3/30/2005

Living Wage Laws

Battles over minimum and living wage laws are all over the political radar. The article, Durham paves way for living wage in NC, is just one more example of municipal governments electing to institute living wage laws. "When you are trying to help people reach the 'American Dream,' a living wage is the best way to do it," said James Mitchell, a member of Charlotte's City Council. Arguments like This one from Councilman Mitchell are the battle cry for living wage activists. Where is the economic sense? When government requires employers to pay more in wages unemployment grows and the price of goods increases, thus making us all poorer. As managers living wage laws will make us less efficient and will be a roadblock to progress.

5 comments:

Marie said...

I actually completely think that giving people a living wage will be more beneficial and will actually make managing more effecient. Most jobs that are hourly will have higher turnover. One of the reasons is because these jobs require little skill, and the employees will be able to find another hourly job that perhaps pay more. If the hourly wage rate increased, perhaps it would cause other prices to increase, but hey, that already has been happening. Actually it is a really funny thing, I moved to Utah 3 years ago and the only jobs I could find paid 5.15. When I was home any job that could pay only 5.15 paid a lot more than the national standard. Anyone could easily find a job that paid 7-10 dollars. The reason people would change jobs is because why get paid 5.15 when you can get paid more to work somewhere else. Places that pay higher wages aren't going to be able to compete much more when the national standard is raised, which could be to the managers advantage.

sierra said...

I am actually between on this subject. The reason why is because a living wage seems good for those people who are working hard at their low paying jobs just to make a living. But on the other hand, I know employerd will start laying people off because they can't afford to pay all those people the living wage, and therefore making unemployment go up. Also, think about all the people who are getting paid minimum wage. Yes, it is mostly high school kids who just spend the money on something that is not that important.

kenny said...

Marie you are right when you said “perhaps it would cause other prices to increase…” I believe that trying to give every one a “living wage” would cause such an increase in price that fewer people would be able to live off of their wage. Trying to increase every entry level wage to a “living wage” would make everybody’s life more difficult including managers.

Dr. Tufte said...

I bet you can imagine what I'm going to say, but I'll say it anyway - living wages are one of the worst policy ideas around.

Living wages are a version of a price floor. Price floors involve hurting one group of people to make another group better off, and there is a deadweight loss that hurts everyone in the process. No one in favor of living wages ever talks about who it's going to hurt. I think that's immoral.

Here is a different take on this. There is a literature in macroeconomics called efficiency wages. The idea is than a manager might pay a worker more than they are worth in exchange for showing less tolerance when the employee might need to be fired. The result ends up being a higher wage, more unemployment, a bigger divide between the employed and the unemployed, and a lower tolerance for shirking on the part of management.

The only difference between living wages and efficiency wages is that the former are imposed by government and the latter are intentionally pursued by managers. This implies that living wage advocates are in favor of more unemployment, less tolerance, and bigger divisions in society. Huh? Yes, you read that correctly. They just don't tell you that part. It doesn't make them sound very nice does it?

scott said...

Living wage laws create a perpetuating problem. First, people's wages relative to costs are low, so government entities impose a minimum wage. This causes inflation, which further decreases people's wages relative to costs. Hmmm... doesn't seem like it fixes anything.