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Monday, December 10 , 2018, 7:25 pm | Fair 52º


Harris Sherline: The ‘Living Wage’ Is a Bad Idea, Part I

Local governments and businesses pay a steep price under such ordinances

[Noozhawk’s note: This is the first in a two-part series.]

A recent article reporting that the City of Santa Barbara is considering expanding its living wage ordinance caught my attention. I’ve never been a fan of the “living wage” policy, which I believe causes more problems than it solves.

Harris Sherline
Harris Sherline

For one thing, does anyone know how much a “living wage” should be? After all, one man’s “living wage” may well be another’s poverty wage.

The wage rate that might qualify as an adequate living is in the eye of the beholder, and differs among various communities and geographic regions. Most people would probably agree that it costs more to live in Santa Barbara than many other cities around the country, but we would undoubtedly find little agreement on the amount that is needed to support a reasonable lifestyle in any community.

So, just what amount of compensation is necessary to provide an adequate living, and who should make that decision? It appears that many city and county governing boards have become the decision-makers — rather than the free market — in such matters.

In the case of Santa Barbara, businesses that have contracts with the city that exceed $15,000 are required to pay their employees a “living wage” of $12.15 to $15.45 an hour, depending on whether the vendor offers health benefits. California’s minimum wage is $8 an hour.

Although the concept has been around for a while and was adopted by the City of Santa Barbara in 2005, I have yet to see a clear statement of what it actually is.

In fact, it is nothing more than a minimum wage packaged under another label and justified as “economic justice.”

The rationale for such legislation is that vendors who are paid for their goods and services with public funds should be required to pay a “living (minimum) wage” to their employees. Since 1994, 130 cities around the nation have put “living wage” ordinances on their books.

Santa Cruz adopted a living wage that requires a minimum wage of $11 an hour ($22,880 a year) with benefits, or $12 an hour ($24,960 a year) without benefits. Santa Monica has adopted an ordinance that requires all businesses that provide services to the city in excess of $54,200 a year to pay a “minimum wage” of $12.97 an hour, which is annual compensation of just less than $27,000.

In Santa Barbara County, the median income (half above/half below) is $30,065 a year, which is about $14.45 an hour (based on 2,080 working hours in a year).

So, who benefits? Aside from the employees who are paid a “living wage,” the local government is forced to pay higher prices for goods and services from vendors who must raise their prices to recover the added costs of doing business. And it’s surely not the taxpayers, who are forced to bear the burden of additional taxes to cover the increased costs incurred by their local government.

Proponents of the “living wage” argue that it is necessary in order to provide an adequate standard of living for a family. Although it seems pretty clear that the minimum wage (at $8 an hour in California, about $16,000 a year) is not adequate to support a family, it’s not clear how many people who are paid the minimum are also the primary breadwinners for their families. As a matter of fact, an Employment Policies Institute study found that “the average family income for employees who would ‘benefit’ from the proposed minimum wage hike was $37,782.” Why is that?

The reason is that nearly 70 percent of minimum wage employees “live with their parents or relatives or have a working spouse.” Only 2.8 percent of the employees older than age 30 are paid the minimum wage. The people the “living wage” seeks to help are generally part of that 2.8 percent. So, why is it necessary to raise the minimum wage for 100 percent of the employee population to provide a “living wage” for less than 2.8 percent of them? How much money will be wasted to accomplish this?

Another consideration in evaluating the living wage issue is the “law of unintended consequences.”

For example, firms that do a substantial amount of their business with customers in the private sector are very likely to opt out of offering their services to government agencies. Raising the minimum pay for all vendors’ workers would undoubtedly make employers less able to compete with other businesses that aren’t required to do the same. So, the city, county, state, etc., simply lose qualified bidders, thereby limiting their choices as to both price and quality, or forcing them to pay higher prices for the goods and services it needs.

From just about every perspective, the “living wage” is a bad idea.

— Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who has lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his blog, Opinionfest.com.

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