Toward a Living Wage

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Toward a Living Wage

By: John A. Baden, Ph.D.
Posted on March 29, 2006 FREE Insights Topics:

Who but misanthropes and exploiters of cheap labor would oppose the goal of increasing Montana’s minimum wage by one dollar to $6.15 per hour? Only a committed ascetic who inherited a home can enjoy a wholesome, healthy, independent life here on $12,000 per year. Clearly, the proposed increase falls far below a “living wage.”

Fifteen dollars per hour would provide only a modest living in our prosperous community. Actually, this is hardly a radical change. The real minimum wage benchmark is McDonalds, at $10 plus some benefits. It’s been years since we’ve paid under $12 for ranch work. American Bank starts tellers at $13 will full health, vacation benefits, and 401k contributions. Unskilled labor brings $18 at Big Sky.

Why doesn’t the Human Rights Task Force or Raise Montana, two organizations supporting the increase, advocate a $15, $20, or $25 minimum? Here’s my speculation: They’re too smart and sensitive to impose the resultant hardships on the least well off members of our community. Perhaps they understand that in complex systems it’s impossible to do just one thing. Well-intended actions often have negative, terribly perverse unintended results.

Here’s an iron law of labor economics: It’s nearly impossible to force private sector employers to pay folks more than the value of their output. If a law requires payment higher than expected productivity, jobs vanish and new ones are not created.

Consider France. The New York Times reported March 19, “One in four young people in France is out of work. The figure is as high as 50 percent in suburbs with high percentages of immigrants....” Legally imposed rigidity in labor markets is partial cause.

We can learn from black youth unemployment in America prior to 1960. Despite racial prejudice and governmentally enforced segregation, from 1900 to 1960 their unemployment was usually lower than that of whites. Now it’s far higher. Why? One consequence of legally mandated wages and benefits is perverse: they reduce the cost of discrimination by employers. The reasons are clear and compelling.

If a job pays more than it’s worth, there will be a surplus of applicants. Hence, employers can be choosy and exercise their prejudice, however mild and for whatever reason -- except explicit discrimination. This is true across time and cultures. This outcome disadvantages the least well off, especially minorities.

And there is yet another problem; unemployment produces diminished happiness. Note a recent study from the U.K., the governmental report “Life Satisfaction.” “Being out of work is very damaging.... The loss of life satisfaction from the social effects of unemployment is far greater than the loss caused by loss of earnings.”

Further, for those without a college education, the best predictor of getting a good job is having any regular job. The first step on the ladder is the highest and hardest. Nearly any non-safety regulation that inhibits job entry precipitates later hardships and social problems.

I’m sorry to assert this truth: life is getting ever more difficult for those without advanced education. This trend is likely to become more pronounced as globalization marches relentlessly toward ever-greater economic efficiency. I welcome an answer to problems of poverty that predictably accompany better economic coordination and greater efficiency. Alas, not all good things go together.

Fortunately, I’m reading a thoughtful, compassionate, constructive reform proposal. Its author, political scientist Charles Murray, has long deserved a McArthur Genius Award. His new book from AEI Press, In Our Hands, explains how and why to institute major reform. Here’s the underlying presumption: “The falling value of a strong back and the rising value of brains will eventually create a class society making a mockery of America’s ideals.”

Murray’s cure is to replace all current welfare with “a $10,000 annual grant to all American citizens who are not incarcerated, beginning at age twenty-one.” Charles, the antithesis of a slogan-driven “progressive,” is one of America’s best policy analysts. His book, like Daniel Patrick Moynihan’s 1965 report, “The Negro Family,” will surely be resisted and rejected.

Experience, data, and logic make a stubborn force. Problems will become worse and his proposal will ferment. My next column will explain why, despite the protests of those who gain from maintaining a dependent class of citizens, In Our Hands is prescient.

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