NEWSROOM
Commentary Articles
In The News
News Releases
Experts



Media Inquiries

Kim Cloidt
Director of Marketing & Communications
(510) 632-1366 x116
(202) 725-7722 (cell)
Send Email

Robert Ade
Communications Manager
(510) 632-1366 x114
Send Email


Subscribe



Commentary
Facebook Facebook Facebook Facebook

Contribute
Your participation will advance liberty. Join us as an Independent Institute member.



Contact Us
The Independent Institute
100 Swan Way
Oakland, CA 94621-1428

510-632-1366 Phone
510-568-6040 Fax
Send us email


Interested in working with us?  Click here for more information.

Commentary

CON: UM Economist Cites the ‘Folly of a Living Wage’


     
 Print 

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. McLemore’s 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. McLemore’s proposal is an invitation for city contractors to drop some or all of the fringe benefits they now provide to their employees. A worker’s 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 worker’s total compensation is $10.56 per hour—equal to what his or her skills command in the marketplace. If the city council enacts a living wage of $10.56 per hour, the worker’s hourly wage will increase, but the employer no longer will be willing to pay for fringes.

Although the hypothetical employee’s 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 Jackson’s 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 Jackson’s economic development is well-known: cut taxes, cut regulatory red-tape and reform the city’s 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.


  From William F. Shughart II
TAXING CHOICE: The Predatory Politics of Fiscal Discrimination
So-called “sin taxes”—the taxing of certain products, like alcohol and tobacco, that are deemed to be “politically incorrect”—have long been a favorite way for politicians to fund programs benefiting special interest groups. But this concept has been applied to such “sinful” products as soft drinks, margarine, telephone calls, airline tickets, and even fishing gear. What is the true record of this selective, often punitive, approach to taxation?






Home | About Us | Blogs | Issues | Newsroom | Multimedia | Events | Publications | Centers | Students | Store | Donate

Product Catalog | RSS | Jobs | Course Adoption | Links | Privacy Policy | Site Map
Facebook Facebook Facebook Facebook
Copyright 2014 The Independent Institute