The Living Wage Essay

This essay has a total of 1803 words and 8 pages.

The Living Wage

The living wage movement is an economic reform movement that has become one of the most
important public policy issues that has come up within the last 10 years. Although there
is no single definition, it is often defined as an hourly salary that allows working
families of four to have an income that is above the federal poverty line. This means that
the livable wage laws often stipulate that hourly wages should be two to three times above
the federal Mininum wage. However, unlike the Mininum wage, the living wage has so far
only been enacted on the county and city level. Cities and counties enforce the living
wage for companies that have contracts with their respective cities and counties, receive
subsidies from their cities or counties, other economic benefits cities and counties
provide to companies, and in some cases a livable wage is required for the tourist areas
of the particular city. For cities and local governments, the livable wage is perceived as
a measure to increase the welfare of the poor. However, like everything in life the
livable wage creates its on costs that along with its benefits of increased wage to some
low income earners.

Although the livable wage has a good intention of decreasing poverty, it is not consistent
with the American spirit of capitalism because the livable wage promotes an economy that
does not support business. America has always been a business friendly country. America is
a business friendly country because of the American belief in a hands-off approach to
commerce and the economy. This is called "laissez-faire" economics; the system allows
American companies to make decisions that are best for the firm which in turn increases
wealth throughout society because it makes an incentive to increase productivity. It also
turns out that this system of capitalistic economics is the most efficient at allocating
scarce resources. For example, the opposite of capitalism, a command economy, failed in
the Soviet Union. The Soviet Union's economy failed because it tried to allocate resources
through central planning, instead of having businesses determine how much of a product to
produce. Our system of limited government interference in business has allowed American
society to become the wealthiest societies in the world. The lack of government
intervention income has become ingrained with the spirit and ethos of American society,
and the livable wage goes against the important American ethos of friendliness towards
business.

The proponents of the livable wage take for granted how well our economic system works.
They see the livable way as a solution that will some how magically cure urban poverty
without imposing too many burdens on business. The livable wage will help some poor people
make more money, but it also has so many consequences that hurt societal welfare even
more. The reason why the livable wage creates so many problems is because it goes against
the American ethos of capitalism. Capitalism is the guiding spirit of American society. It
allows businesses to make their own choices in order to produce the greatest profits. This
motivation to achieve profits has allowed America to grow strong. Telling business the
optimal wage for their employees goes against capitalism. Business should have the right
to make their own decisions based on profit because this system of centrally managed
allocation of resources is inefficient compared with capitalism.

The belief and implementation of free markets and pro-business policies have allowed the
American nation to become the strongest country in the world. The entrepreneur is a
special type of business person that is hurt by the livable wage. Our nation's economy is
diverse and adaptable because entrepreneurs are always willing to take risks to make money
and stay competitive. Entrepreneurs act as the catalysts for the American economy. They
take the capital risks to create new products, services, and technologies. The American
entrepreneurial spirit to take risks and innovate, in order to make profits, would be
greatly harmed because of the high costs to start a new business in a city where a livable
wage is present. Entrepreneurs will likely be dissuaded into starting business when they
have to pay for low skilled employment that is three times more then the federal Mininum
wage. For example, some cities with a livable wage also stipulate that businesses in
tourist areas have to pay the livable wage like the city of San Francisco (Living Wages: A
Report by the Federal Reserve Bank of San Francisco). These tourist areas would look very
attractive to entrepreneurs and business owners because of the potential profit they can
make from tourists and high amount of consumers in tourist areas. Entrepreneurs might have
ordinarily started a business at the San Francisco fisherman's wharf but because of the
higher labor costs they would then have an incentive to start a business at some other
city like the fishermen's wharf at Monterrey. For cities to force compliance with the
Mininum wage in tourist areas is a potentially devastating action for business
entrepreneurs. There is no stopping business to move to other cities where there are no
exorbitant costs for wages that are associated with the living wage. The livable wage
itself opposes the motivating factors that have made the American economy strong. The
United State's strong economy will become weaker because of the livable wage's high costs
on entrepreneurs.

In addition to creating artificially high costs on business entrepreneurs, the livable
wage hurts established businesses in cities in many ways. There are many empirical studies
of the livable wage law after taking effect hurting the local businesses after taking
effect. One example of the negative effects of the livable wage on businesses is examined
in the United State's third largest city Chicago. Chicago's living wage ordinance was
almost passed in 1996. It did not pass the city council that year because of the economic
study done by the economic professors from the University of Chicago and DePaul
University. Chicago later adopted a livable wage that was a smaller percentage increase
from the Mininum wage. The proposed 1996 Chicago ordinance stated that all firms that do
business with the city of Chicago or receive benefits from the city government through
loans, subsidies, other forms of government assistance pay their employees $7.60 an hour.
The $7.60 wage was much higher than the Mininum wage at the time which was $4.25 at the
time this livable wage ordinance was proposed
(http://www.alleghenyinstitute.org/reports/00_08.pdf). A study by the Employment Polices
Institute, a nonpartisan group that has research performed by independent university
economists, tried to examine the total cost to the local economy and total benefit of the
living wage ordinance. In their analysis of the ordinance the direct costs on employers
was calculated to be $35.7 million. The authors of the study found that employers could
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