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