Legitimate Living Wage Laws

Cavalier Daily (University of Virginia)
April 18, 2002
By David Swanson

I GOT A Masters degree in philosophy from the University in 1997 and had
learned so little that I stuck around and foolishly helped the Labor Action
Group push for a living wage for University workers. I didn’t like the fact
that while I sat in a lounge reading Aristotle, the people emptying the
trash can had to work second jobs, neglect their children and turn to the
government for handouts to survive.

The arguments over the living wage at the University haven’t changed much
over the past few years. As exemplified by a column last summer by Economics
Prof. Steven Stern (http://www.loper.org/~george/trends/2001/Jul/91.html)
and a Cavalier Daily lead editorial April 9 (“Bury contracted living wage”),
the opposition to decent wage standards continues to believe that groups
like LAG are motivated by a silly urge to help others and actually are
hurting those they would help.

I left Charlottesville and went to work for ACORN (the Association of
Community Organizations for Reform Now), a group that promotes living wage
laws. So snide digs at misguided do-gooderism certainly can be applied to
me, assuming I’m misguided. But most of the people demanding a living wage
nationally, including the 120,000 low-income families that make up ACORN,
are acting out of their own selfish need – they want to be able to pay their
bills and keep food on the table. The opposition’s distaste for generosity,
then, is not particularly relevant.

But what about the merits of their case? Is it possible that low-income
workers are indeed misguided about what will help them and business owners
can best tell them what is in their own interest? Are communities all over
the country unwittingly hurting themselves by demanding living wage laws?

In 82 cities and counties there are living wage laws on the books, the
oldest from 1994. Many of these localities recently have expanded these laws
to cover more workers (as in Oakland, Calif.) or raised the wage level (as
in Boston, Mass.). None have found any truth in the dire predictions of job
loss and high costs to the governments. According to “The Living Wage” by
Robert Pollin and Stephanie Luce, the federal minimum wage has been around
for decades and its level has never correlated in any way with the
unemployment rate.

The reason many businesses and groups like Responsible Wealth support living
wage standards is that they are good for business, a point that has been
made by columnists for Business Week, Craine’s Business Journal, and the New
York Times. When workers can quit second and third jobs, take care of their
health, and get to know their families, turnover plummets and productivity
increases. When more money is in circulation in a community, local retail
businesses benefit. And when the government no longer has to provide food
stamps to full-time workers, taxpayers come out ahead.

Increased costs to cities that demand living wages of contractors have been
minimal because businesses have saved through lower turnover and higher
morale and through simply sharing a bit more of their profits with their
employees.

ACORN recently won a higher minimum wage for all employers in the City of
New Orleans, and a group of hotel and restaurant owners took us to court
predicting businesses would be hurt and flee the city. On March 25, the
Civil District Court for the Parish of Orleans issued a six-page ruling
calling these claims “biased,” “speculative” and based on “no specific
study.” The court upheld the increase, giving weight to a thorough economic
study (available at www.acorn.org) that predicted benefits to workers,
businesses and government.

Stern proposed that instead of paying a living wage, a university or
government should subsidize worker training. I haven’t seen anything further
on this from Stern and I consider this a hypocritical argument against
living wage laws, not a serious proposal. Front groups for hotel and
restaurant owners, in a similar manner, push the Earned Income Tax Credit as
an argument against living wages, but spend no energy actually promoting the
EITC. The Cavalier Daily’s Managing Board, in its lead editorial, suggested
the government take care of full-time workers by means of food stamps, EITC,
and Temporary Aid to Needy Families (apparently unaware that full-time
workers do not qualify for TANF). The problem with all these proposals is
that workers prefer to be paid for their work. And if you ask taxpayers, can
you guess what they prefer?

Unobservant economists like Stern believe their theories prove that living
wage laws won’t work, despite the fact that 82 cities and counties have
found them to work in the real world – the unemployment and high costs to
localities predicted have never materialized, while benefits to workers and
local economies are prevalent. When Stern’s comments venture outside his
ivory tower they border on the absurd, such as claiming that he knows a
worker who supports a family on $3 per hour.

Some have actually argued that the University has no business meddling in
the affairs of its contractors. But the University’s contracts are lengthy
documents “meddling” in a wide range of issues. Businesses that don’t like
those contracts are free not to bid on them. If you accept that the
University can determine what to pay direct employees, you have to accept
the same standards for outsourced workers – otherwise there are likely to
soon not be any direct employees, rendering wage standards for them
meaningless.

(David Swanson is communications coordinator for ACORN.)

Good intentions, bad consequences
Cavalier Daily (University of Virginia)
April 18, 2002
By James W. Lark III

THE SUBJECT of living wage campaigns has gained prominence in many
communities (including Charlottesville) during the past five years. Allow me
to offer some comments about my observations concerning such campaigns.
Please note that these comments represent only my own views, and not those
of The Liberty Coalition (to which I serve as advisor) or the Libertarian
Party (to which I serve as chairman). In addition, the issue of enacting a
“living wage” mandate for contractors and the issue of a pay increase for
U.Va. personnel (including those working for contractors) are separable; my
views about the former are not connected to my views about the latter.

In my experience, the typical living wage mandate advocate contends that
some employees at a given organization are paid wages that are insufficient
for those employees to make ends meet. Thus, the organization should pay its
employees a living wage. This wage is frequently defined as the yearly
salary which allows a full-time worker to support a family of four at the
federally defined poverty line. A ballpark estimate of this salary is
$18,000.

From what I have seen at the University, employees who, for many years
received less than the living wage, usually survived in sufficiently good
health to return to their jobs on a daily basis. Thus, the phrase living
wage apparently is more a provocative sales tool than an accurate
descriptive. It may be easier to rally people to campaign for a living wage
than for “raising the minimum wage.”

In some cases mandate advocates suggest it is somehow undignified for
employees to work for wages below the living wage. As an aside, I consider
such suggestions to be based upon an arrogant presumption. It is up to each
employee to determine whether working for a given wage is undignified. It
strikes me as patronizing for mandate advocates to declare that work for
wages below the mandated level is undignified.

Mandating that the organization pay wages above those established on the
market may have unpleasant consequences that should be faced honestly.
First, to the extent the organization must pay wages higher than necessary
to obtain a given amount of services, it means, all things being equal, the
organization has less money to fund other activities that may be as
important to the mission of the organization.

For example, assume a living wage mandate forces the organization to expend
$1 million more each year than would be expended absent the mandate. That $1
million now is unavailable to hire additional workers, provide scholarship
assistance to needy students, reduce tuition costs, repair buildings or to
be used for many other worthy options. My point is not that these other
options should be chosen instead of raising wages of those workers covered
under the mandate. Rather, mandate supporters should understand their cause
does not enjoy some special moral high ground, and that arguments for a
mandate should be based upon careful analysis as opposed to tendentious
assertions.

Another issue to consider is that the organization may respond to the
mandate and its cost by reducing the number of workers. Thus, as with any
mandated minimum wage, those who maintain their jobs may receive a wage
increase that would not have occurred absent the mandate. However, those who
lose their jobs because their labor has been priced above the value of the
services they produced may be considerably worse off than before.

An opinion often advanced by mandate advocates is that mandating a wage
increase will help the organization by virtue of increased employee
satisfaction and reduced turnover in jobs. It is indeed possible such
benefits will occur; judiciously raising salaries to improve employee
satisfaction and performance is a widely-used management technique.
Determining the likelihood and value of those possible benefits is a matter
for careful consideration that recognizes the many conflicting demands upon
the organization’s resources.

It is difficult before the fact to determine exactly what will occur should
a living wage mandate be imposed. If the mandated increase is not
substantial, then the bad consequences may be few and relatively painless.
However, in such cases one may properly ask whether the mandate achieved its
stated purpose. Incidentally, in reviewing some literature (nearly all of
which was written by mandate supporters) offered by living wage
organizations concerning the consequences of mandates that have been
instituted (e.g., Detroit, Baltimore), it struck me that the purported
benefits of the mandates were consistently overstated and the costs
consistently understated.

It is perfectly appropriate for members of the University community to be
concerned about working conditions for others in the community. However, we
should not allow assertions of good intentions by mandate advocates to
obscure the reality that a wage mandate can have bad consequences, some of
which may be borne by those whom the mandate is supposed to benefit.
Emotional appeals are not an appropriate substitute for careful analysis
informed by economic reality.

(James W. Lark III is a professor of Systems Engineering)