Friday, June 22 , 2018, 10:36 pm | Fog/Mist 60º


Harris Sherline: Why Mandating a ‘Living Wage’ Is Still a Bad Idea

A recent article in the Washington Post reporting that Washington, D.C., is considering mandating a “living wage” caught my attention.

Walmart quickly reacted, saying that “it will pull out of D.C. plans should (the) city mandate (a) ‘living wage.’”

“The world’s largest retailer delivered an ultimatum to district lawmakers ... telling them less than 24 hours before a decisive vote that at least three plan(ed) Walmarts will not open in the city if a super-minimum wage proposal becomes law,” the Post reported.

“The bill ... would force a $12.50 hourly wage ... . The company’s hardball tactics come out of a well-worn playbook that involves successfully using Walmart’s leverage in the form of jobs and low-priced goods to fend off legislation and regulation that could cut into its profits and set precedent in other potential markets ... . Elected officials have found their reliable liberal, pro-union political sentiments in conflict with the desire to bring amenities to underserved neighborhoods.

“The D.C. Council bill would require retailers with corporate sales of $1 billion or more and operating in spaces 75,000 square feet or larger to pay their employees no less than $12.50 an hour. The city’s minimum wage is $8.25.

“While the bill would apply to some other retailers — such as Home Depot, Costco and Macy’s — a grandfather period and an exception for those with unionized workforces made it clear that the bill targets Walmart, which has said it would open six stores, employing up to 1,800 people.

“Walmart’s decision echoes the retailer’s first incursion into an American urban center seven years ago, when the Chicago City Council passed a similar ‘living wage’ measure. The company indicated then that the bill would cause it to scale back or entirely scrap its plans to open several stores. Mayor Richard M. Daley vetoed the bill, and the council failed to override it.”

I’ve never been a fan of the “living wage” policy, which I believe causes more problems than it solves.

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 in such matters — rather than the free market.

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.”

One 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 $14.70 an hour ($30,576 a year) with benefits, or $12 an hour ($24,960 a year) without benefits. Santa Monica adopted an ordinance that requires all businesses that provide services to the city in excess of $54,200 a year must 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 $30,330 a year, which is about $14.58 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 surely not the taxpayers, who are forced to bear the burden of additional taxes to cover the increased costs incurred by their local governments.

Proponents of the “living wage” argue that it is necessary 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 $19,240 a year) isn’t adequate to support a family, it isn’t 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 are not 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 they need.

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

— Harris Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital. Click here to read previous columns. The opinions expressed are his own.

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