“Living Wage,” Dying City

by Joseph S. Bommarito

An alliance of the usual suspects consisting of liberal politicians, Green Party members, a group calling itself the Atlanta Living Wage Coalition, labor union members, and other assorted economic lackwits wants to enact a “living wage” ordinance in Atlanta, Georgia. The Atlanta City Council will vote on the ordinance this Fall, but that is just a starting point. A “living wage” rally was held on July 25 in downtown Savannah in an attempt to spread the infection, which is already rampant in a number of other states.

A living wage ordinance is local legislation requiring private contractors and grantees of the enacting government to pay a new form of minimum wage to its employees. Some 82 cities and counties across the country have already enacted such ordinances. In the case of Atlanta, the “living wage” has been calculated at $10.57 per hour, or about double the current federal minimum wage. The proponents of the “living wage” demonstrate a total lack of understanding of fundamental economics, a skill severely lacking in socialists, uplifters, do-gooders, and other ineducable collectivists. 

The “living wage” drive is the worst kind of example of the use of government coercion to advance collectivist agendas and interfere with the right of contract in a free market. Its proponents expect local efforts to gradually extend to states, the federal government, and finally the world. It is a major plank in the Green Party platform, which reads in part: “We believe that all people have a right to food, housing, medical care, a living wage job, education, and support in times of hardship.” Significantly, there is no stated right in the Green platform for the productive to be secure in their income or savings since they are the ones who will be forced to pay for these other “rights.” 

The primary unintended consequence of the adoption of such an ordinance would be the freezing out of competition. Businesses already paying the “living wage” would, of course, have no problem bidding on government contracts. Businesses paying less than the artificially-calculated standard would have two choices: raise their wage levels or not bid on formerly-available contracts. 

The enacting municipality would pay more than necessary for goods and services due to the denial of bids from non-“living wage” companies. More importantly, the taxpayers—involuntary suppliers of resources to municipal coffers—would be paying more than the fair market rate due to a back-door mandated price floor which is just another income-transfer mechanism in disguise. 

This is of no concern to the “living wage” socialists because they don’t see themselves paying the costs, probably due to those “D-minuses” they received in high school economics. (Note: They would have received “Fails” except for the social promotion mentality prevalent in government schools.) The educationally-deprived Coalition actually states that a living wage ordinance would “Increase fair competition for public contracts--by making it more difficult for poverty-wage employers to undercut companies who pay decent wages.” I fail to see how “fair” applies to an edict forcing businesses to pay more than an acceptable market rate for labor. I also fail to understand how this Coalition was granted the power to determine what “decent wages” are. 

A company that refused to raise its wages to the new standard would lose valuable contracts. Less work for the company means less work for its employees, leading to layoffs or permanent job loss when the company folds or moves away. A business that raised its wages and did not raise its prices would be squeezing its profit margin, probably past the point at which the owners could be expected to keep their doors open. 

Worker wages alone are not the entire burden. If wages are raised, then that pushes up line supervision wages and salaries and so on up the ladder. Benefits and other costs directly related to payroll, such as the oxymoronically-named Social Security, pensions, and various unemployment taxes, are also raised automatically with wages. 

Other businesses and individuals that bought from the affected companies would see their costs go up, resulting in price increases to their customers. In the long run, the people garnering the benefit of the “living wage” would see their higher wages diminished by higher prices, leaving them little or no better off than before. The Coalition fails to understand this because it sees everything in a static mode—a snapshot—whereas human action in the marketplace is dynamic—a long-running movie—with hundreds of millions of people in this country alone making billions of economic decisions daily. No single economic action takes place in a vacuum. 

The following example is given to highlight the probable consequences of “living wage” ordinances. (Disclaimer: I am not an apologist for city government; most city problems are due to local government, particularly those council members of the “cave-in” mentality who want to be all things to all people.) 

Example: Bigcity passes a “living wage” ordinance. Shortly thereafter, Bigcity Purchasing Department advertises its annual bid for office supplies. Both OfficeStore and SupplyShelf have bid on these items in the past. OfficeStore, in order to keep bidding, raises its wage from $9.00 per hour to $10.57. SupplyShelf raises its wage also, from $8.50 to $10.57. Note that both of these businesses were paying well over the minimum wage due to market forces. Bigcity accepts the lower of the two bids and awards the contract to OfficeStore, paying much more than previously for the same goods. 

Ms. Local Businesswoman notices her cost for office supplies increasing. Wanting to stay competitive, she goes to the PencilCup in Suburbville (or to the Internet), which is more than happy to get her business. Other Bigcity residents and businesses do the same; as typical Americans, they want to get the best bang for their hard-earned dollars. The PencilCup starts getting a lot more business because the two Bigcity stores have priced themselves well above the local market. Overall sales decline for both OfficeStore and SupplyShelf, but OfficeStore has the Bigcity contract to keep it afloat. Just before Christmas, SupplyShelf goes out of business, laying off its employees, most of whom start drawing unemployment. 

OfficeStore is now the only game in town, and Bigcity must pay whatever OfficeStore charges because Bigcity is trapped by its own ordinance. OfficeStore, having weathered the competitive storm, raises its prices to Bigcity on its next contract to make up for lost profits. This scenario is multiplied for each business affected by the “living wage” ordinance. In its annual budget, Bigcity announces a property tax boost to cover its increased costs of “doing business.” 

For some Bigcity residents, it’s the final straw. They’re being forced to pay higher city taxes, higher school taxes (the schools are also affected by higher costs), higher state taxes to support a mounting unemployment and welfare role, and higher prices at local stores. They move to Suburbville. Population in Bigcity declines, the property tax base suffers a meltdown, income tax revenues wither, and Bigcity can’t keep up with its infrastructure maintenance or its safety services. Industry and commerce start pulling out to the suburbs, speeding up the vicious cycle. The Immutable Law of Unintended Consequences has struck again. This scenario will occur to one degree or another, sooner or later, if “living wage” proponents have their way. 

It is ironic that the whole of the 20^th century was spent disproving the viability of collectivism in its many forms around the world, but we seem to be hell-bent on proving that it can work here. The “living wage” movement is just the latest impediment to a functioning free market, the latest brain-dropping of the socialist movement, and the latest danger to liberty and property.