Saturday, January 28, 2006

Thoughts On "A Living Wage"

Worth reading, from the New York Times Magazine from a couple of weeks ago: What Is A Living Wage?

The article attempts to take the living wage debate into the realm of the rational and the scientific. That is, beyond the fact that we'd all like people to make more money, what are the actual effects of living wage laws? According to the article, contrary to popular economic wisdom living wage laws do work. The piece cites to a study done by economists David Card and Alan B. Krueger;

[I]n 1995, and again in 2000, the two academics effectively shredded the conventional wisdom. Their data demonstrated that a modest increase in wages did not appear to cause any significant harm to employment; in some cases, a rise in the minimum wage even resulted in a slight increase in employment.

This study looked into New Jersey having raised their minimum wage to $5.05, while neighboring Pennsylvania's minimum wage remained at $4.25. Common sense tells us that focusing on low wage and minimum wage employment in the fast food industry in the short term is not really the issue. Just think of the fast food giants. McDonalds, Burger King, and Wendys are not going to change their employment policies in response to a slight hike of the minimum wage. Such a hike is like a light increase in taxes. Sure, they won't like it, but there not going to drastically changed their business practices because of it.

The real questions about both minimum wages and living wages remain unanswered. Mainly how is it possibly useful or efficient to force companies to pay a single mother of two, a high school teenager from a wealthy family, and a retired senior citizen the same hourly salary? The point is, how can you legislate "fairness." The other question of course is just what are the long term effects of such policies?

The article attempts to use the city of Santa Fe's experiences with living wage laws as indicative of the success of the living wage. Santa Fe is a wealthy, tourist oriented city ... Perhaps not the best example for the rest of the world to follow. For one thing, when many employers are paying "the living wage" already as the article indicates, the effects of the legislation are not all that drastic.

The real problem with the Santa Fe example, and the whole thrust of the piece really, is an extreme disconnect from the realities of poverty. Sort of like comparing Starbucks and McDonalds. It doesn't take an economist to figure out that Starbucks can provide benefits and pay higher wages when they charge $4.00 for a cup of coffee. It also doesn't take an economist to figure out McDonald's needs to pay lower wages in order to charge $1.00 for a double cheeseburger. In the long run, what would living wage laws do to corporations like Wal-Mart or McDonalds, which rely on their low prices as part of their business model? If they have to raise prices in response to these laws, how do such higher prices benefit the poor? And if such laws cut in to their comparative advantedges, how does driving low-wage based companies out of business benefit the poor?


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