"Living Wage" Hurts the Poor

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"Living Wage" Hurts the Poor

by Ari Armstrong

[This article originally appeared in the November 20, 2003 edition of Boulder Weekly.]

Last month when I asked the city council candidates if they support a city-level minimum wage, it didn't surprise me that only two of those who responded said no. What did surprise me is that some candidates emphasized they supported a "living" wage. This struck me as peculiar, because a so-called living wage is a minimum wage.

I puzzled over the candidates' seemingly meaningless rhetorical distinction. Is a policy better merely because we say it's "living" versus "minimum?" I was reminded of Gustav LeBon's century-old study, The Crowd: "The power of words is bound up with the images they evoke, and is quite independent of their real significance."

It also occurred to me that some may wrongly believe a "minimum" wage can exert downward pressure on wages. But a minimum wage is a floor on wage rates, not a ceiling. A minimum wage set below the market rate (for any given position) has no effect.

Mark Ruzzin offered the most informative answer about city-level minimum wages: "Earlier this year the city council, by resolution, directed the city manager to ensure that all Boulder city government employees are paid a living wage as defined by the federal government. State law forbids Colorado municipalities from establishing a minimum wage." (See statute 8-6-101.)

Presumably, a "living" wage is distinguished by its relatively high level. And the key word is relative: in 1947 the median family income was around $20,000 adjusted for inflation, according to Stephen Moore and Julian Simon, authors of It's Getting Better All the Time. That means about half of all families lived on less than what is today considered a "living" wage for a single person.

According to Roy Wallace, Boulder's Manager of Human Resources, the city resolution determined a "living" wage is 120% of the federal definition of the poverty level for a family of four, or currently $10.62 per hour. Of course, some city employees are single or members of multi-income families. Wallace said the council declined to pass a living-wage ordinance that would apply to all part-time employees and contractors. The resolution applies to full-time employees -- all of whom already make more than the "living" wage.

The question of whether one supports city-level minimum wages (for those working on city projects) is distinct from whether one supports minimum wages generally. Jeep Campbell is the only candidate to reply who expressed any skepticism about minimum wage laws generally: "Maybe I need more convincing over the trade off, but I really don't feel they accomplish much. The market has already pushed beyond them."

Campbell is on to an important point emphasized by free-market economists: wages are driven up by capital formation and market competition, not by legislation. The amount of goods people are able to produce depends on the amount of labor-saving devices (hand tools, factories, computers, etc.) available for use. As productivity goes up, real wages also go up. Legislation is irrelevant.

But free-market economists take the analysis a step further and argue minimum-wage laws actually hurt poor people. Sure, minimum-wage laws can increase real wages for some people, but only by reducing wages for others or throwing them out of work entirely. On the national scale, minimum-wage laws prevent some of the least-skilled workers from finding entry-level jobs by pricing them out of the job market. Thus, as Brian Schwartz of CU Campus Libertarians points out, the legislated minimum wage is actually zero.

Supporters of wage laws seem to imagine that they can impose changes without impacting the rest of the economy. That's odd, because leftists, who tend to appreciate the complexity of ecology, are adept at outlining the far-reaching, unintended impacts of environmental pollution. Minimum wage laws are economic pollution.

What happens at the city level? If the city pays above-market rates for labor, then the city must hire fewer people or spend more taxes. Of course, the sorts of taxes the city collects are non-progressive, which means they hurt poor people. Higher taxes leave everyone with less money to spend at local businesses.

If politicians really want to help the poor, and indeed all of us, the most useful thing they can do is stay out of the way. I was amused to read that with an October 21 vote the city council passed an "economic vitality plan" and decided to spend tax money on a "development coordinator." That money would do more good for the economy if left in the pockets of the people who earned it.

It's obvious why the Boulder economy is weak: the tax and regulatory burden has made it less profitable to do business in town. It's also obvious why less-wealthy people tend not to live in city limits -- it's expensive to live in Boulder, and city government has only made that problem worse.

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