Saturday, March 11, 2006

More Insight Into The Living Wage

Our recent commentary urging Memphis City Council to pass a living wage resolution produced some lively responses, so to get the best perspective of the issue, we went to the best expert on the subject, David Ciscel, the highly regarded professor of economics at University of Memphis.

In response to the questions of several readers, he wrote:

The issue of the living wage will always be contentious. It starts with the assumption that the market is doing a poor job at the low end of the labor market.

The idea of a living wage or a regional minimum wage is to level the playing field for all businesses that hire these types of employees. If one retail store or one restaurant has to pay more, then the others in the area are put at a relative advantage. Thus, a higher wage for everyone allows each person who works for living to live a decent life without subsidies and without harming local business.

Higher wages do several things for the community:

1. They improve human dignity -- making sure everyone who works earns enough to live independently. Families or individuals with high wages invest in themselves and in their families. That way, the future allows them to find better jobs.

2. They increase the spendable income in the area. There is modest evidence that higher minimum wages actually increase sales and employment in retail trade and restaurants because local employees have more money. In Memphis, we have a lot of poor people. They don't spend much. That leaves us all worse off. Higher wages help turn that around.

3. Higher wages force business innovations. High wages lead to innovations -- often techniques that reduce labor needs. Low wage economies tend to be technologically backward.

You can't solve all the problems in the world with a living wage or a higher minimum wage. But, in fact, the richer parts of our country have much higher wages. And they have better jobs. And they have healthier retail economies.

Where is the chicken and where in the egg in this chain of economic wealth? I'm not sure. But I do know that higher paid individuals spend more in whatever economy they live in.

Though I am an educator, I don't think that the only criterion for pay should be number of degrees. Hard work and long hours should pay off. When it doesn't, the market is not working properly.

Clearly, by creating the PILOT program for business investment in the community, the leadership of the community is clearly stating that the market will not, by itself, bring new jobs to Memphis. Similarly, we need to jump start higher incomes for individuals in our economy with a living wage.

Finally, a living wage needs to enacted for the whole region. But politically, you have to start somewhere.


Larry said...

For all their emotional appeal, calls for a "living wage" confuse cause with effect. Raising the minimum wage is well intentioned, but it does nothing to alter the underlying factors that keep some workers from achieving a living wage. The fundamental question is: What is the best way to help unskilled workers?

The best answer lies not in arbitrarily hiking entry-level wages, but in authentically raising education across the board.

Each competitor in a business has some comparative advantage over others in one respect or another. For some, that advantage is clearly low-cost labor. That being the case, it is clearly counterproductive to raise threshold wages here when cheaper labor rates are available just past the city limits.

In most instances those who earn higher wages have done so thru education, training, effort, and hard work - opportunities which are available to everyone. For those who are under 40, the military provides both wages and training at the same time. The military also provides discipline and post-service education benefits ... not to mention a little "fun, travel, and adventure"! ;)

Increasing the minimum wage is not cost-free. Someone has to pay for it. Economic research indicates that those who pay the most are unskilled youth through fewer job opportunities ... even Ciscel concedes that point, consumers pay thru higher prices, and taxpayers thru higher taxes or fewer services. So essentially, you're robbing Peter to pay Paul especially since many, if not most, of those jobs paying low wages are local businesses struggling to survive. You MIGHT see an increase in spendable income in the area if the majority of those jobs come from large corporations rather than locally owned small businesses.

The best way to help unskilled workers in Memphis is to provide opportunities for education and retraining.

According to the Tennessee Center for Policy Research, Memphis sits in last place in a new ranking of business friendliness among the state's 50 largest cities. Let's not make it worse.

Raising the minimum wage makes for good political theatre. It may, temporarily ... and only temporarily, make some workers feel better about themselves. But the best way to increase one's paycheck is to gain the additional skills that command higher wages.

Smart City Consulting said...

Larry: Thanks for the response. We just disagree, and as others have pointed out, the Tennessee Center for Policy Research's report is questionable from a scientific point of view. That said, we just have a fundamentally different view on this. Until our country is willing to spend as much time making sure that all of our workers make a living wage as we do making sure that Wal-Mart and huge employers have a cheap, ready market for workers (even if we have to legalize illegal aliens), we're doing ourselves a disservice. It may cost business more on one hand, but on the other, it produces more money to spend, more stimulus for the economy, more money in cash registers, more tax revenues, etc.

We've all gotten the point about prevailing government economic theories: trickle down economic policies only looks good if you're at the top. Those at the bottom not only deserve more attention; we have failed the social compact that created the U.S. if we don't do something to make sure that when families work, they don't also qualify for welfare. SCC

Larry said...

"...we have failed the social compact that created the U.S. ..."

Huh? The only compact that I'm aware that created the U.S. was the Constition and there is nothing in there about the gov't acting as an agent stealing from one class and giving it to another.

I ate lunch at Subway today. I asked the ladies there if Subway started them at minimum wage ... their answer: "Oh no!" The lady gave me the quick run down of how the starting wage depended on experience, job position, and skill of the employee but all of them were above minimum wage. She told me the cashier can start at over $8/hr.

We also seem to have plenty of illegal workers working above minimum wage.

Minimum wages jobs are usually just entry level or "supplemental" jobs never meant to be support one adult on his own much less a family.

Now, where we might find some common ground is that if we give a PILOT break, then we should demand a higher minimum wage be paid to the workers.

As for the Tennessee Center for Policy Research's report. I think the economic part was good; subjective parts show an obvious Nashville centric bias. For instance, how did they come up with a cultural rating of 16.9 for Memphis and 90.8 for Nashville???

They gave a higher score to Nashville's "international" airport.

They didn't factor in that Amtrak serves Memphis and West Tennessee but not Nashville.

So yes, there are flaws in their report but Memphis does have the highest property tax, high crime, and poor schools ... and let's not forget a mayor annointed by God and a state senator serving God's will ... all factors that will put at or near the bottom of any list. It's no wonder we have to bribe businesses with PILOTs.

Smart City Consulting said...

Larry: It's the social compact that every one from Jefferson to Gingrich has written about. And if there is nothing in the Constitution about stealing from one class to give to another, you need to take a closer look at our income tax structure and economic policies. It's being done daily in the name of capitalism. I think we could find some common ground on the PILOT issue, and maybe more. As for views that somehow Nashville is the promised land, keep in mind that its crime rate is just as high as ours, its schools are like most urban school districts and it could be argued that a few powerful business leaders control the public decision-making process. Nashville isn't all good; Memphis isn't all bad. SCC

Larry said...

The Constitution that created the current United States (don't forget about the Articles of Confederation that preceded it) didn't have an Amendment for theft via the Income Tax. That didn't about until the 20th Century. Personally, I think the income tax should be eliminated ... possibly replaced with something like the Fair Tax.

To be sure, all systems could be traced to some form of "social compact": Perhaps to a surrender to a conquering force; perhaps to a voluntary adherence to a rising Prince or a War Lord by those seeking protection. Government was simply a entity that was! John Locke argued that sovereignty resides in individuals, not gov'ts. A political state, he theorized, emerged from a social contract among the people, who consent to gov't in order to preserve their lives, liberties, and property. Instead we now have the gov't taking liberties and property.

Clearly the The Declaration of Independence was NOT a call for Egalitarian Government; nor was it a suggestion of equality in ability or economic circumstance or class. None of the signers believed in any such nonsense. The phrase "all men are created equal", in the context in which it is offered, can only be interpreted as referring to the fact that the existing Government had no divine right to rule.

By no stretch of the meaning of words, do they justify a Federal role in private employment, State school systems, civilian health, or in dealing with "poverty".

By using an income tax as a method of wealth transfer it resorts to the law of the jungle, the law of brute force. And let's be clear here. The top 50% pay 96% (2003) of all income taxes. The top 1% pay more than a 34%. I'm nervous about the day when it becomes the top 49% pays 100% of the taxes ... then mob rule (theft) will be nearly complete.

Smart City Consulting said...

Larry: We'll apparently never find common ground on this one. We simply refuse to accept the premise that capitalism was designed to effect the greatest shift of money to the wealthy in the history of mankind. Even Republican commentators like Kevin Phillips find the massive shift in wealth - and the multi-year stall in family incomes for anyone but the wealthy - a disgrace. And it is. SCC

Larry said...

Kevin Phillips is a RINO who hasn't been a "republican" since Nixon and I doubt he was ever a conservative.

Anyone who believes that "capitalism was designed to effect the greatest shift of money to the wealthy ..." simply doesn't have the basic understanding of capitalism nor how wealth is created. They are confusing cause with effect.

Where is this "shift in wealth" coming from??? Who has it? Who is "shifting" it to the wealthy?

It obviously isn't being shifted from those in poverty. They have no wealth to shift!

Wealth is not a static thing. It's not a zero sum game. For one person or family to become wealthy ... like the ultra-liberal Kennedy family or like liberal Steve Jobs (Apple Computer) ... doesn't mean that it came at the expense of someone else. Steve Jobs didn't steal it from anyone.

Wealthy people tend to know how to manage their finances. If they don't, they don't remain wealthy for very long.

When I was a young teenage, a local self-made man for whom I working at the time (started out at minimum wage) advised me to read "The Richest Man in Babylon" and follow it.

It was difficult. I was from a lower, middle class family (at best). At the height of recession with no marketable skill nor money, I joined the Army. I worked hard, I saved money, I'm somewhat frugal, I used the Army benefits to get a degree, I continue education and training to this day to keep myself marketable.

After all these long years, it's starting to pay off. I fully expect my 401k to be worth over $500k - minimum (if the market grows at the historical avg, it'll be closer to a million) - when I retire (no later than age 60). I will have a retirement on top that. Whatever I get from social security will be gravy.

So you see. I'm not envious of Steve Jobs for becoming a billionaire ... I'm not envious of the wealth of the Kennedy's, nor even of the Ford family here in Memphis. Even tho I've made missteps and could be even better off, I'm satisfied that I'm doing well.

State welfare makes an individul subservient to the government. He/she loses his liberty and freedom. If welfare is provided in goods and services (such as Medicad/Tenncare), the freedom of choice is also lost; if it is provided in cash, resentments, disincentives, and inequities, not to mention a bureaucracy, are created.

So, yes, we probably won't find common ground in this area. I believe the modern welfare state is a form enslavement to those caught in its clutches.

Smart City Consulting said...


We can assure you from personal experiences with him that Kevin Phillips was in fact a Republican and the primary architect of its Southern strategy, for which it owes its entire base.

Thanks for the continued response. As we've said, we'll simply agree to disagree.