Monday, January 16, 2006

The Living Wage is Not the Answer

Spurred by a New York Times Magazine article on the living wage movement, a couple of the better bloggers have been discussing the issue. Over at Donklephant, Justin Gardner strongly supports a living wage while Ambivablog is much more contemplative about the subject.

As a generally pro-free market type, my gut instinct is to oppose any sort of national implementation of a living wage. I have strong reservations about manipulating the economy in such a forceful manner. The unintended consequences of such a policy, were it ever to reach a national scale, could be quite harmful and could include inflation, unemployment and an increasingly unskilled workforce incapable of competing in the global marketplace.

Nevertheless, it is an interesting idea and it has resonance (many cities and some states have instituted a version of the “living wage”). And given that my instinct is not anything to base economic policy on, I did some research into the matter. The results were decidedly mixed and often reeked of partisan finagling. But here’s snippet of what I found:

The city of Chicago has considered requiring Big Box stores (those with over 7,500 square feet of retail and over 250 employees) to pay a living wage. A University of Illinois at Chicago impact study (PDF) of the proposed ordinance concluded that store prices would only need to increase by 2.1% to cover a $10.00 and hour wage plus $3.00 an hour in health benefits.

But the free-market proponent National Center for Policy Analysis says living wage laws do not help the poor in any substantial way and can even lead to increased unemployment among society’s most vulnerable. The American Legislative Exchange Council (a group of economically conservative legislators) agrees that living wage laws do more harm than good (PDF). Not surprisingly, the liberal group ACORN, refutes the naysayers and promises great economic boosts from the living wage.

The argument I found most convincing came from the Democrat Leadership Council’s site.
Writing for the DLC publication, Blueprint, Will Marshall argues that the so-called living wage is going too far, although he aggress something must be done.

If we want to affirm the dignity of labor, we can't ignore the reality that entry-level jobs don't pay enough to help families obtain what most Americans would consider a minimally decent living standard. Of course, we could simply legislate higher wages, but that would discourage many businesses from hiring people with scanty skills and work experience and result in higher prices that will disproportionately pinch the poor. The right answer is to index the federal minimum wage so that it keeps pace with inflation and to avoid job-destroying "living wage" campaigns. And we should make sure that public policy fills the gap between what jobs at the bottom of the labor market provide (in pay and benefits) and what working families need to live comfortably.

Indexing the minimum wage might not have a catchy name like the “living wage” but it sounds a lot more prudent. For one, the minimum wage would be dependent on inflation where the living wage would almost certainly cause inflation. For another, indexing the minimum wage does not come with the same negative social ramifications of the living wage.

I mean, do we really want to be a society where working the cash register at Best Buy is considered a career? Some jobs simply do not produce much value for their company or society. As a nation, we shouldn’t decide that such low-level jobs are good enough. Instead we should strive to create a society where those jobs are simply transitional, populated not with heads of households but with such workers as teenagers, spouses seeking to bring in a little more money for the family and retirees looking to augment their social security.

Impossible? Proponents of the living wage apparently think so. Otherwise, why not support the more modest idea of indexing the minimum wage to inflation? Meanwhile, we as a society should work towards building an economy where every full-time worker receives a living wage because of the value of their work and not because of a government regulation?

The living wage sounds nice. But the economic and social costs are simply too high.


Anonymous Anonymous said...

Alan, glad to see you've returned to blogging. I was a longtime lurker on The Yellow Line. As for the "living wage" idea. I agree with your reasoning. The people most likely to gain from this are skilled laborers, unions, etc. Their services become cheaper by comparison when the minimum wage is artificially elevated. That may not be the worst thing in the work but it will do nothing to help the working poor.

12:05 PM  

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