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The Problem with Living Wage Laws
by Greg Pomeroy
23 February 2003

Dissecting three irrational reasons to support living wage laws.

They’re getting ready to pass a dangerous law in Prince George’s County, Maryland. It’s called the living wage, and Prince George’s is just its most recent stop as this concept sweeps across the country. The law is little more than a form of legalized extortion: Certain employers must pay employees a specific amount in wages, regardless of the worth of the employee’s work. In fact, an employee’s worth to a company is totally irrelevant to these idealistic do-gooders who are pushing the living-wage concept. They are simply out to save the working poor at any cost. At any cost to the employers, that is. And despite the prima fascia foolishness of this concept, it truly is catching on around the country. Los Angeles, San Francisco, Chicago, Detroit, Baltimore, and Boston are just a few of the 80 or so municipalities to adopt living-wage laws. This economic cancer’s metastasizing is inescapable according to Wade Rathke, a head living wage organizer in New Orleans: “In 10 years, there’s going to be some form of living-wage ordinance in every city in the country.” Be afraid. Be very afraid.

Fortunately enough, though, the only companies that are normally covered by living-wage laws are the ones that have local government contracts. Sometimes they’ll also include businesses that get tax breaks or subsidies. Sometimes the ordinances include local government employees. Because of this narrow application, some economists estimate that less than 1 percent of workers are affected.

But for those employers who are affected, these laws can be chilling. A living-wage law mandates that those companies caught in its clutches pay each employee enough, sans overtime, for that employee to support a family of four at a level above the poverty line. It doesn’t seem to matter that a large percentage of the low-wage earners are recent high school graduates or dropouts who aren’t married and don’t have families. This “living wage” is often paid to some 19 year old kid still living with his parents so that he’ll be able to support his imaginary wife and his two imaginary children. The very real pay this unskilled guy will get to cover his unreal dependents is, depending on various benefits and the cost of living in various locals, between $10 and $12 per hour. This is twice the federal minimum wage of $5.15.

There is a handful of reasons to support a living-wage law, none of them rational. The first is that the working poor are to be pitied. If you don’t pity them, you’re callous and coldhearted, or worse, a Republican. I would explain this reason further, but there is no further explanation. The poor are pitiful; therefore, corporations and local governments must give them wages they haven’t earned and don’t deserve. And continue to do so indefinitely. Back in Prince George’s County, counsel member Thomas R. Hendershot, says he supports his county’s move toward adopting a living-wage law because it shows that “we are deeply concerned about the ability of working people in Prince George’s to earn enough to sustain their families.” Too deeply concerned if you ask me. The fact is that Mr. Hendershot is about to make things worse.

The second reason to support a living-wage law is that it simply provides a contorted way for local municipalities to, in effect, raise the minimum wage. Why don’t they straightforwardly increase the minimum wage? That’s not shifty enough to work, you see, because the problems with doing so would be too obvious if a mandatory pay increase were applied to everyone. If local governments force these laws on only a few employers, the inherent problems and their corresponding outrage are manageable. Not only that, but with the living-wage scheme, the problems, increased unemployment is but one, can be neatly hidden under a thick cloak of self-righteousness.

The third reason to support a living-wage law is that it helps organized labor. Union workers are not priced out of the market for work any more because so many others are also getting artificially inflated wages. This isn’t good for consumers because it means higher prices. This isn’t good for stockholders because it means lower profits. But it is good for unions because they have less competition.

Most of the many problems with living-wage laws stem from the fact that they are nothing more than a form of price control, and price controls do not work. Imagine, if you will, the government applying price controls gasoline. All gas will cost no more than 50 cents per gallon. Wouldn’t that be great; we’ll all have cheap gas. Those who support living-wage laws never get past this point in the thinking process, however. We know that because the next step is to realize that most petroleum companies would very quickly go out of business. The government would then go bankrupt trying to subsidize the rest. Gas would be 50 cents a gallon, but there would be no gas to buy. Price controls do that. They do not work in North Korea. They do not work in Zimbabwe. They do not work on the moon. And they do not work here.

Instituting living-wage laws, however, will not have quite such catastrophic effects because they, again, are aimed at such a narrow group of employers. But the negative effects will be apparent. Unemployment will rise as businesses shed workers to help pay the extra to the employees they keep. The least-skilled workers will go from a low-paying job to no job at all, and the employees that are kept will be worked harder to make up for lost productivity. Though most businesses probably won’t fail outright, the smart ones will flee the area for a locality that doesn’t have these laws, causing even more unemployment in Living-wage Land. As the workers who are retained get their pay raise, there will be a ripple effect up the company, forcing that business to give raises to the higher-paid workers, and not because they deserve them, but because they have to pay them something above the new lowest level.

But by far the worst danger caused by living-wage ordinances is that they teach people to expect to get paid according to what they need, not according to what they’ve earned. These laws shift the responsibility of meeting a person’s needs from that person to the company that person works for. Big Government won’t take care of you. Big Business will. It’s socialism by proxy. And we don’t need it.

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