missing policies: Minimum Wage & Negative Income Tax


#1

The game Democracy 3 is brilliant however there is a felt absence of two major well known public policies whose potential effects could be game altering and are crucial to the sense of a complete public policy simulation.
These two policies are the minimum wage and the negative income tax. In order to be constructive I will go about giving a framework to how these policies could be implemented in the game. My straightforward framework should allow either the developers or up-to-the-challenge moders to be able to appropriately take up the task, given they are as convinced as I am that there is a need for these policies to get a complete experience out of Democracy 3.

Minimum Wage*:

“A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers” (Wikipedia).
Support: It is favored by socialists and trade unions and would increase their support, it is opposed by capitalists and will decrease their support.
Effects: Minimum wage should increase poor earnings and wages (since low income is increased across the board) however it has adverse effects on employment thus increasing unemployment (since employers are now forced to get rid of the less productive employees due to the rising cost of labor).

[b]Negative Income Tax:

[/b]Originally promoted by the economist Milton Friedman “a negative income tax (abbreviated NIT) is a progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government.” (Wikipedia)
Support: It is favored by Capitalists (Milton Friedman) and the poor and will increase their support, it is opposed by conservatives and will decrease their support.
Effects: negative income tax should increase poor earnings and reduce poverty (since its a direct hand-out to the poor and low income earners), it should have a very slight adverse effect on employment thus increasing unemployment by a small amount (Since every welfare grant or program, even the best conceived, will effect people’s motivation to help themselves, as Friedman himself predicted). it should be noted that at the highest level negative income tax could be an alternative to most if not all welfare programs.

Minimum wage and negative income tax are in some ways a socialist and capitalist-ish mirror policies of each other. They should have been in the game, I hope this will be rectified in the future by a patch or a mod.

*I know minimum wage exists as a dilemma in the game, however, it deserves its own policy with clear implications and a slider determining the wage floor.


#2

A negative income tax should reduce wages. Employers have a big incentive to lower their wages if it makes no difference to their employee; the government ends up paying part of companies’ payroll, in effect.


#3

To tell you the truth I don’t see why, a contract on the free market between an employer and an employee depends on the consent of both, depending on the scarcity of labor the employee might have the leverage to pull higher wages or the employer to lower the wages, regardless of what supplements the government is offering. It would certainly make a difference to the employee if his wages are reduced even with a negative income tax.


#4

Alright, I think I can see now where the confusion might be - if the negative income tax was a full supplement for the gap between someone’s earning to the target amount (as it might be eroneously understood from my wikipedia quote) it would allow employers to lower wages without any consequences to the employees on the expense of the tax payers, however this is not how the negative income tax should work. According to Milton Friedman’s suggestion negative income tax should be set at 50% of the remainder between someone’s paycheck and the target amount, thus still allowing an incentive for employees to demand higher wages from their employers.