‘Living Wage’ Proposals Harm Poor, Low-Skilled Workers

       For the past several months,
left wing activists in the city where I live — Kalamazoo, Michigan —
have been demanding that the city commission enact a so-called “living
wage” ordinance. The ordinance would require businesses contracting with
the city to pay their workers no less than $8.25/hours. This local action
is part of a nation-wide push by left wing groups to enact high minimum
wage ordinances; in the midst of the “living wage” campaign in Kalamazoo,
syndicated columnist Molly Ivins weighed in to support Sen. Edward KennedyÂ’s
bill calling for a national “living wage.”

       Most of the debate over the
high minimum wage proposal tends to focus on the impact, if any, a high
minimum wage would have for businesses. People tend to end up debating
whether it would encourage or discourage investment in the area, whether
or not it would cause employment levels to increase or decrease or even
whether increasing the minimum wage might have inflationary effects. Lost
in that debate, though, is the larger issue of whether simply increasing
the minimum wage would really help the low income workers it is nominally
intended to benefit. In fact, living wage proposals would likely harm
such workers over the long term.

       As Western Michigan University
professor of economics Emily Hoffman pointed out, in a position paper
opposing the Kalamazoo proposal, the wages firms pay workers are closely
tied to individualsÂ’ productivity and skills. Workers in low wage jobs
tend to be there precisely because they have few skills with which to
shop around for higher paying jobs.

       The solution proposed by Cooney,
Kennedy and Ivins is to simply force some employers to pay higher wages
to such low skills workers. But firms are in the business of maximizing
profit, not solving social problems such as the persistence of low-skilled
workers, and they will respond rationally to living wage requirements
by hiring the higher skilled employees that the higher wage rate will
inevitably attract, rather than the lower skilled workers who currently
command such jobs.

       IÂ’ve worked at firms here in
Kalamazoo, for example, that paid $6/hour to perform very low skilled
work, such as sorting and washing laundry from local hospitals. Now thatÂ’s
certainly not enough to life off of if it is a personÂ’s primary wage,
but most such workers werenÂ’t the primary or only wage earner in their
families. More importantly such jobs were often filled by people who were
unemployable at higher wage rates. Many of the applicants I saw included
people with criminal convictions, semi-literate high school dropouts who
had trouble reading the basic employment application and others who for
one reason or another had very few skills.

       Most of the employees didnÂ’t
stay at these low paying jobs for very long – in fact the turnover rate
was tremendously high. Many stuck around for 6 months or a year to establish
themselves as a reliable worker and develop some marketable skills, and
then left to take higher paying jobs.

       With a living wage in place,
however, it is likely these low-skilled workers would never have gotten
that chance to improve themselves. For $6/hour a business might have to
hire a high school dropout to perform a tedious task. But at $8.25/hour
that job becomes far more likely to attract more skilled and experienced
workers. Kalamazoo, for example, is home to about 30,000 college students.
At a rally for the living wage proposal at the largest campus, Western
Michigan University, one supporter went on at length about how the living
wage would mean better paying jobs for college students. Which is true
but is exactly the problem.

       As wage rates went up to $8.25/hour,
college students and others would be more likely to enter the job market
and more likely to compete for jobs that would have been unattractive
to them at only $6/hour. Guess who gets hired when a college student and
a high school drop out both apply for the same job? The result is pretty
easy to predict – fewer opportunities for low skilled workers to gain
additional skills and move up the economic ladder.

       This is, of course, the reason
that unions are generally the biggest supporters of living wage legislation.
In 1998 Detroit voters approved a $7.70/hour living wage proposal placed
on the ballot and pushed heavily by the Metropolitan Detroit AFL-CIO.
By making non-union labor more expensive, living wage ordinances make
union labor more competitive — at the expense of low skilled and poor
workers.

       That living wage legislation
would relegate low skilled workers to fewer opportunities and higher unemployment
can be seen in the results of the Davis-Bacon Act, which Ivins lauded
in a recent op-ed as an example of the good that regulating wages can
do. Enacted by Congress in 1931, the Davis-Bacon Act required construction
contractors working on government projects to pay high “prevailing wages”
to workers – essentially all workers on government construction contracts
have to be paid whatever unionized construction workers are getting paid.

       Davis-BaconÂ’s wage requirements
were enacted specifically to keep low skilled black construction workers
and black-owned construction firms in the South from competing with white
construction workers and white-owned construction firms in the North.
And it worked. Unable to offer lower wages for lower skills, black construction
workers found it more difficult than whites to get the training and on-the-job
experience necessary to increase their skills, productivity and thereby
wages. The resulting racial disparity in construction employment is amazing
to behold. In Detroit, whose population is 80 percent minority, a mere
3 percent of construction union membership is held by minority laborers.
The unemployment rate for black construction workers has run as high as
25 percent in recent years; far higher than the white unemployment rate
in the construction field.

       Cooney and others who support
living wage ordinances say they want a more “fair” economy. Passing laws
that would put low skilled workers on the unemployment line is a strange
way to go about achieving that objective.

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