The 'Living Wage'

It couldn't do any harm

In our newly wired world, a good clue to the nature of any reform movement is the quality of the opposition’s Web sites. The Web sites supporting "The Living Wage Movement" have a tatterdemalion, homemade feel to them. Data are often stale, and page links wander off into the cybervacuum. Opposition sites, however, like that of the Employment Policies Institute, a self-described "Entry-Level Employment Think Tank," are crisp and professional, chock-full of new surveys, reports, and statistical compilations.

An "Entry-Level Employment Think Tank" with a slick Web site? Hmm. Good thing that somebody with a lot of money is truly worried about entry-level workers.

The movement for a living wage is often dated from the 1996 strike by Yale students on behalf of higher wages for cafeteria workers. It is based on the rather straightforward principle that any mandated "minimum" wage standard should at least be at the poverty level, which the current $5.15 per hour minimum wage decidedly is not. Depending on the region, the minimum "living" wage is usually calculated to be in the range of $8-$10 per hour, although some advocates call for $12-$15 per hour with perhaps a sliding scale for family size.

The movement has had most success in California, although it has been gaining ground in virtually every major city in the country. Altogether, some eighty-two jurisdictions have passed some form of living-wage ordinance, and many more, including New York City, have ordinances under active consideration. For the most part, the ordinances apply just to local government workers or to employers with government contracts, although some California cities are attempting to apply them to all employers within their area. As might be expected since the local government employee unions are its most vibrant constituencies, the AFL-CIO has adopted the living wage as a major legislative initiative.

The concept of a living wage, of course, has long roots in Catholic social teaching. John Ryan, the first executive director of the National Catholic Welfare Conference, wrote a book called The Living Wage in 1906, and the concept is roughly tantamount to the "adequate family wage" recommended by Pius XI in his 1932 encyclical, Quadragesimo anno.

The living-wage debate also nicely captures the different worldviews of economists and ethicists. Although Ryan’s books were widely used as "economic textbooks" in Catholic colleges in the 1930s and 1940s, they virtually ignore basic economic concepts like supply and demand curves, concentrating instead on questions of distributive justice. Economics doesn’t deal comfortably with issues like that, so it’s not surprising that surveys suggest the great majority of economists think that living-wage ordinances are a very bad idea.

From the days of Adam Smith, the core insight of modern economics has been that people will usually act in self-interest and that the price system, at least most of the time, is the best available index of what people want. Obstructing the workings of the price system produces distortions and inefficiencies that, in the end, make everyone worse off.

In the main, and over time-emphasis on the in the main and over time-that turns out to be true. A spectacular demonstration of the power of the price system came with oil price decontrol in the late 1970s. After decades of trying to manage oil prices, and in the teeth of the 1979 Arab oil embargo, a frustrated Carter administration finally let prices rip. Almost overnight, people discovered the joys of energy conservation, demand was cut back sharply, and prices plummeted. A newly efficient energy sector was arguably a critical prerequisite for the economic expansion that was triggered in the early 1980s.

Similarly, the Catholic position in favor of school vouchers is at heart a price-system argument. By extracting school charges though the tax system, the government privileges its own educational "product," which predictably has grown self-aggrandizing and unresponsive. Voucher advocates argue that empowering parents to shop for educational services in competitive markets is the fastest, fairest way to school reform.

The version of market-economics orthodoxy that has evolved in America, however, is not one that Adam Smith would readily recognize. Intellectually, it is a child of the early twentieth-century drive to reconceive American social sciences on the model of physics. The ideal of physics was of a science that was atomistic and statistical: everything was condensed from identical particles and, as in the kinetic theory of gases, the dance of countless freely colliding molecules was choreographed by a few, simple, immutable laws. It required only a tiny leap of faith to re-envison the economy as an intricate dance of identical, atomized market participants whose behavior could be reduced to equations much like those that capture the laws of thermodynamics.

But the decimal-place precision of economic data is entirely misleading. Economic statistics are a slag heap of samples, interpolations, and just plain guesses, as often as not filtered through statistical conventions that have long since lost their relevance. This should be kept in mind when examining the conventional argument against minimum-wage legislation.

If you artificially increase the price of labor, low-skilled people will be priced out of the market, marginal businesses will fail, and total employment will be reduced, say opponents. Since living-wage advocates want far more aggressive price increases, the impact will be that much more dire. The models churn out precise computations of the number of jobs that will be lost-131,000 to 222,000 in the state of Florida alone, says our "Entry-Level Employment Think Tank."

However, David Card and Alan Krueger of Princeton University carried out an exhaustive analysis of the impact of a minimum-wage increase in New Jersey in the early 1990s and found, not surprisingly, that there was no impact at all. More accurately, if there was an impact it was so swamped by the other ebbs and flows in the data that no one could possibly tease out a result.

A more plausible argument against minimum-wage or living-wage laws is that they are inefficient. A substantial share of minimum-wage hikes, for instance, goes to kids from families that are not poor. The Earned Income Tax Credit (EITC) is a far more focused instrument for helping poor families. But it’s more than a bit disingenuous for right-wing Republicans, who have been cracking down hard on the EITC, to use it as a weapon against legislation that they like even less. For sheer chutzpah, consider the Vermont anti-living-wage group, who worried that raising the pay of poor people would cause them to lose welfare benefits.

In truth, if all local government employees were awarded minimum pay significantly above private-sector comparables, distortions would result. Not too many years ago, New York City sanitation workers got pay and benefits so far above those of private refuse haulers that those city jobs were passed down through families like precious heirlooms. One consequence was that the department was fiercely resistant to opening jobs to other ethnic groups.

At some level, legislated pay and benefits become distortive and inefficient. There is little doubt that the rigidity of Western European labor markets is at the root of the continent’s persistently high levels of unemployment. When any hire is likely to be an obligation for life, employers are understandably cautious about taking people on.

But the United States has pushed "labor market flexibility" to such an extreme in recent years that a little pushing back is sorely needed. Maybe some jobs will be lost by enacting living-wage laws, but there are undoubtedly many people, like mothers with young children, who would gladly choose not to be in the work force if their spouses got reasonable paychecks.

In a labor market as big and flexible as America’s, there is ample scope for improvements in targeted tax credits and in wage and benefit legislation without doing fundamental harm. The economic arguments to the contrary-considering the degree of change that any plausible legislative program is apt to generate-are an example of economics as polemic, clothed in scientific trappings, to be sure, but polemic all the same.

Published in the 2002-10-11 issue: 

Charles R. Morris’s most recent book is The Rabble of Dead Money, a history of the Great Depression (PublicAffairs).

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