Living wage
In July 4th 2001, a letter I wrote about the Charlottesville's Living Wage Campaign was published as a Letter to the Editor on george.loper.org. Here's the letter, as well as the subsequent responses:
Steven Stern Comments on Job Training and Imposition of a 'Living Wage'. July 2001
Lately, in Charlottesville and other communities, there has been much advocacy for a “living wage.” A “living wage” is defined as an hourly wage high enough so that a full time worker could support a family of four. Those in favor of a “living wage” argue that it is unfair to pay someone less and that companies paying less are just greedy. The most recent case involved the Marriot Corporation’s hotel on West Main Street.
I would like to suggest that the push for a “living wage” is misguided. None of my arguments should be new to anyone who has taken an introductory microeconomics course. One might argue with some of the analysis. But it is my hope that this page will at least focus the discussion better.
First of all, it is not really clear what it means to say “support a family of four.” How much is the hypothetical family spending on housing, on food, etc? I have a graduate student supporting a wife and child on an annual income of $6000. That translates into $3.00 (if he were working 40 hours per week for 50 weeks per year). While I’m sure he would prefer to earn more, he and his family members are not starving. I am not suggesting that people can live comfortably on $3.00 per hour. Rather, I am suggesting that there is nothing magic about $8.00 per hour.
More importantly, no one has a right to a job. A job is a privilege associated with developing skills necessary to perform the job and having good work habits. If you choose not to develop valuable skills or to perform poorly at a job, then you should suffer the consequences of that choice. Having a family of four does not entitle you to a job that pays a good wage. Instead, you should have a family of four only if you can support the family. If you do not have skills to earn enough to support a family of four, either develop the skills, work extra hours, have your spouse work, or don’t have two children. All of these are choices. It may be hard for some to improve skills, but many people do it. In our present economy, almost anyone can get a second job. A high proportion of households have two wage earners; there is no reason why poor households have an entitlement to have a stay-at home parent.
Not all jobs are productive enough to pay $8.00 or more per hour. That does not mean that they should not be allowed. There are many low productivity activities that firms need performed and that people are willing to do at a wage (less than $8.00 per hour) that makes it worthwhile for the firm to hire someone. Some people, for example teenagers, use low paying jobs to develop some job skills and earn a little money. Taking away such jobs would limit the opportunities of such people. Others use low paying jobs as a stepping stone into better paying jobs. They need the lowing paying job because they do not have the skills to step right into a high paying job. Requiring firms to pay a high wage would limit training opportunities for such people.
Most empirical studies of minimum wage effects show that they raise wages (obviously) and reduce employment by moderate amounts. The big losers and winners are teenagers. Some teenagers win in that they get paid more than they otherwise would have. Others lose in that they are unemployed.
If the goal of the living wage is to raise earnings of low skill workers, then a much better way to accomplish the goal is to subsidize training opportunities for low skill workers and encourage them to take advantage of the opportunities. Such an effort would achieve the desired goal without reducing employment or raising prices faced by consumers. Imposing a “living wage” on employers of low skill workers is actually counterproductive because it deprives them of training opportunities. While the advocates of the “living wage” have their hearts in the right place, their proposed solution is misguided.
Steven Stern (electronic mail, July 4, 2001).
Steven Stern is a professor of economics at the University of Virginia.
Source: george.loper.org
Virginia Germino Responds to Steven Stern on the Imposition of a 'Living Wage'
Dear George,
I recommend Jonathan Kozol's books to Steven Stern, perhaps beginning with Rachel and her Children. Mr. Stern seems to have no concept of what most people's real lives are like (perhaps even that of his exemplary graduate student, whose budget I'd love to examine). He reminds me of the late CEO of Coca-Cola, Roberto Goizueta, who at Monticello once suggested that any immigrant could make it to the top in America, just as he had (coming from a formerly wealthy, educated Havana family, and with his own Yale diploma and shares of Coca-Cola already in hand).
Worst of all Mr. Stern's assumptions, though it's difficult to choose among the many he presents as facts, is that there's always someone to step into the most miserably paid jobs, with terrible working conditions to boot. Apparently there are people who deserve those jobs, and can learn useful moral lessons from that suffering? (Always a new supply of desperate new Latin American farmworkers to crawl over the border and be transported by coyotes to live in disgusting housing, suffer abuse from crew leaders and bosses, and toil for miserable recompense to furnish the vegetables and fruit for Mr. Stern's table?)
In the world of academic economists and insulated CEOs, it's always the bottom line, with people as commodities, as units of production (and Mr. Stern's easy use of "productive" raises other questions). Thank God there are still people who challenge those assumptions, and who are willing to struggle, with hearts and minds and bodies, to convert short-sighted, conventional wisdom and corporate smugness into justice and decency for all.
Virginia Germino (electronic mail, July 7, 2001).
Source: george.loper.org
Paul Gaston Responds to Critics of the Living Wage Movement
Dear George,
It is good to have on your page the arguments of theChamber of Commerce and of Mr. Stern, the economics professor, because they neatly lay out the values and assumptions (shared by many in the society) which those of us in the Living Wage Movement need to deconstruct.
I suppose we should be grateful that Mr. Stern believes we have our "hearts in the right place," even though what we advocate is "misguided."
(Though I must say I was never cheered by the same patronizing language directed at us by the segrationists back in the 'fifties and 'sixties.) He is right that anyone who has taken an introductory economics course would be familiar with his argument. My introductory course, along with advanced seminars in monetary theory & fiscal policy and economic theory taught me the shallow and often self-serving nature of it. Forty-five years of writing about and teaching American History only deepened my skepticism.
Scholars have their place in debates about public policy. As one of them I wouldn't give up my right to be heard any more than Mr. Stern would. But David Swanson, in his vigorous critique of Mr. Stern's letter, reminds us all that we live in a democracy in which the millions of people in this country who work year-round for poverty-level wages quite rightly reject the economist's lessons and look to the democratic process for redress of their just grievances. The Living Wage Movement in America today promises well, I believe, to be our new civil rights movement, with all the moral and political power that movement marshalled to change our country for the better, more often than not against the teachings of the experts, historians and economists prominent among them.
Shameful realities underlie the American economy and, as one recent commentator put it, "America has gone blind to the downside of its great prosperity," mesmerized by what another has called "the smug rhteroic of prosperity." Poverty has nearly always accompanied progress in our history.
The Living Wage Movement has the potential to wrestle creatively with that conundrum and to question once again the values and assumptions that underlie the way we value our citizens and respect their self-evident right to the pursuit of happiness.
Paul Gaston (electronic mail, July 6, 2001).
Paul Gaston is Professor Emeritus in the History Department at the University of Virginia.
Source: george.loper.org
Ed Wayland Responds to Steven Stern on the Imposition of a 'Living Wage'
George,
Steven Stern offers a pretty simplistic view of the "free" market and its impact on wages. He shows once again how the ideology of the "free" market is used to provide cover to those who want to justify the exploitation of low-wage workers. Mr. Stern's view of the Living Wage Campaign is simply misinformed.
It is clear that at the center of Mr. Stern's critique is his hostility to the whole idea of a minimum wage. The "problems" he identifies are unsupported by experience in the real world. To take one example, it is just not true that raising the minimum wage will reduce employment. Following the last raise in the minimum wage, for example, we entered a period of record levels of employment.
Mr. Stern is also incorrect in his critique of the Living Wage Campaign. So far as I am aware, the Living Wage Campaign in Charlottesville does not advocate a sweeping city-mandated increase in all wages. It has instead focused on steps which are completely consistent with market principles. Under any free market system, doesn't the City have the right to decide that it can get better employees if it pays more? Doesn't the City have the ability to ask the companies it hires to do its jobs to pay a minimally decent wage? Any one of us can refuse to shop at McDonald's if we are offended by the low wages being offered there. Can't the City, similarly, refuse to do business with firms who pay inadequate wages?
Mr. Stern's use of the example of his graduate student is pretty ironic. He claims the student lives on $3 an hour and is able to support a wife and child. Is he kidding? I challenge anyone to make up a monthly budget for this student that allows him to pay his bills. In fact, the low pay and general exploitation of graduate students at the University is an open scandal. Applying the principles of Economics 101, as Mr. Stern urges, it sounds more like he is taking advantage of the tight control he and a few others exercise over this particular market (access to a Ph.D.) to get labor from his student at dramatically less than it is worth.
I certainly agree with Mr. Stern's point that education and training are vitally important to getting a good job. But low wages and inadequate job security are harming the quality of life of many of the people of our community. This impact is not limited to teen-agers, but affects working parents and their children. These realities are obvious and are well-understood by everyone, with the possible exception of those with graduate training in economics.
Ed Wayland (electronic mail, July 5, 2001).
Source: george.loper.org
Al Weed Comments Upon Wages Paid to Teenagers
George,
I am surprised that none of the responses to Prof. Stern's letter deal with the issue of wages paid to teenagers. Too many young people today are being exploited (at the expense of their one shot at getting a high-school education) by the mystique of working at one of our fast food emporia.
Ask any high school teacher how hard it is to get students to do home work when so many are working to support cars and other luxuries and haven't the time or energy to spend on schoolwork. Their classmates, who may not be working, also don't seem to want to do much if they are the only ones doing it. The jammed student parking lots at American high schools are a symbol of the success of McDonalds: cheap food for all of us, underwritten by cheap teenage labor.
Al Weed (electronic mail, July 8, 2001).
Source: george.loper.org
Waldo Jaquith Responds to Steven Stern's Comments About a Living Wage
George,
I'm truly baffled by Steven Stern's assertion that one of his students supports his wife and child on $3/hour. That figure is quite unbelievable, and I challenge Prof. Stern to provide documentation of this scenario.
Only with the aid of subsidized housing, food, medical care, etc., could that be possible. A meager $500/month in rent would use up the entirety of this student's income. Perhaps his family is provided, somehow, with free housing? Insurance? For a family of three, $500/month would pretty well eat that up, too. Perhaps his $3/hour job provides family health care? Electricity, telephone bill, gas and water would require no less than $200/month, I suppose. But maybe his employer pays for that. Food for a family of three, at $1/meal, would run $270/month. I can only hope that this gentleman works in a restaurant, or a grocery store, to be able to afford to eat. He must also be without car, childcare, medical expenses, need for clothing, furniture, or incidentals. Such a life!
When starting my business, I had to determine what the minimum income was that I needed in order to live. I arrived at $900/month, or $5.63/hour. (If I worked 40 hours a week. As the owner of a small business, of course I work much more.) Thankfully, I didn't need to live on so little money. Further thankfully, I am both without children and unmarried. I have no idea of how I could have supported anybody on such wages, but I suspect that it would not have been possible. $3/hour? I cannot and will not believe that it can be done.
Best,
Waldo Jaquith (electronic mail, July 9, 2001).
Source: george.loper.org