Freeman

ARTICLE

The Living Wage: What's Wrong?

DECEMBER 01, 2002 by WALTER BLOCK, WILLIAM BARNETT

The latest on the minimum-wage front, brought to us by the academic minions of "social justice," is a private, not a public, effort to raise the pay of low-wage workers. Emanating first from prestigious institutions of higher learning such as Harvard and Yale, this initiative has spread like wildfire to colleges all around the country.

The gist of the program is to raise the wages of janitors and others at the lower end of the pay distribution to $10 or $12 an hour, and to boycott suppliers who do not undertake a similar program. A minimum wage of $5.15, it would appear, might be all well and good, but something twice that amount is necessary if it is to be a "living wage."

It is entirely legitimate for a private university to offer whatever pay scale it wishes and to boycott any businesses whatsoever, for any reason it chooses. However, institutions of higher learning are supposedly distinguished by rational dialogue, and it is in this vein that we wish to register an objection to this unwise policy.

Let us consider several reasons for declining to pay labor more than is necessary to attract a sufficient number of job applicants and for ending discrimination against firms that pay market wages.

  1. Universities attempt to raise funds from the entire business community (among many other constituents). Making invidious comparisons between firms-singling out those that operate under market conditions for implicit condemnation-can hardly be conducive to this end. But this is mere pragmatism, unworthy perhaps of even being considered.
  2. The program will likely not have its intended effect of boosting the wages of low-skilled workers. Suppose the typical university subcontractor pays its unskilled employees $6 an hour and the "social justice" wage is $10. People in this stratum of the labor force would give their eyeteeth for such a position, since it pays 40 percent more than the market says the job is worth. Would not everyone and his uncle making under $10 gladly take up such a job? How will the limited number of spaces be allotted to the vast hordes of people? Would it unduly challenge credulity to think that some of the few selected would be willing to make a side payment to the hiring staff? Or that this might be demanded of applicants? Or that nepotism, favoritism, and other forms of discrimination might arise? After all, if prices are not allowed to allocate labor resources, other criteria will be used.
  3. If you want to give money to poor people, why not just go ahead and do it? Why tie it to their jobs of all things? That is, why conflate charity with an attempt to disrupt the labor market? Universities, at least private ones, are part of the market. Therefore they cannot disrupt it with any voluntary act on their part, even of this sort. But why even try? Why offer extra money to the unskilled in the form of higher salaries when you can use these funds for education or training or anything else under the sun?

    People Are Different

  4. The notion of justice underlying the "living wage" is predicated on the philosophy that income differences are unfair. It is patently obvious that in a market-based society, the primary reason some people are wealthy and others very much not so is that they have different initial endowments of intelligence, work ethic, ambition, talents, and entrepreneurial skills, as well as inherited material wealth and even luck. But despite these differences, the market tends to diminish income differences that would otherwise exist. This is because to become rich under free enterprise, you must enrich the lives of many other people; at the apex of the economic pyramid you gain a great deal, but you also drag onto a higher economic plane practically an entire society. (Think of Bill Gates or Henry Ford.) If we all lived on tiny islands as hermits, without economic interaction, some of us would be far wealthier than others. If material differences in wealth are unfair, then are not the very causes thereof, different endowments of human capital, also unfair?

Egalitarianism as a philosophy is dead from the neck up, insofar as even its adherents do not and, indeed, cannot take it seriously. Yet suppose there were a magical machine that could transfer IQ points (or beauty or health or hair follicles or musical ability) from those that have "a lot" to those who have "too little." It would be the rare egalitarian who would follow through on this pernicious philosophy. In contrast, the freedom philosophy requires only that people keep their hands off other people and their property, something far more peaceful and just, and also more readily attainable.

Walter Block holds the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at Loyola University in New Orleans.

William Barnett II is an associate professor of economics at the university.

ASSOCIATED ISSUE

December 2002

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