This article originally appeared in The Oakland Press on Aug. 11, 2002.
There is a school of public policy whose approach is best summed up: “Ready! Fire! Aim!” It is this school of well-intentioned impatience that gives us laws like the so-called “living wage,” which supposedly helps lower-income workers take home more pay but in reality makes it harder for the working poor to get or keep jobs.
The city of Southfield is now looking to follow in the footsteps of Detroit and seven other Michigan municipalities by passing such an ordinance, forcing employers that do business with city government to pay wages well above the federal minimum wage.
Southfield's version of the ordinance would apply to all companies that receive more than $50,000 annually for providing services to the city or receive any city tax abatements. Covered employees must receive an income equal to the federal poverty guideline for a family of four. Employers who do not provide medical coverage are obligated to tack on another 25 percent to the wage level.
Sounds good, right? Not so fast. It must be remembered that any wage increases caused by the ordinance must ultimately be paid for by Southfield taxpayers. And because firms will not bid on city contracts if they cannot make at least a modest profit, some will drop out of bidding, reducing competition and nudging the price of city services upward. Others will increase their rates outright. A few may find ways to save money by providing the same services with fewer unskilled workers. This would be good news for city taxpayers, but bad news for any workers who lose their jobs.
And humble as these jobs are, for unskilled or poorly educated individuals low-wage employment is a gateway to higher-paying jobs. Low-wage earners frequently see their wages rise quickly: Researchers at two universities, Florida State and Miami of Ohio, found that full-time workers hired at the minimum wage received a median pay increase of 13 percent within their first year, proof that even without the living wage law, low-wage employees are able to work through minimum wage jobs into better ones. Artificially raising wages will cut off this difficult but direct path to greater prosperity for many poor families.
Even if the living wage ordinance worked exactly as intended and no workers lost their jobs due to being priced out of the labor pool, it remains far from clear that poor families would be the main beneficiaries of the law. According to a nationwide U.S. Census survey of workers making $6.15 per hour or less, 41 percent of low-wage earners live at home or with a relative, and another 22 percent are married with an employed spouse. Only 15 percent of workers earning under $6.15 per hour are the sole breadwinners in families with children. The average family income for low-income workers is a healthy $40,000 per year.
In other words, the typical beneficiary will not be a poor father or mother scrambling to keep a family fed, clothed, and housed. The citizens of Southfield are more likely to have their taxes increased in order to pay higher wages to teenagers and young adults living at home.
Like the living-wage ordinances in other communities, the Southfield version is remarkably naïve; however, at the same time certain details reflect deep cynicism. First, a blanket exemption applies to collective bargaining agreements, which means that “poverty wages” are acceptable as long as they are approved by a local union, which will naturally demand the longsuffering workers pay their dues. And while charities employing 10 or fewer workers are exempted from the proposed ordinance, larger charities must apply for an exemption from the city council. The directors of charities are frequently community leaders in their own right but under this ordinance they may need to be careful not to disagree too publicly with any city policies, lest city council members vote to revoke their exemption.
If adopted, Southfield’s living-wage ordinance will leave its backers feeling good about themselves for having done “something” for the disadvantaged. But because they fail to think before acting, that “something” will be at best costly and pointless and at worst costly and harmful to the employment opportunities of lower-income workers.
This “feel-good” wage law is a prime example of how good intentions, linked with shallow thinking, can lead to terrible policy.