of critique when presented with “evidence” that supports your priors. And I am sorry to say it but I just don’t see it. You may have some commenters with likely strong priors comming here and jumping on the bandwagon giving you praise, but please do not be swayed by it.

    Minimum wage seems to be complicated, maybe even more than inequality. The same goes with german labor reforms. There were multiple things being done besides reducing “UI benefits”. There are many studies out there pointing stuff like:

    1. The labor reforms were enacted very shortly after germany adopted Euro. Almost immediately german real GDP jumped from 1% to 2%. Maybe – just maybe – could it have anything with a fact that Germany experienced an era of rapid disinflation from 5% in 1992 to 0.5% in 1999 which then turned around?

    2. German labor reform is not only about Hartz IV. There were three steps before. So while Hartz IV was sucesfull in changing long-term unemployment germany also experienced a an improvement in short-term unemployment. Could it be because they made part-time contracts more flexible, that they reduced marginal tax rates of low-wage workers, that they improved job-search assistance (with subcontracting private agencies etc.)

    There is so more details that I don’t even want to go there. But just to mention – so called “UI benefits” in Germany was something completely different to that what is in USA. Prior the reforms they were set to be available to beneficiaries without any time limit and they were set to be close to 50% of premium income. As a result some low-wage workers could earn much as 85% of their previous income just on UI benefits. That is some pretty steep marginal tax rate – dont you think?

    It is a complex topic but all I can say is that slogan like “Germans lesson is to cancel minimum wage and UI benefits” is by NOT an honest result of the discussion. Slogan like “cut marginal tax rates for low income workers even those on social benefits” may be closer to the truth, but maybe it will not drive as many readers to the article as the original title.

  41. Gravatar of JohnB JohnB
    18. November 2013 at 09:43

    The fact that you have to go out and produce things that are valuable to other people in order to put food on the table is the basic engine of the world. If you get rid of that, not only do you get rid of progress, you start destroying things very quickly. This proposal came from an artist. Presumably he thinks that everyone should be able to dally in art because we live in rich societies. He never gives any thought to what makes a society rich in the first place: the ability to make things that other people truly value. Sorry but crappy paintings or poems are not as valuable as food, clothing, shelter, and life management services which most people are involved in providing in some form or another.

  42. Gravatar of Marcelo Marcelo
    18. November 2013 at 13:06

    Scott,

    Doesn’t Australia have a much higher minimum wage than the US?

  43. Gravatar of In Western Europe, the average jobless rate is twice as high in countries with a minimum wage vs. those with no minimum | AEIdeas In Western Europe, the average jobless rate is twice as high in countries with a minimum wage vs. those with no minimum | AEIdeas
    18. November 2013 at 15:02

    […] the Cafe Hayek blog yesterday, Don Boudreaux pointed to a post on the Money Illusion blog, where Scott Sumner presented some data on the minimum wage and jobless rates in the 18 countries […]

  44. Gravatar of Daily Links for Nov. 19 – Illinois Policy Institute Daily Links for Nov. 19 - Illinois Policy Institute
    19. November 2013 at 05:43

    […] the Cafe Hayek blog yesterday, Don Boudreaux pointed to a post on the Money Illusion blog, where Scott Sumner presented some data on the minimum wage and jobless rates in the 18 countries […]

  45. Gravatar of Jan Jan
    19. November 2013 at 09:24

    I have to agree with J.V. Dubois

    Many of the countries you mentioned especially Norway, Denmark, Finland and Sweden have a de facto minimum wage that is determined not by law but by negotiations between trade unions and employer organizations.
    Check these statistics:

    http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-20122012-AP/EN/3-20122012-AP-EN.PDF

    Although these countries do not have an official minimum wage but the proportion of workers with low pay (as defined by this publication) is much lower than in many other countries that do have a minimum wage by law.
    Bulgaria, Poland, Estonia, Romania,… all have a minimum wage and more than 20% of employees earn a low wage.

  46. Gravatar of ssumner ssumner
    19. November 2013 at 10:12

    Genauer, Well the FDP certainly would not have forced the minimum wage on to the CDP.

    Bill, You asked:

    “I don’t see how this works without creating more jobs in the first place. Does subsidizing labor create more demand for jobs somehow ? ”

    Econ 101 says if you subsidize something you get more of it. Keynesian economics has no bearing on this issue.

    I was for Morgan’s plan when he was still in grade school. I merely criticized a few technical details.

    JohnB, Good point.

    JV, You are accusing me of doing something that I didn’t do. I never claimed the change in German UI benefits explain their success. I agree with your other point, my post does not prove that minimum wage laws are a bad idea. It’s just one data point. After all, it’s a blog post, it certainly would not pass as a academic article. One reason I post is to see what others will say, thus your comments on some of the details are very valuable.

    Here’s another possibility. Lack of minimum wage laws implies a certain faith in markets, which is probably correlated with neoliberal policies in other areas. The one exception is obviously Italy, which is not neoliberal at all. But Italy is also the outlier on unemployment, the only one of the 9 with double digit unemployment.

    To summarize, I agree that these sorts of posts are much weaker than my monetary posts, I’m trying to point to some interesting data for discussion.

    Marcelo, Yes they do.

    Jan, Thanks for the info, and see my response to JV.

  47. Gravatar of Douglas Murphy Douglas Murphy
    20. November 2013 at 13:38

    RE: Switzerland’s Proposal to Pay People for Being Alive By ANNIE LOWREY.
    When I read it the headline stated the amount as per month and the body of the piece claimed it was proposed as per year.

  48. Gravatar of Douglas Murphy Douglas Murphy
    20. November 2013 at 17:10

    $2,700 A Year No Matter What? Some Swiss Ask Government To Assure Income

    By Kathleen Caulderwood on November 12 2013 12:48 PM

    Switzerland Reuters

    Minimum wage has been a hot topic this year. As fast-food workers in the U.S. occasionally strike en masse and President Obama talks about raising the current rate of $7.25 hour, the working poor here and abroad are demanding more compensation for the work they do — but what if they, and everyone else, got paid just for being citizens?

    This could become a reality in Switzerland after Basic Income Initiative, a grassroots organization, submitted a petition with 125,000 signatures proposing an unconditional 2,500 swiss francs (about $2,730) annual payment for every citizen. Swiss officials are now in the process of organizing a referendum on the matter, which could take place as soon as next year.

    “It’s not as kooky as it sounds,” said Karl Widerquist, Georgetown University professor and a basic income policy expert on Public Radio International. “It’s the idea of putting a floor under people’s income, the idea that income doesn’t start at zero.”

    The idea isn’t a new one. Thomas Paine advocated in 1795 for a national fund to give everyone over 21 fifteen pounds sterling, “as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property.”

    In the 1960s, Milton Friedman advocated for a negative income tax, where the state would pay the difference if your pay fell below a minimum amount.

    Conditional cash transfers, money given to people if they meet certain requirements, have been popular in poverty-stricken areas in the developing world for more than a decade.

  49. Gravatar of J.V. Dubois J.V. Dubois
    21. November 2013 at 04:14

    Scott: Thank you for response. It is really amazing that you find time to response to almost all the people on your blog. And sorry if my posts seemed like I am accusing you of some hiddend agenda or something like that. If anything I think of you as one of the most open-minded people out there and that if you write something it is something that you honestly believe (at least at the time)

    Nevertheless you have some priors and as all people (including me) you may sometimes view some evidence that supports this priors in a favorable light jumping to conclusions much quicker then if presented with conflicting evidence. I do not know if minimum wage and UI benefits have noticeable impact on unemployment, my gut feeling is that they do – but I am quite skeptic on the scale of these effects. Here the devil is in details – like how high the minimum wage is compared to 1st quartile wage, what is the marginal tax rate of people on UI/social benefits etc. And there may also forces that push into opposing direction; like shown on some research on unemployment with search models especially with labor market being monopsonic for low wage earners). Raj Chetty likes to talk about this – and I know that you engaged him once or twice already, but it was not a particularly deep discussions compared to monetary economic ones that you have with some other people.

    So my point is that you are now a famous thinker especially considering that sadly the right-leaning spectrum is ridden with crazies. Nevertheless this also comes with somewhat higher criteria even for blogposts or you may find yourself haunted with specters of the past sometime in the future. Plus for instance this one already made some echoes – like here on AEI: http://www.aei-ideas.org/2013/11/in-western-europe-the-average-jobless-rate-is-twice-as-high-in-countries-with-a-minimum-wage-vs-those-with-no-minimum/ that in turn spurred quite sad “debate”.

    But yeah, I think I understand how this all comes to be and I prefer that there is some kind of “blunder” here and there to you not writing blogs at all. So you don’t have to be too hard on yourself and it is perfectly OK for you to have fun when you are doing it.

  50. Gravatar of genauer genauer
    21. November 2013 at 14:45

    @ Scott,

    since the FDP failed the 5% threshold, they do not sit in the present German parliament.

    The typical hardcore was until recently the CSU Christian social union. FJS (Franz Josef Strauss, died 1987) : “vox populi, vox arschloch”, while the current leader, Seehofer, goes to great length to be the populist in chief (PIC), having been trained in direct democracy in Switzerland. On public money, damn it!

    I am totally with you, a short sharp sentence on minimum wage vs unemployment invoked many people like me, to provide some local background information, also valuable to others looking here. That is what a good blog should do.

    Folks like me are actually pondering at present the pros and cons of a minimum wage, reading up on Wilhelm Röpke, a founding father of Ordnungspolitik. And while I read it “Krise und Konjunktur” 1932, “Ist die deutsche Wirtschaftspolitik richtig” 1950, I find so many things, which still ring so true today. Being adamant on free capital transfers, but explaining, why temporary government interference in the housing market might be tolerable.

  51. Gravatar of Eivind Eivind
    28. November 2013 at 02:20

    Hi Scott

    Agree with most of what you say here, but unfortunately the countries you list with no minimum wage are slightly misleading. It’s true that there is no national minimum wage in the Nordics, it’s because there are mostly industry specific collective bargaining agreements, which cover practically all industries. So there is a de facto minimum wage equal to the lowest industry wage. As an example, the minimum wage for restaurant workers in Norway is USD 23.4, and increasing depending on experience and certification. So a job at McDonalds pays minimum USD 23.4 (equivalent to USD 14.2 in PPP terms).

    Interestingly though, the difference in minimum wage does not seem to have an effect on the sale price of the products – according to the Economists’ big mac index the price ratio between Norway and the US is exactly the same as the IMF PPP adjustment factor. However, sales are much lower in Norway (USD 58 per capita vs USD 107 not adjusted for PPP). So at first glance one could mistake the higher salary level to lead to lower consumption, but since the price is the same that shouldn’t be the case. So a wealth effect substituting away from “inferior goods” is probably at play here.

    On the other hand, the effect on employment is in line with what Scott would predict; the average number of employees per restaurant is 27 in Norway vs 50 in the US. However, the argument that a higher minimum wage would decimate the opportunities for young people and students/part time workers seems to have less traction; in Norway the majority of workers at McDonalds are part time workers and students between 16-25. I haven’t been able to find the similar statistic for the USA, but would venture a guess that the ratio would be lower.

    Also of interest, the profit margin (EBIT) of McD in Norway is 9% vs 30% globally (although some of this is probably driven by transfer pricing for tax avoidance purposes).

    I guess the conclusion from this should be that it is not the lack of minimum wage that has led to low unemployment in Scandinavia, but that does of course not mean that increasing the minimum wage would not have a negative effect on unemployment. At a given set of labour market conditions a reduction/increase in the minimum wage would (probably, and in most cases) have a positive/negative impact on employment. However, one can achieve a very healthy labour market with a high minimum wage, although then one would have to change some other set of conditions to counteract the effect. My personal guess would be that Nordic countries scores very high on the level of trust in a society is a key driver (good luck with designing policy based on that!).

    So Germany as mentioned previously is probably the best example, since they used the reforms to improve a dysfunctional labour market. Doing the same in Norway would probably be pointless in terms of reducing the unemployment rate (although could have an effect on disability), and would likely result in a transfer of wealth to capital.

    Wouldn’t “never reason from a price change” apply here?

  52. Gravatar of Having No Minimum Wage Works | The Western Warrior Having No Minimum Wage Works | The Western Warrior
    26. January 2014 at 17:04

    […] There are nine countries with no minimum wage (Iceland, Norway, Sweden, Finland, Denmark, Austria, Germany, Italy, Switzerland.) Five of the nine have a lower unemployment rate than Luxembourg, the best of the other group. The median country is Iceland, with a 5.5% unemployment rate. The biggest country in Europe is Germany. No minimum wage and 5.2% unemployment.” The facts speak for themselves. Article: The Money Illusion […]

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