Wednesday, August 7, 2013

Living wage supporters miss the point

Recently news sites, and subsequently my Facebook newsfeed, have been pointing out that many companies like Costco, Whole Foods, Trader Joes, and an obscure fast food restaurant called Moo Cluck Moo in Detroit can afford to pay their workers a “living wage” and still make a profit. “If they can do it,” many ask, “why can’t Wal-Mart, Wendy’s, and McDonald’s?” The short answer is yes, they could. But the short, easy answer is not the whole story. Nothing is win-win (or despite what Michael Scott thinks, a win-win-win).

Every action has a cost; there are always tradeoffs. In the case of a “living wage”, the stories supporting it often speak of the increased productivity and less employee turnover of the workers at places like Costco, which helps the company make more money. They believe that if Wal-Mart paid their workers more they would receive the same benefits of increased productivity and less turnover and thus they could be a Costco success story as well. This may be true, but the cost is that it would likely not be with the same workforce Wal-Mart currently has.

Wages, like all prices, reflect value; they do not set value. The reason that employees at Wal-Mart and McDonald’s make what they make is that they contribute that much value to the company. If Wal-Mart paid their workers $12 per hour it would be because they hired workers that contributed $12 per hour of value to the company. This is what all of those living wage companies do. They hire workers that contribute $15 or $20 per hour worth of value and pay them accordingly.

The problem with mandating a living wage is that not every worker is capable of contributing $12, $15, or $20 worth of value per hour. Some of the really unskilled, inexperienced workers may be only able to contribute $6 worth of value, some only $8 or $10. If the legal minimum is $12 who is going to hire these workers? The answer is no one. If you think this is far fetched, consider these numbers from economist Walter Williams.

“In 1948, the unemployment rate for white 16-17 year olds was 10.2 percent while that for blacks was 9.4 percent. Among white 18-19 year-olds, unemployment was 9.4 percent and for blacks it was 10.5 percent. During that period, not only were the unemployment rates similar, black teenagers were either equally as active as whites in the labor force or more so.”

The most recent unemployment rate for blacks between the ages of 16-19, 41.6%; for whites, 20.3%.

For those of you who are thinking, “Well, we live in a racist country” (a silly stance in my opinion but hey) Mr. Williams adds:

"Let's investigate. Was racial discrimination in 1948 greater or less than racial discrimination today?”

The health of the economy and the changing priorities of youth and parents explains some of the overall increase in both rates but the huge gap between the two is largely a product of the fact that urban youth who are low skilled due to poor schools and high drop out rates are disproportionally black and low skilled people do not get hired at relatively high minimum wages.

In the same way that gentrification often forces poor minorities out from up and coming neighborhoods the minimum wage forces these same people out of the labor market. People are hurt by the minimum wage. This is a fact. It is reasonable to take the stance that the benefits of higher wages for some outweigh the costs of unemployment for others. But what is not acceptable is to deny that this cost exists and that real life people are harmed by the “living wage”. People who put themselves in a “living wage” cocoon of a win for employers, workers, and customers are na├»ve.

Today there is a generation of young people who are not working. They have not learned basic workplace skills like punctuality, dependability, proper workplace hygiene, and customer service. Many of us take these simple skills for granted, but if you never had that high school job at Burger King or Bob Evans or the local grocery store (all jobs that I had before graduating college) you would be surprised at how unprepared you would be for that first post high school or college job.

I encourage everyone to think about the real costs and benefits of a “living wage” before blindly accepting the easy answer. The debate is more complex than it first appears and there are reasonable people on both sides.

1 comment:

  1. Uncoerced trade is a win-win my friend.