(Note: On Nov. 1, the Battle Creek City Commission voted 6-3 to defeat the “living wage” ordinance discussed in the following commentary.)
The city of Battle Creek is considering the passage of a so-called "living wage" ordinance. It would require any business that contracts with the city or receives assistance from the city to pay its employees a minimum of $10.19 per hour. Before going down that path, I hope the city will consider what the weight of economics and sound policy strongly suggest.
Living wage ordinances are usually motivated by the best of intentions but nothing in any of them I’m aware of makes workers more productive. They only make them less affordable.
No law can make a person worth a certain amount by making it illegal to pay him any less. By mandating compensation even higher than the federal minimum, living wages price some people out of work. The people who push these ideas never seem to ask why any employer would hire someone at $10.19 if that person’s services are valued in the marketplace at $7 or $8.
Because the Battle Creek proposal is silent on health benefits, one effect of it could well be to take a worker who currently makes, say, $9 with health benefits, and give him $10.19 with no benefits. That’s because the higher cost of the living wage mandate must come from somewhere, and health care is one place where in some instances it might come. Mandate health benefits on top of the higher wage and the double whammy would cost many workers their jobs altogether.
Nationally, the living wage effort is being led by a group known as the Association of Community Organizations for Reform Now (ACORN). This organization actually filed a lawsuit in California in an attempt to exempt itself from paying its own employees the state’s then-current $4.25-per-hour minimum wage. In its legal brief, the organization declared that "the more that ACORN must pay each individual outreach worker . . . the fewer outreach workers it will be able to hire." That’s precisely the point!
Detroit passed a living wage ordinance in 1998 even though prominent economists forecast that it would wipe out jobs and force needless expense on the city. That’s exactly what happened. With Battle Creek’s 6.3 percent unemployment and budget constraints, it’s hardly good stewardship of city government to imitate Detroit’s mistake and pass an ill-conceived living wage ordinance. Does anybody really believe Detroit is better off today because of its living wage law?
If the "wages by government decree" theory works, then why should Battle Creek settle for mandating $10.19? Why not be really generous and declare a living wage of $25 per hour or more? Of course, the reasons that would be a bad idea apply to a smaller but real extent to hiking wages by decree to $10.19.
Poverty is not a permanent state of affairs, especially for the working poor. In a free labor market even low-wage workers learn skills and gain a reputation for reliability that they can use to earn raises or new, higher paying employment. Low income workers are not stuck in low-wage work as long as they can remain employed, but pricing them out of the market with living wage laws does them no favor at all. And the higher costs that living wages often impose on cities hardly does any favors for city taxpayers and the businesses they patronize.
The hard work of good government is not accomplished by feel-good mandates and magic wand decrees that ignore the economics of the marketplace.
Lawrence W. Reed is president of the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.