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Here’s something I never thought I’d see: a conservative argument expressing interest in direct transfer payments (though the Earned Income Credit) over the minimum wage. But Steve Landsburg, whose columns are marked by counter-intuitive economic logic, half the time so counter-intuitive they in fact defy reality (the nadir in my mind was the one denying macroeconomics as a concern), does just that:

[H]ere’s what most labor economists believe: The minimum wage kills very few jobs, and the jobs it kills were lousy jobs anyway. It is almost impossible to maintain the old argument that minimum wages are bad for minimum-wage workers.

In fact, the minimum wage is very good for unskilled workers. It transfers income to them. And therein lies the right argument against the minimum wage.

Ordinarily, when we decide to transfer income to some group or another—whether it be the working poor, the unemployed, the victims of a flood, or the stockholders of American Airlines—we pay for the transfer out of general tax revenue. That has two advantages: It spreads the burden across all taxpayers, and it makes politicians accountable for their actions. It’s easy to look up exactly how much the government gave American, and it’s easy to look up exactly which senators voted for it.

By contrast, the minimum wage places the entire burden on one small group: the employers of low-wage workers and, to some extent, their customers. Suppose you’re a small entrepreneur with, say, 10 full-time minimum-wage workers. Then a 50 cent increase in the minimum wage is going to cost you about $10,000 a year. That’s no different from a $10,000 tax increase. But the politicians who imposed the burden get to claim they never raised anybody’s taxes.

One small group? Landsburg is forgetting one key constituency that pays for increased wages: shareholders. Not all employers are privately owned firms or limited partnerships. In fact, a large swath of American employment is in the oligopolistic, corporate sector. Not only are the costs more widespread than he allows, but the minimum wage will mean a trade-off between employees at the bottom of the totem pole and shareholders doing rather well as of late and/or between employees’ wages and generalized costs to consumers. Given the declining returns to labor vs. those to capital in the last few years, a policy adjusting labor costs at the expense of capital seems a worthy project.

I’ll concede that small business is likely to pay a disproportionate share of the employees on minimum wage. But Landsburg would be better to analyze the proportion of that employment than to pretend that it’s the full story. Why, after all, can’t the sort of small business we want to encourage be compensated with some sort of tax credit?

Two countervailing reasons mitigate for a minimum wage of a tax credit transfer. First, there is the dignity of getting a decent wage, even for unskilled labor. Conservatives have been harping on the culture of dependency that transfer payments bring - wouldn’t they prefer the transfer be disguised as a wage for ideological reasons? (Of course, many conservatives don’t want any transfer to aid the working poor whatsoever, but that’s not a position Landsburg entertains, nor is it one that intuitively I feel the public gets behind.) More important, tax credits take place once a year, whereas the wage increase comes with every paycheck. For those workers and their families living paycheck to paycheck, the difference is a crucial one.

Another point that complicates Landsburg’s picture: when we look at the nominal minimum wage, we have a static wage that was raised slightly in the early 90s, and on top of which any raise will be an additional tax on entrepreneurs, only one that spineless legislators aren’t willing to own up to. But as an economist, Landsburg should know that it’s the real wage that matters. And as nominal wages have remained static, real (i.e. inflation-adjusted) wages have gone down:

(Source: Economic Policy Institute)

So, over the last few decades, the real minimum wage have gone down. To use Landsburg’s example, that small business owner pays $1.50 less per worker now than she or he did in 1980. That’s roughly a $31,000 tax cut of sorts over the course of 15 years. It’s a gradual one, of course, but maybe those legislators aren’t so snivelling after all: they didn’t even take credit for their tax cut!

UPDATE: Brad DeLong responds to Landsburg’s argument, and suggests that consumers in fact take on most of the burden for the minimum wage. If so, one of my main points above is moot. He also brings up another advantage of the minimum wage over an EITC: administrative costs are far lower.