How does a minimum wage rate of $10.50 per hour sound? Personally, I’d like to see it hiked to about $250.00 per hour, but if productivity counts, I may fall just short of that mark, so I’ll probably have to forget it for now. The $10.50 per hour wage is the benchmark for what advocates in some cities are calling a “living wage.”
Mandatory “living wage” ordinances have been outlawed in seven states, but some cities are adopting voluntary living wage rules. The idea of a voluntary mandate sounds weird, but it gives cities a way to get around a statewide rule that makes the mandatory version illegal. The City of Atlanta recently passed such a voluntary living wage ordinance. Atlanta will now give preference to companies bidding for city contracts if they offer their employees $10.50 per hour with insurance, or $12.00 per hour without insurance (Atlanta Journal-Constitution, 1/04/05, and 1/06/05).
Here is the premise for a $10.50 minimum wage, as argued by living wage advocates in Atlanta and elsewhere: 1) people who work full time should be able to support a family above the poverty line, and 2) employers who receive public dollars should be required to pay workers a living wage. There are so many things wrong with these ideas, and all of the problems that fall out of them, that it’s difficult to choose which to address.
To begin, there is no moral imperative, and certainly no economic reason, to suppose that just because one spends all day, every day, engaged in some type of work that it should generate enough income for three people to live on. There are some jobs, particularly in low-skill and low market-value endeavors, that should not be expected to fully support a family or perhaps even an individual. If I am stuffing tissue paper into shoe boxes for 40 hours per week, I don’t provide a particularly scarce talent, skill, or service. I would not expect to make enough to support a family of three with such a job. Because many, many other people can substitute for my labor, my wage would be predictably low.
Tying the number of hours worked to a particular level of income comes from the discredited labor theory of value approach to wages, championed by David Ricardo and Karl Marx. The number of hours spent on the job is immaterial to the market value of the work that is accomplished. Otherwise, how could a 10-minute Lasik procedure command a $2,000 market price? What matters is the market-exchange value of the ideas, products, and services that providers offer.
In general, the more specialized and scarce your skills, products, or services relative to market demand, the higher the rate of pay you command. This is also why we don’t expect to see teenagers working at swimming pools, recreation centers, fast-food restaurants, and similar places become economically self-sufficient. These jobs rarely produce enough market value to make even the jobholder self-supporting.
The new Atlanta living wage ordinance violates many principles of basic economics. It will give workers with the lowest productivity, and greatest number of substitutes for their services, the new, higher pay. The ordinance will mainly affect guards, entry-level security personnel, and janitors working under city contracts. These are positions for which there are many equally capable candidates, so there is no economic justification for arbitrarily bidding up their price. Yet, the Atlanta city documents that describe the living wage state that it will “increase fair competition for public contracts” and “make it more difficult for poverty-wage employers to undercut companies who pay decent wages.” The language is loaded with emotional content but empty of economic sense.
Maybe fairness, though, and not good economic management, is the goal of Atlanta’s living wage. Does this mean that fairness is served if the city deliberately pays more for basic services that it would otherwise have to pay? What about fairness to city taxpayers, who will be forced to bear additional and arbitrary costs? In many municipalities, city managers who pay more for city services than necessary, or award city contracts to favored companies in exchange for concessions, are charged with illegal bargaining tactics. Cloaking the whole operation in a real or professed compassion for low-wage earners doesn’t change the economic reality at all.
Finally, the proposed need for a living wage is often accompanied by impressive-looking numerical analysis. The Atlanta proposal pegged the $10.50 minimum wage as a living wage because it places a family of three at 130 percent of the poverty level, and beyond eligibility for food stamps. Supposedly based on the ‘minimum needs’ budget for a family of three in Atlanta, an annual income of $27,000 would be required. This is $10,000 above the federal poverty level, and doesn’t include money for car repairs, retirement, or education savings, according to advocate’s documents.
‘Minimum needs’ is so vacant an economic concept it should be rejected outright. Does ‘minimum needs’ include basic cable TV, for example, or Internet service, or a private automobile? What about the Atlanta public transportation system—not acceptable even for the economically struggling? As for saving for retirement and higher education, they are admirable goals, and important ones, but we should caution that even middle class families struggle with these objectives. Why should the taxpayers of Atlanta, many of whom are middle class themselves, be saddled with the extra burden of higher costs for city services and the responsibility of paying for the retirement and higher education of underskilled residents?
Atlanta’s carrot-and-stick scenario (Atlanta Journal-Constitution, 1/20/05) for awarding city contracts punishes the low-cost, more efficient providers of services, and rewards companies for increasing their costs at taxpayers’ expense. Perhaps paradoxically, Atlanta mayor Shirley Franklin vetoed two amendments to the 2005 city budget that would have awarded firefighters and other city employees a 4 percent pay raise equal to that approved for police officers. If this is a tradeoff in city expenditures, it is not clear that it’s the same tradeoff that homeowners and city residents would make if offered a choice.