During the past decade, the “living-wage” movement, led by an organization called ACORN, or Association for Community Reform Now, has won victories in scores of U.S. cities, including Baltimore, Los Angeles, Detroit, New Orleans, and of course, San Francisco..
The preferred tactic of living-wage proponents is ballot initiatives that force municipal governments to require any firm contracting with the city to pay its lowest-paid workers a wage pegged well above the minimum wage — typically $10 an hour or more.
The concept of the living wage, though, has about as much connection to economics as blowing bubbles has to spinach, for it tries to impose on markets someone’s sense of morality — of what should be. But when government tries to dictate the operation of any market, including the market for labor, it’s not a market anymore. It’s qualitatively no different from the old Soviet-style Five-Year Plans that created poverty, unemployment, low productivity, and cynicism. These campaigns succeed, though, because who could be against a “living” wage? A guy’s gotta live, no?
The chief argument of living-wage advocates is that U.S. poverty rates have not appreciably declined. But this argument fails to take into account the enormous number of immigrants, many of them unskilled, that the nation’s economy has absorbed — 13 million in the 1990s and another 7.9 million from 2000 to 2005, the highest five-year immigration rate in American history. Among adult immigrants, 31 percent haven’t completed high school, three-and-a-half times the rate for nonimmigrants. That poverty rates have actually declined slightly since 1990 (from 13.5 percent to 12.7 percent, according to the Census Bureau) demonstrates that a free labor market can raise — or push — people out of poverty, even when they start from virtually nothing.
Further, defining “poverty” is a slippery business. According to the Census Bureau, 40 percent of the people ACORN and its clones refer to as the “working poor” own homes, 70 percent own cars, 66 percent have air-conditioning, and nearly 100 percent have televisions. Now hold your letters. Even the most flinty-hearted economic conservative doesn’t want anyone to live in squalor. Struggling, no doubt, but “poor?” Poor by whose standards and by what metric? More to the point, poor for how long? In 1988 a Stanford University think-tank began tracking the economic progress of California’s lowest-income workers. The researchers found that by 2000, 88 percent had moved on to higher-paying jobs, realizing inflation-adjusted income gains of 83 percent to more than $32,000 a year. Not untold wealth, but nothing to sneeze at either.
Then there’s the argument that a person can’t support a family on the government-mandated minimum wage. This is twistification, for most minimum-wage workers aren’t supporting families. Census data shows that 85 percent of minimum-wage workers fall into one of three groups: young entry-level workers who still live with parents or other relatives, people who live alone, or second-income earners with a working spouse, so that the annual household income of families with a minimum-wage worker averages more than $45,000.
Here’s the irony of the living-wage movement. A few years ago, California filed suit against an organization in the state that was paying its workers less than the minimum wage. The organization countered with the same argument many businesses rightly use: Paying even the minimum wage would drive up payroll costs and force the organization to cut its workforce. The target of California’s suit was no predatory corporate giant. It was ACORN itself. In Detroit, living-wage regulations were so onerous that one organization decided not to renew its contracts to provide housing services to the city’s poor. A carnivorous corporation? It was the Salvation Army.
Meanwhile, study after study has shown that the result of living-wage schemes is the evaporation of jobs — the very jobs that provide a toehold in the labor force for young, unskilled workers willing to punch in on time every day and do their jobs well. But living-wage proponents who wander the murky corridors of Marxist class-warfare thought can’t see these facts
The concept of the living wage is a fraud. It’s a feel-good slogan that makes proponents feel warm and fuzzy but threatens to play its own small role in transforming the American economy from the “little engine that could (and does)” into the “little engine that stalled.”