LIVING WAGE KILLS JOBS

I suppose the economic illiteracy of people seeking public office shouldn’t surprise me anymore.  The Grand Rapids Press reports that James Jendrasiak, seeking re-election to the Grand Rapids City Commission, and Rosalynn Bliss, also seeking a seat on the commission, have endorsed a “living wage” policy for the City of Grand Rapids.  At a recent debate hosted by Grand Valley State University, both candidates would give city contracts to high bidders over low bidders if the former is paying so-called living wages and benefits to its employees.

Of course, there is no objective basis for determining what constitutes a “living wage”.  It is an arbitrary amount based upon a set of assumptions that take no account of huge variability of personal circumstances employees actually are in.  A living wage for a young guy sharing an apartment is one thing.  A living wage for a parent of three or four children is another.  A living wage for a couple with severe medical problems and sky-high health care bills is yet another.  The logic of a living wage is that a business should pay an employee what he needs to live comfortably rather than for the amount of work he does.

A true living wage policy embodies the insidious Marxist decree:  From each everything he has, to each everything he needs.  Because that doesn’t fly in this country, lefties like Bliss and Jendrasiak slap the feel-good phrase “living wage” upon a completely arbitrary policy of fixed market wages.  So it sounds good to compassionate voters who don’t think through the job-killing effects of mandating non-competitive wages, and the candidates get a pat on the back from the unions with large campaign war chests.

And if the living wage policy goes into effect, the taxpayers get shafted by overpaying government contractors.  Sure, the rich taxpayers can afford it, but what about the ones still climbing the economic ladder to success?  You know, the guy who needs to spend his wages on living, not higher taxes.  Of course, that assumes he is even earning a wage after his employer eliminates his job to stretch out the payroll to meet the demands of the government’s living wage policy.  The living wage is economic idiocy that a politician supports because he is either a cynic or soft-headed.

Comments

[Steve]

Not only is the "living wage" an economic idiocy, but the very fact that the government decrees a minimum wage is illogical, flying in the face of capitalism, but also immoral. Proper governments are established to protect individual rights, not to dictate how private businesses are run (a fascist premise).

[The Executive Director]

Hi, Steve.

I'm in accord with the sentiments you express. I don't put it as harshly as you do, because I believe that most voters who are inclined to support a politician's call for a "living wage" are motivated by a wholesome compassion.

If they thought through the effects of a "living wage", I'm confident most would understand that the politician is playing upon their compassion to misdirect it. At the end of the day, however, you are correct. What the "living wage" politician is doing is immoral.

Regards, Bill

[Stanley Rhodes]

"The logic of a living wage is that a business should pay an employee what he needs to live comfortably rather than for the amount of work he does."

Do you really think that people are paid for, "the amount of work they do?" This is an interesting perspective, as I find 'low level' workers DOING more work than those higher on the totem pole.

"...the taxpayers get shafted by overpaying government contractors." Taxpayers already get 'shafted' because of government contracts, but I'm sure Dick Cheney would think I am crazy.

[The Executive Director]

Hello, Stanley.

Thank you for your comments.

If by "more work" you mean "more physical labor", you are no doubt correct. If you also mean that there's a fair amount of bureaucratic time-wasting as you go up the corporate food chain, no argument from me. But then there's also a great deal of time wasted on the factory floor because of work rules in unionized companies.

Overall, however, private companies have the incentive to pay as much as they must to get a particular type of work done. If they don't, they won't turn a profit. If the government intervenes to demand that companies pay more than what work is worth on the pretense that doing so is compassionate because it helps those at the bottom, it does just the opposite. The government prices those at the bottom out of a job.

Those who were only marginally employable become unemployable, because a business cannot justify the wages the government says it should pay them. So the business looks to get the job done other ways; typically by redefining the job so that it merits hiring someone at higher skill level to justify the higher wage mandated by the government.

People often forget about those among us who are on the margins of the workforce. They are those ones who lose jobs when companies are forced to pay more than what their labor is worth. That is why the so-called living wage is not a compassionate policy.

Regards,
Bill Tingley
Executive Director

[Matt Poole]

Dear Bill and L.A.W. readers,

First, I want to say that I am very glad your website exists (I just found it today), it raises important issues for citizens of Grand Rapids. I don't always agree with the points you make but it is refreshing to read such thoughtful opinions.

I understand the concern that manditorily raising the wages of employees can make a company have to find ways to restructure itself in light of higher costs for labor. But what about the people who have to live on (or even slightly above) the minimum wage? I ran some rough numbers based on the amount someone would make and have to spend making the minimum wage ($5.15) and slightly above ($8.00) in the city of Grand Rapids.

1 year income (before taxes)

$5.15 /hr = $10712 (before taxes)
$8.00 /hr = $16,640 (before taxes)

Expenses (I based these on my costs in the city of Grand Rapids renting a small, one bedroom apartment with two people. Obviously in a house or larger apartment with more people the numbers would be increased)

Rent- $500 a month = $6,600 a year
Gas- $100 a month = $1,200 a year
Electricity- $35 a month = $420 a year
Car Insurance- $60 a month = $720 a year
Gas for car- $80 a month = $960 a year
Food- $200 a month = $2,400 a year

Total: $12,300

I left out items from this example expenses list that in my budget could be variable (clothing, phone, gifts, entertainment, credit card and student loan payments, car repairs and maintenence, savings, etc.)

So if a person makes the minimum wage and is the only breadwinner for a family they would make $10,712 a year (before taxes) and their expenses (not including any of the things mentioned above, most of them necessary to some degree) would be roughly $12,300. That means that $5.15 is not technically able to support even a family of two in Grand Rapids. I would not call that adequate or "living."

If a person makes $8.00 and hour (which many of the people I know make, even older adults) that person as single breadwinner would bring home $16,640 before taxes. After $12,300 in expenses as outlined above that person would have $4,340 (before taxes, again) to spend on all the things I mentioned above. This does not even seem to be a living wage, although with some assistance it may be possible to (with extreme diligence) make it on this much money.

Neither of these wages allow for the American hallmarks of security and advancement financially: medical insurance, savings and investment.

I don't know if the "living wage" movement is the answer to such a complex issue, but it seems like a start. Something has to be done to ease some of this burden off of our families. Do any of the people posting to this site have alternatives to raising the wages of our poorest neighbors?

If a minimum wage is immoral, as one reader suggested, what if in this downturned economy employers decided that labor was only worth $3.00 an hour? At $6,240 a year ($3.00, 40hr a week) how long could a person last? Prices don't downturn when the economy does.

Best- Matt Poole

[Matt Poole]

I seemed to have made a typo, the rent line should have said $6000 a year not $6600. This only slightly improves the situation told in these numbers.

Other revised figures would be as follows:

Total for example expenses: $11,700 not $12,300

Amount left for other expenses for people making $8.00 an hour $4,940 not $4,340.

Also, I forgot to mention that Michigan's minimum wage as of October is now $6.95 increasing to $7.15 July 1, 2007 and to $7.40 July 1, 2008. This still falls between the two figures I used as examples. I feel that these levels are much more reasonable for people needing to stay afloat in Michigan and am pleased to see the amount increased.

[The Executive Director]

Hi, Matt.

I'm glad you have found our website a useful resource.

I do not dispute your cost of living figures. Sometimes it is necessary for a person earning low wages to hold down two jobs to make ends meet. That's a tough row to hoe.

Fortunately, almost everyone (we can never eliminate the hard cases entirely) who works hard does move on. They go from low-wage entry-level jobs to better jobs. Indeed, many of us don't even have to start at with a low-wage job, because we can afford to go to school and get training that let's a start with a good job right from the beginning.

But there are a number of us on the margins of the workforce. Either because of mistakes made (drugs, alcoholism, criminal record, etc.) or perhaps physical and mental limitations, the only entry into the workforce for marginal workers are those low-wage starter jobs. Because they lack training and skills, the employer can only get so much work out of them -- at least until they acquire a modicum of skill on the job. It is their marginal productivity that results in a low wage. If the government forces that wage up with minimum wage laws, then these marginal workers get priced out of the workforce as employers look elsewhere to match their productivity needs with the wages they are forced to pay.

So it the marginal worker who is hurt by the minimum wage, the very person most in need of the type of work that a minimum wage makes unavailable to him. If voters and their representatives think it is a good idea to pay these folks more to help them make ends meet, then they should be willing to do so out of their tax dollars with an income subsidy rather forcing business owners to do so who will only end up making business decisions that reduce opportunities for the marginal worker.

Moreover, when supporters of minimum wage laws know that most of that increase goes into the pockets of young people first entering the workforce and part-time workers least in need of it, and is otherwise a sop to unions because of the upward pressure a minimum wage boost puts on all wages, I think the minimum wage becomes especially cruel by ignoring the harm it does to the very people, the marginal workers, supporters of the minimum wage claim to be helping.

So, Matt, I do not deny the very real problem you have described. I think the minimum wage, despite its good intentions, is not only ineffective but perversely counterproductive. There are better ways, both politically and socially, to close the gap between entry-level wages and the cost of living.

Regards, Bill