Before he retires at the end of June, Jackson City Council President Leslie Burl McLemore plans to make one last-ditch effort to push through an ordinance requiring city contractors to pay their employees a living wage.
Dr. McLemores heart may be in the right place, but his head is not.
The idea of a living wage is that even if workers are paid the federal minimum, which rises from $6.55 to $7.25 per hour in July, they still may not be able to afford all of the necessities of daily life, such as food, clothing, housing and healthcare. A consultant to the city council estimates that an hourly wage of $10.56 is required to furnish people working (and presumably living in Jackson) with an adequate standard of living if their employer pays for healthcare benefits and $12.70 if not.
I accept those figures as reasonably accurate, although I doubt that an extra $2.14 per hour (or $342.40 per month for full-time employees) before taxes would allow workers on city contracts to buy individual health insurance coverage, which is considerably more expensive than group coverage.
Be that as it may, Dr. McLemores proposal is an invitation for city contractors to drop some or all of the fringe benefits they now provide to their employees. A workers worth to his or her employer cannot magically be raised at the stroke of a city government pen.
Suppose that someone employed by a city contractor now is being paid $8 per hour plus $2.56 per hour in benefits in the form of health insurance, education and training, help in purchasing uniforms or tools required on the job, paid vacations, or comp time.
The workers total compensation is $10.56 per hourequal to what his or her skills command in the marketplace. If the city council enacts a living wage of $10.56 per hour, the workers hourly wage will increase, but the employer no longer will be willing to pay for fringes.
Although the hypothetical employees paycheck is fatter, he or she arguably is made worse off since employers generally can supply fringe benefits more cheaply than workers can purchase them on their own.
Economists who have studied the effects of raising the federal minimum wage find that employers respond to higher labor costs by cutting employees hours, by requiring them to work harder at their jobs, and by limiting overtime.
And it is the people who are employed in low-skilled, entry-level jobs that bear the brunt of such predictable policy changes. The bottom line is that government cannot give anyone a raise not justified by increases in productivity or in the market value of what they help produce.
It is also true, as foreseen by Ward 1 Councilman Jeff Weill, that contractors will factor higher labor costs into their bids on contracts. Although the contractors who will be required to pay living wages have not yet been identified, it should be obvious that increases in the cost doing business with the city will be passed on to Jacksons taxpayers.
And if private employers are forced to pay workers more to attract them away from competitors contracting to supply goods and services to the city, Jackson will become an even less business-friendly location than it is already. Higher wages on city contracts will come at the expense of private-sector positions.
Rather than decreeing a living wage, Dr. McLemore and his fellow council members could achieve their goal by other, less intrusive means.
The recipe for Jacksons economic development is well-known: cut taxes, cut regulatory red-tape and reform the citys public school system so that young people graduate with the knowledge and skills that qualify them for high-paying jobs.
|William F. Shughart II is a Research Director and Senior Fellow at The Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.|