Yale liberals have an annoying tendency to write as if a “living wage” is tantamount to a free lunch. Last week, for example, Victor Corona (“Working to Build a Better New Haven,” 2/21), listed the topic of living wages as an “important issue” which “community activists” should “organize around”. But compared to alternative policies, the living wage is inefficient, regressive, and cannot deal with the real issue at hand: national income inequality.
First, let’s be honest about what a “living wage” means: It is simply a euphemism for a higher minimum wage. Sadly, people who should know better, including members of the Harvard Living Wage Campaign and our very own New Haven politicians, have adopted this misguided cause.
If passed, the “living wage” would apply only to a few people in a few industries and would therefore hardly make a dent in income inequality. Efforts to enact this policy at Harvard or in New Haven waste valuable energy and political capital that could be used to promote egalitarian national economic policies such as an expanded version of the Earned Income Tax Credit.
To see why the living wage scheme is such a lousy idea, we must try to answer the age-old question: what is the best way for government to take from overpaid rich people and give to underpaid workers?
Well, for wage earners, why not subsidize their wages — in other words, add a certain amount of money to the wage paid for each hour of work? The first problem to surface is the question of where and how the government gets the money for this program.
Basically, there are three possible sources to generate this revenue. First, there could exist a law that taxes each employer on every hour of labor he hires. Let’s call it a “minimum wage” tax. The government uses that same “minimum wage” tax revenue paid by the employer to add to the wages of his employees. Full disclosure: If you fund a wage subsidy this way, it is effectively identical to a minimum wage law. In other words, the minimum wage tax is a thinly disguised and poorly designed taxing and spending program.
Second, there could exist a law that taxes the incomes of employers regardless of how many laborers they hire. The money raised would then be redistributed to workers.
Third, there could exist a law that funds the wage subsidy by taxing the incomes of wealthy people upwards of the 95th income percentile. This personal income tax is unrelated to how many workers employers hire.
Among these, I would rank the third plan best and the first as the worst.
The minimum wage bill discourages employment of less productive workers by making it more costly to employ them. Also, living wages fail to distinguish between struggling small businesses and large, high-profit corporations, and their costs are often passed onto the consumer.
On the other hand, the third policy does not really increase the cost of hiring, and the tax does not fall on the poor and middle class. Sure, it burdens rich people, but they can shoulder its costs better than anyone else in society.
If minimum wage laws are regressive and inefficient compared to other policies, why do people support them? Probably due to the success of the conservative movement, many Americans have developed a reflex of hostility to government programs, to taxation, and to the two politically fatal words: “income redistribution.”
Unfortunately, appearance dominates and hidden costs are unseen when hardworking voters and union members have little extra time to consider policy issues. Without a closer look, the minimum wage looks like a free lunch while that third policy seems more like “tax and spend.” In fact, they are both forms of taxing and spending, and the costs of the minimum wage are greater.
Although these trends explain support for minimum wage laws in the population at large, I think that the situations at Harvard and in New Haven boil down not just to ignorance but also to selfishness. Although a living wage at Harvard does nothing about the larger problem of national income inequality, it does rid Harvard student activists of some of their “rich guilt.” A living wage applied to a broad range of industries in New Haven would certainly benefit New Haven’s unions by preventing low-skilled workers from competing for jobs against union members. Is there any doubt that, by doing the unions’ bidding, so-called “progressive” politicians and Yale students can increase their influence at the expense of those unskilled workers, not to mention their own intellectual integrity?
Right now the minimum wage is low enough that it does little harm. But its hidden costs will grow if living wage campaigns continue to become more and more successful. Next time you hear a well-intentioned college activist demanding a “living wage,” tell him to reveal its hidden costs and to get serious about income inequality.
Bobby Pelgrift is a sophomore in Morse College.