By Tom Larmore
(Editor’s note: This is one of a series of weekly columns editorializing on the hotly contested living wage ordinance. The city council passed an ordinance last July requiring businesses that generate more than $5 million in annual revenue to pay their employees $12.25 an hour. Those businesses and their supporters have asked for the ordinance to be rescinded, which is before voters this November.) The city’s Minimum Wage Ordinance constitutes bad policy for a variety of reasons. One of the most important is that it will be a failure from the perspective of those who support it — it will hurt, not help, low-income workers by eliminating job opportunities for those who most need them. While job losses are surely not the intent of the law’s backers, common sense tells us that it will be the result.
In my first column on this subject, I explained why an artificially high governmentally-imposed price floor on apples would result in a surplus as the supply increased and demand decreased. Were a government to take such an action, the reduced demand for apples would be filled only by those having the highest quality.
Exactly the same analysis applies to labor. Whenever the government establishes a wage floor higher than what the market supports, the pool of people looking for those jobs will increase and the demand from employers will decrease. The result will be that the reduced number of jobs which are subject to the increased wage level will be filled by those having the most experience and greatest job-related skills; this is particularly true here given the mandated raise of over 80 percent.
Dr. Alan Blinder of Yale University, a former Vice-Chair of the Federal Reserve Board and Al Gore’s economic consultant during the 2000 campaign, wrote the following in his book, Hard Heads, Soft Hearts: “The people who work at minimum wage... do so because their value to employers is low, not because there is a conspiracy against them. But society cannot raise their productivity on the job by wishing it higher any more than it can create a perpetual motion machine by waving a magic wand. Better education, appropriate training, and more work experience all stand a fighting chance of boosting productivity. Raising the minimum wage does not. It simply raises the price of unskilled and inexperienced workers. Employers naturally react by hiring fewer of them. And so society succeeds in raising the wages of some by forcing others to pay the ultimate economic penalty; loss of their jobs. That swap is not an obvious improvement in economic justice.”
As Dr. Blinder says, we all want low-income workers to earn more money so that they can provide a better life for themselves and their families. However, increasing the minimum wage by more than 80 percent will succeed in raising the salaries of some, at least in the short run, but eliminate job opportunities for many others. This is because the number of available jobs from those employers subject to the law will dwindle at the same time the labor pool is expanding, bringing workers with greater experience, education and general skills, just as an above-market price for apples will lead to elimination of demand for all but the best.
There are ways to assist low-income workers and their families. This ordinance, no matter how well-intentioned, is not one of them. To argue otherwise is to either delude yourself or mislead others. (Tom Larmore is a Santa Monica resident and a property rights attorney.)
Originally published in the Santa Monica Daily Press print edition on July 23, 2002. Read the original PDF.