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A new take on the devastating effects of ‘political wage-setting’: the ‘minimum wage paradox’

Mark Perry American Enterprise Institute

Date Posted:: July 1, 2021
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A single parent with 2 children in Forsyth County, NC, earning $7.25/hr would see wages rise by $1,240/month with a $15/hr minimum wage, yet net benefits only increase by $199/month due to reduced social benefits & higher taxes.

A single parent with two children in Forsyth County, NC, earning $7.25/hr would see wages rise by $1,240/month with a $15/hr minimum wage, yet net benefits only increase by $199/month due to reduced social benefits and higher taxes. This 107% wage increase results in just a 4.8% rise in total monthly benefits and after-tax income, highlighting the "benefits cliff" where increased earnings lead to significant benefit reductions. Employers facing a 106% rise in labor costs may cut hours, reduce fringe benefits, or lay off workers, further exacerbating the issue. Consequently, the intended beneficiaries of a $15 minimum wage—low-income workers—may experience negligible improvements or even adverse effects, as dependency on social programs drops from 74.3% to 52.3% of their income package, benefiting the government more than the workers themselves.

Mark Perry reports on an analysis that finds a single mom w/ 2 kids in Forsyth County, NC who worked 40 hr/wk at $7.25 would be better off with a $15 min wage by just $200/month rather than the $1,240 increase she sees in wages.

“…It’s also important to note that the analysis above isn’t taking into account any of the many possible offsetting adjustments by employers who are faced with a 106% increase in hourly labor costs that might include: a) reductions in hours worked from a full-time 40-hour workweek to fewer part-time hours or the complete elimination of some jobs, b) a reduction in fringe benefits that might include free or discounted meals, discounts on merchandise, subsidized uniforms, paid holidays, tuition reimbursement, transportation subsidies, health care, company parties/picnics, etc., c) expectations of higher productivity and greater work effort, d) less on-the-job training that would increase workers’ skills and their future marketability in the labor market, e) layoffs — either temporary or permanent, f) substituting higher-paid, higher-skilled workers to replace either current minimum wage workers or future unskilled wage workers, and g) a reduction in the physical quality of the work environment (e.g., reduced spending on air conditioning resulting in less comfortable working conditions in the summer). In addition to the reductions in government-provided childcare, housing, food, and tax-credit benefits from a $15 an hour minimum wage that Richardson identifies for minimum wage workers in Forsyth County (NC), employers would realistically make some of the adjustments above when faced with a 107% increase in labor costs for low-skilled workers including layoffs and reduced hours. In that case, workers would definitely be made worse off, and not better off, from “political wage-setting” that would mandate a $15 an hour minimum wage. Instead of helping some of our most vulnerable, at-risk populations — single parents with two children in Richardson’s example — a minimum wage hike to $15 an hour would inevitably inflict great harm on the very people the progressives claim they are helping with their political wage-setting mischief….”

Mark Perry, “A new take on the devastating effects of ‘political wage-setting’: the ‘minimum wage paradox’,” American Enterprise Institute, June 29, 2021, https://www.aei.org/carpe-diem/a-new-take-the-minimum-wage-paradox/

A new take on the devastating effects of ‘political wage-setting’: the ‘minimum wage paradox’

A new take on the devastating effects of ‘political wage-setting’: the ‘minimum wage paradox’: Extended Excerpt Image 1

I was alerted by UC-Irvine economics professor Richard McKenzie to the recent article “The minimum wage paradox” by Craig Richardson, BB&T Distinguished Professor of Economics at Winston-Salem University and founding director of the university’s Center for the Study of Economic Mobility (CSEM). Professor McKenzie commented that Richardson’s minimum wage analysis is “one of the few new takes on the minimum wage in thirty years.” Specifically, Richardson finds that even a 107% increase in the minimum wage from $7.25 to $15 an hour “may barely change the lives of low-wage workers who are currently drawing social benefits such as food stamps (SNAP benefits), child care, and/or housing assistance.” Here are some key excerpts of Richardson’s article:

There are some uncomfortable truths about raising the minimum wage from its current level of $7.25 per hour to $15 per hour that are revealed by an online tool created by our Center for the Study of Economic Mobility (CSEM) at Winston-Salem State University. The tool, which we call theSocial Benefits Calculator, enables anyone to go online and experience for themselves what it is like to be receiving social benefits and experience a monthly wage increase. Designed for Forsyth County (North Carolina), the calculator shows that with more than a 100% rise in the minimum wage, many people who currently receive social benefits will barely experience a change in their standard of living.

Here’s the important part:

Let’s use the calculator and create a hypothetical example: a full-time working parent earning the minimum wage, who is unmarried with two children in subsidized day care. As seen in Table 1 (above, click to enlarge), after his or her wages more than double from $7.25 an hour to $15 an hour, earnings rise from $1,160 to $2,400, or a $1,240 change.

Sounds good, right? That’s an enormous bump up of wages by 107%. But after subtracting the decrease in benefits and higher taxes, that $1,240 increase erodes to just a $199 net improvement, or just a 16% change. Imagine getting a big raise and seeing 84% of it go away. In comparison, millionaires and billionaires pay just 37% for the federal marginal tax rate on higher income. Through multiple scenarios using the CSEM calculator, I have found long ranges of income where work barely pays — what I call “disincentive deserts” in my published research. In some cases, individuals are actually worse off by accepting wage increases because of larger drop-offs in benefits, in what are called “benefits cliffs.”

Note also that the total monthly benefits and after-tax income from a 107% minimum wage hike from $7.25 to $15 an hour go from $4,186 to only $4,380, an increase of less than $200 (as mentioned above) and only 4.8% in benefits + income after tax.

Notice another surprising consequence: dependency on social programs drops with higher wages. For the full-time employee making $7.25 an hour, social benefits make up 74.3% of the overall wage and social benefits package; at $15 an hour the share drops to 52.3%.

This is a finding that may irk both conservatives and liberals since the chief beneficiary of a $15 minimum wage is the government itself. If passed, the cost of providing social programs will fall (though I don’t expect taxes to fall anytime soon). But from the workers’ perspective, little has changed in their lives after a huge wage hike. Moreover, employers will see little return on investment from higher wages, such as greater retention, loyalty and productivity.

The CSEM is working with local firms on creative wage and benefits structures that may provide alternative paths to move up the economic ladder — using our calculator as a starting point for conversations among employees, employers, policy experts and legislators. Local high schools and institutions of higher education may also find it useful for classroom discussions.

Our calculator is user-friendly and able to operate on mobile phones, delivering an individualized wage comparison scenario after spending less than 10 minutes on an anonymous questionnaire. Using this tool, our residents, employers and employees can work together on creative and innovative solutions that benefit those at the bottom of the economic ladder rather than waiting for leaders in Washington or Raleigh to fix these problems.

MP: It’s also important to note that the analysis above isn’t taking into account any of the many possible offsetting adjustments by employers who are faced with a 106% increase in hourly labor costs that might include: a) reductions in hours worked from a full-time 40-hour workweek to fewer part-time hours or the complete elimination of some jobs, b) a reduction in fringe benefits that might include free or discounted meals, discounts on merchandise, subsidized uniforms, paid holidays, tuition reimbursement, transportation subsidies, health care, company parties/picnics, etc., c) expectations of higher productivity and greater work effort, d) less on-the-job training that would increase workers’ skills and their future marketability in the labor market, e) layoffs — either temporary or permanent, f) substituting higher-paid, higher-skilled workers to replace either current minimum wage workers or future unskilled wage workers, and g) a reduction in the physical quality of the work environment (e.g., reduced spending on air conditioning resulting in less comfortable working conditions in the summer).

In addition to the reductions in government-provided childcare, housing, food, and tax-credit benefits from a $15 an hour minimum wage that Richardson identifies for minimum wage workers in Forsyth County (NC), employers would realistically make some of the adjustments above when faced with a 107% increase in labor costs for low-skilled workers including layoffs and reduced hours. In that case, workers would definitely be made worse off, and not better off, from “political wage-setting” that would mandate a $15 an hour minimum wage. Instead of helping some of our most vulnerable, at-risk populations — single parents with two children in Richardson’s example — a minimum wage hike to $15 an hour would inevitably inflict great harm on the very people the progressives claim they are helping with their political wage-setting mischief.

Link to calculatorhttps://www.forsythfutures.org/benefits-calculator/

The Fairest Way to Reform Social Security May Also Be the Worst Way to Grow the Economy

Andrew Biggs American Enterprise Institute

Date Posted:: May 28, 2026
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Biggs argues that “fair” approaches to restoring Social Security solvency – those that do not cut already accrued benefits – are less effective than “unfair” ones that do, because the latter incentivize increased work effort, raising growth and revenue.

Imagine that Social Security reform follows the fairness model, in which accrued benefits are paid in full but the rate at which future benefits are earned is reduced. A simple way to do this is to increase the payroll tax rate To keep Social Security permanently solvent, meaning through 75 years and beyond, would require an immediate and permanent increase in the payroll tax rate [from] 12.4% to 17.6%. The higher rate would decrease labor supply and reduce economic growth. [Consider] an alternate reform, which looks clearly unfair: fix Social Security’s funding gap entirely by reducing accrued benefits that Americans already have earned. As of 2025, Americans had accrued $54 trillion in Social Security benefits. Social Security’s unfunded obligation as of 2025 was $26 trillion. So, roughly, this means cutting Americans’ “earned benefits” in half. [Analyzing the 1977 reform that undid the notorious 1972 “double-indexing” of benefits, a group of economists], using SSA earnings data, found that, for every dollar of lost benefits, the affected Americans increased their earnings by 61 cents. Moreover, these additional earnings would be taxed by Social Security, further strengthening the program’s finances. In effect, this makes cutting benefits a “cheaper” way to fix Social Security than raising taxes, because people respond in ways that also increase tax revenues.

Takeaways by Macro Roundup^® AI

A 5.2 pts payroll tax increase to 17.6% drives reduced labor supply and slower economic growth vs. the status quo.
$54 trillion in accrued Social Security benefits vs. the unfunded obligation reveals that benefit cuts would reduce growth drag but.

The World’s Most Surprising Capitalist Makeover Is Under Way in Sweden

Tom Fairless Wall Street Journal

Date Posted:: May 12, 2026
Is Database:: Database

Swedish public social spending is now 23.7% of GDP, just 1pp above that of the US and well under France’s 31.6%. Market-based reforms in the 1990s brought overall government spending down from 69.4% to 49.3% in 2024.

For decades, Sweden was shorthand for the brand of high-tax, high-spend government that managed people’s lives from cradle to grave through state-run hospitals, schools and care homes. No longer. With little fanfare, this Nordic country of 11 million has embraced capitalism. Today, nearly half of primary healthcare clinics are privately owned, many by private-equity firms. One in three public high schools is privately run, up from 20% in 2011. School operators are listed on the stock exchange. The capitalist makeover has allowed Sweden to do what few industrialized countries have managed in recent years: shrink the size of the state. That has enabled the government to sharply lower taxes and, economists say, sparked a surge in entrepreneurship and economic growth. Its total public social spending bill—which includes healthcare, education and all welfare payments—has fallen to 24% of gross domestic product, similar to the U.S. and well below the over 30% for nations like France and Italy. Sweden’s economy is expected to grow by around 2% a year through 2030, roughly the same pace as the U.S. and double the growth rates of France and Germany, according to an April forecast by the International Monetary Fund.

Takeaways by Macro Roundup^® AI

Sweden’s public social spending fell to 24% of GDP, matching the U.S. and 6+ pts below France/Italy, driving lower taxes.
Privately-run primary healthcare clinics reached nearly 50% of the market vs. 20% for high schools in 2011, demonstrating accelerating privatization.
Sweden’s projected 2% annual GDP growth through 2030 doubles France and Germany’s rates, resulting from state downsizing and capitalist sector.

How Policy and Demographics Are Reshaping SNAP: From Families with Children to Older Adults

Angela Rachidi American Enterprise Institute

Date Posted:: May 1, 2026
Is Database:: Database

About 40mm Americans, 12% of the population, receive SNAP benefits, up from 6% in 2000. In 2023, only 34% of these households included children, down from 49% in 2010, while 36% contained an elderly person, up from 16% in FY2010.

Comparing FY2000 with FY2025, the share of the population receiving SNAP doubled from 6% to 12%, while real SNAP costs per capita increased by 179%—from roughly $100 per year to $279 (in 2024 dollars). Despite this growth, per capita participation and costs in FY2025 remained below their pre-pandemic peak in 2013, which coincided with the aftermath of the Great Recession and changes in eligibility and other policies stemming from the 2008 Farm Bill. SNAP is countercyclical, meaning that all else equal, the number of people receiving SNAP should rise during recessions because of increased unemployment and decline as the economy recovers, [though] overall SNAP participation has grown faster than changes in the unemployment rate alone would predict. Over the long run, and especially since FY2020 (due to the Thrifty Food Plan’s increase in the maximum SNAP benefit), costs per capita have not returned to prerecession levels after a period of high unemployment. In FY2023, the share of SNAP households containing an elderly person (36%) exceeded the share containing a child (34%) for the first time. This was a sharp departure from the early 2000s, when more than half of SNAP households contained a child and less than 20% included an elderly person (Figure 2).

Takeaways by Macro Roundup^® AI

SNAP participation doubled from 6% to 12% of the population between FY2000–FY2025, driven by policy expansions and demographic shifts outpacing.
Real per capita SNAP costs rose 179% from $100 to $279 (2024 dollars) over 25 years, with the Thrifty Food.
FY2025 SNAP enrollment remains 8–12% below the FY2013 peak despite 25-year growth, indicating countercyclical policy design successfully targets recession-driven need.

Washington’s Growing Portfolio: Tracking U.S. Government Investments

Jonathan Hillman Council On Foreign Relations

Date Posted:: April 23, 2026
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Since January 2025, the USG has taken equity stakes totaling $20.9B in 16 American businesses. $8.6B, ~41% of the total, was invested in critical mineral miners and processors, while $8.9B, ~43% of the total, funded the government’s 10% stake in Intel.

Since January 2025, the U.S. government has invested $20.9 billion across sixteen deals involving direct ownership, broadening a toolkit that has traditionally focused on grants, loans, and tax incentives. The Department of Commerce has participated in six such deals, including taking a 10% stake in Intel. The Development Finance Corporation, the United States’ development bank, has executed three equity transactions in critical minerals, healthcare, and infrastructure. The Department of Defense leads the way with seven such deals. The U.S. government is also working with a range of partners and has mobilized an additional $4.75 billion in investment. Private co-investors include J.P. Morgan, Goldman Sachs, and others.

Takeaways by Macro Roundup^® AI

The U.S. government deployed $20.9bn in direct equity investments since January 2025, expanding beyond traditional grants and loans to drive.
The Department of Defense leads with seven equity deals of the sixteen total, establishing direct ownership as a core national.
Commerce Department’s 10% Intel stake exemplifies government equity participation in critical infrastructure, mobilizing private capital alongside public investment to strengthen.

How Federal Spending is Distributed by Age

Kent Smetters University of Pennsylvania

Date Posted:: April 2, 2026
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In 2025, of the 62.5% of Federal spending that is age-assignable on a per-capita basis, US retirees aged 65+ were given $43,700, working-age adults 26–64 got $7,300, and children and young adults got $4,300.

We trace spending items within 52 general spending categories, totalling $7T for the 2025 Fiscal Year. We are able to classify a total of $4.4T across three broad age categories and assign the remaining $2.6T to an all-ages residual. Retirees (adults age 65 and older) receive $2.7T, equal to 38.6% of total federal outlays and 61.9% of age-assignable spending. Working-age adults (ages 26-64) receive $1.2T (27.9% of age-assignable), and children and young adults (under age 26) receive $449B (10.3%). The dominance of the retiree category reflects two programs above all others: Social Security and Medicare. Social Security directs $1.3T to retirees, and Medicare sends $835B. Together, they account for 80% of all age-assignable spending on older adults. But the retiree total extends beyond these two entitlements. Federal employee retirement benefits ($169B), housing assistance for older households, Medicaid long-term-care spending, and VA medical care all contribute, making the federal budget more retiree-focused than a Social Security–only lens would suggest.

Takeaways by Macro Roundup^® AI

Federal spending heavily favors retirees, who receive 38.6 percent of total outlays through Social Security, Medicare, and related programs.
Working-age adults and children combined receive less than half the spending directed to retirees despite representing larger population segments.
Social Security and Medicare alone account for 80 percent of all federal spending on older Americans, dominating the retiree budget.

Has the United States Bent the Health Care Cost Curve?

David Cutler and Lev Klarnet Brookings Papers On Economic Activity

Date Posted:: March 30, 2026
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In 2024, medical spending as a share of GDP was just above its 2010 level and 15% ($977B) below its 2010 forecast; 21% of the gap was due to technology, 24% to price reductions, and 11–27% to reforms such as prior authorization and higher deductibles.

Five factors are important in the slowdown in spending [Figure 16]. The first is technology-associated changes in health and site of care. These correspond to the subsequent innovations in our model. Together, technologies along these lines account for 21% of the overall cost slowdown and double that in Medicare. Second, long-run supply is more elastic than short-run supply, which lowers spending over time. This is particularly apparent in the impact of patent expiration for pharmaceuticals and in relative declines in imaging reimbursement. We estimate that greater long-run supply explains 6% of the spending slowdown. Third, a variety of market changes contribute to reduced and more elastic demand, including increased cost sharing paid by consumers, physicians not paid as much for using technologies, and insurers imposing restrictions on technology use - a rough guess is that these account for 11 to 27% of the spending slowdown. Fourth, the population is healthier in ways that reduce spending. This includes fewer hospitalizations for smoking-related conditions and reduced need for formal home health care. The birth rate has fallen as well, which reduces the need for care. We estimate improved population health explains 7% of the spending slowdown. A major component is slower price growth. Net of upcoding, we estimate lower price growth explains 24% of the spending slowdown.

A single parent with 2 children in Forsyth County, NC, earning $7.25/hr would see wages rise by $1,240/month with a $15/hr minimum wage, yet net benefits only increase by $199/month due to reduced social benefits & higher taxes.

Biggs argues that “fair” approaches to restoring Social Security solvency – those that do not cut already accrued benefits – are less effective than “unfair” ones that do, because the latter incentivize increased work effort, raising growth and revenue.

Does preserving Social Security benefits require sacrificing economic growth?

Takeaways by Macro Roundup® AI

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Swedish public social spending is now 23.7% of GDP, just 1pp above that of the US and well under France’s 31.6%. Market-based reforms in the 1990s brought overall government spending down from 69.4% to 49.3% in 2024.

How is Sweden's shift to privatization impacting its economic growth?

Takeaways by Macro Roundup® AI

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About 40mm Americans, 12% of the population, receive SNAP benefits, up from 6% in 2000. In 2023, only 34% of these households included children, down from 49% in 2010, while 36% contained an elderly person, up from 16% in FY2010.

How Are Policy Changes and Demographic Shifts Impacting SNAP Enrollment?

Takeaways by Macro Roundup® AI

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Since January 2025, the USG has taken equity stakes totaling $20.9B in 16 American businesses. $8.6B, ~41% of the total, was invested in critical mineral miners and processors, while $8.9B, ~43% of the total, funded the government’s 10% stake in Intel.

Takeaways by Macro Roundup® AI

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In 2025, of the 62.5% of Federal spending that is age-assignable on a per-capita basis, US retirees aged 65+ were given $43,700, working-age adults 26–64 got $7,300, and children and young adults got $4,300.

Takeaways by Macro Roundup® AI

Related Articles:

In 2024, medical spending as a share of GDP was just above its 2010 level and 15% ($977B) below its 2010 forecast; 21% of the gap was due to technology, 24% to price reductions, and 11–27% to reforms such as prior authorization and higher deductibles.

Related Articles:

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