The living wage campaign seemingly has been in a stalemate for years, with many adamantly in favor and many adamantly opposed (see, for example, The Cavalier Daily's Oct. 31 University Forum). Still, we can all agree (I hope!) that no one would like to see workers make a "dying wage," whereby one's family would perish despite putting in a 40-hour workweek. Nobody I know supports this -- nobody. To help break this stalemate and move forward, let's differentiate between the literal concept of a wage which will not cause death and the "living wage campaign," which specifically proposes that wages for the University housekeeping staff and employees of firms with whom the University contracts be increased above some floor. (The semantic purposes behind the "living wage" label are the same as those implying that someone who is not "pro-life" is a rabid fan of death and that someone who is not "pro-choice" is never in favor of people having any choices.)
As a socially liberal person myself, I very much appreciate the spirit of social causes such as the living wage campaign. The problem is that too often policy initiatives are passed without an understanding of the total cause and total effect. The economist often performs analysis using the Latin term "ceteris paribus" -- all other things held constant. If other things could be held constant, I would love to see everyone in America get a hefty raise. However, with respect to policy initiatives undertaken in the name of social justice, other factors are not generally held constant and the results are often not those intended.
The economic principles of supply and demand -- i.e. higher wages means fewer housekeeper jobs coupled with more people desiring scarce housekeeper jobs -- are self-explanatory and have been stated in this debate time and again. Further, the federal government's Earned Income Tax Credit already provides a wage supplement to over 20 million low-income working Americans (presumably any impoverished University employees included) who would otherwise be near or below the poverty line. However, rather than raising such arguments here, arguments that have not taken the debate forward, I'd like to start from what I believe to be common ground for the two opposing sides -- maximizing the welfare of University employees -- and then offer a few episodes from 20th century American labor history as caveats before attempting to proceed to this desirable end.
During the 1920s, in one of the government's earliest labor initiatives, women were "protected" by imposing minimum wage and maximum hour provisions for female labor. Certainly some women benefited from these protectionist provisions. However, there was an unintended result -- women became generally less desirable to employ compared to the now relatively cheaper male labor. Many women who enjoyed the independence they attained by working were forced back into their traditional roles. This is clearly a case of good intentions gone awry.
During the 1930s, the Roosevelt Administration similarly "protected" children by not allowing the employment of anyone under 16. Again, there were benefits to this, but also costs. While one can debate the ethics of such a situation, families who relied on the income from their 14- or 15-year-old children to put food on the table during the economic hardship were left destitute. The well-being of children of such families fell rather than rose.
The Great Depression itself is perhaps the biggest experiment in the history of labor policy. Though you wouldn't be able to decipher it from the pictorial history of the 1930s, America got its largest pay raise in history during this time. In real terms -- that is, adjusted for changes in the price level -- hourly wages rose 43 percent between 1930 and 1938! The cause of these massive wage increases was well-intentioned labor policies of Presidents Hoover and Roosevelt -- who, in fact, made wage increases the cornerstone of his "New Deal." In a ceteris paribus world, the 1930s should have been a giant party rather than a depression -- of course, when it comes to wage policy, other factors are not held constant.
If you were able to keep your job during the 1930s, you were probably doing pretty well. However, unemployment occurs when wage rates are above the rate at which the supply and demand of labor are equal. Policies that raised wage rates further above this level only exacerbated the problem. Unemployment rates remained between 15 and 25 percent -- historic highs not reached before or since -- until the widespread conscription of men into the armed forces after Pearl Harbor.
The point of the above historical examples should be clear: with respect to labor policy initiatives -- always passed with the best of intentions -- the full economic consequences are rarely understood or taken into account. History consistently shows that non-market based wage adjustments bring about some of the intended benefits, but also bring with them some unintended costs. Generally, the more expansive the program, the larger these costs become.
It seems that the living wage debate could move forward if two things would happen. First, those opposed to the "living wage campaign" acknowledge that such a policy would bring about some of the intended benefits proposed by its advocates. Second, those in favor of the campaign acknowledge that such a policy would undoubtedly bring about some of the unintended costs raised by its opponents. Both sides want what's best for University employees and the University community at large, but one thing seems certain -- a general raise in housekeeping wages is not a free lunch. It would be refreshing if all parties started from this common ground and then moved forward.
(Jason Taylor is an assistant professor in the Department of Economics.)
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