Paying the Price Why the living wage is an inefficient welfare system Thomas Hutchinson
“The minimum wage is "negative": it is a legal prohibition against extreme exploitation by employers more than it is a livable income for families. The living wage is more positive: it is an acceptable wage for providing a household's basic needs.”
-Brock Haussamen, living wage advocate, raiseminwage.org
When the first living wage was implemented in Baltimore in 1994, many people believed it to be a necessary and drastic increase of the minimum wage. While the existing minimum wage was set in place to prevent companies from abusing their workers with excessively low wages, the living wage was a minimum wage increase intended to help those working at minimum wage jobs earn enough income to provide for basic household needs. Supporters of the policy undoubtedly think the living wage helps out their fellow citizens, but unfortunately fail to realize the unintended economic destruction that would ensue if the living wage were to take effect.
First, it is not at all accurate to say low wage work should be entirely prohibited by public policy. Markets have cheap labor for a reason; so consumers can enjoy inexpensive products that give us more relative spending power. Would you like to spend more money on basic goods that are now conveniently inexpensive? Living wage proponents claim everyone would if it could help out the poor, but it turns out that the redistribution is hardly that simple.
Second, people who work at a minimum wage are often doing jobs that are not worth the enhanced rate. To aide workers, even reward them, for performing jobs that require almost no special skills is encouraging a workforce to disproportionately seek jobs that require no special skills or training. The exclusivity of higher-paying work creates an incentive to receive an education. Workers will have less incentive to thus "move through the ranks" if they are earning a more comfortable living doing minimal work.
Third, by forcing companies to substantially increase their labor costs, the living wage drives up the prices of products in the local area, driving up the cost of living, therefore making the labor wage increase itself largely cancel out. The costs of the business are simply passed on to consumers. What good is an increased wage if those who earn more money end up having to increase their household spending just to continue to live in the area?
Instead of raising prices, companies can, in turn, hire fewer workers in reaction to the higher labor costs. Of course, a living wage, just like the minimum wage, would only affect about 1% of the local workforce, and thus living wage proponents claim such an effect would be small. However, the larger the wage rise, the more labor costs will rise, and the more employers will thus cut back on hiring and training, affecting more workers. In essence, the higher the living wage, the higher its negative impact.
The ramifications of the living wage is quite simple: it drives up wages, increases the cost of living, and lowers the productivity of the local workforce, proportional to its rate. If it is implemented, middle-class citizens who do make a decent living in the area will wonder why their costs of living are increasing for no apparent reason (see San Francisco, minimum wage vanguard and second most expensive city in the USA) and may even decide their expensive living wage-happy community is no longer is worth it to them. By "helping" these low-income workers, the net effect of the living wage ends up being a negative one. Those who benefit from the labor market largesse will be priced out of their own workers' paradise.
If increasing wages ends up increasing the unemployment rate or increases the cost of living in the surrounding area, is it worth it? The answer, of course, is a resounding no. So if you see a strike, or petition, or even an article trying to gather supporters for this ridiculous wage, please, feel free to step in and let them know what they are trying to accomplish. After all, it’s the patriotic thing to do.
