Winter 2003 | Vol. 13, No. 1
http://www.city-journal.org/html/13_1_how_the_living_wage.html
How the "Living Wage"
Sneaks Socialism into Cities
Steven Malanga
ver the last decade, a savvy left-wing political movement, supported by
radical economic groups, liberal foundations, and urban activists, has
lobbied for a government-guaranteed "living wage" for low-income
workers, considerably higher than the current minimum wage. The movement
has scored enormous success: 80 cities nationwide, from New York to San
Francisco, now have living-wage legislation in place. Many of the
earliest laws were narrowly focused on workers at companies with
government contracts. But as the movement has grown, it has successfully
imposed its mandate on a wider array of businesses; one city has even
passed a citywide living wage.
This is bad news for cities. The living wage poses a big threat to their
economic health, because the costs and restrictions it imposes on the
private sector will destroy jobs-especially low-wage jobs-and send
businesses fleeing to other locales. Worse still, the living-wage
movement's agenda doesn't end with forcing private employers to increase
wages. It includes opposing privatization schemes, strong-arming
companies into unionizing, and other economic policies equally harmful
to urban health.
The living-wage movement got its start in mid-1990s Baltimore, whose
radical urban politics and anti-business ethos provided fertile ground.
In 1993, a coalition of Baltimore's left-leaning church leaders,
unionists, and community activists began to push for a "social compact"
that included a hike in the minimum wage to $6.10-43 percent above the
federal minimum wage at the time-for service workers in hotels and other
businesses in the city's redeveloped Inner Harbor, a prime tourist area.
Baltimore's then-mayor Kurt Schmoke initially balked at the potential
harm that such a wage increase would inflict on the city's already
shrinking economy and budget. But he eventually signed a compromise bill
that guaranteed the new $6.10 minimum for workers at any companies
contracting with the city, on the principle that, unlike the Inner
Harbor firms, these employers benefited directly from public funds and
thus had an obligation to pay a higher minimum as a way of helping the
city carry out its self-proclaimed mission of improving the lot of the
urban poor.
Supporters hailed the increase as a costless victory for low-income
workers. The labor-backed Preamble Center for Public Policy rushed out a
study purporting to show that the legislation benefited Baltimore
workers but did no harm to the local economy or to the city budget,
because city contractors effortlessly absorbed the cost of the wage
hike. The study's claims didn't withstand scrutiny-contracting costs did
rise-but that was almost beside the point. Far from turning into a
workers' paradise, Baltimore saw its economy crash and burn during the
mid-1990s, with 58,000 jobs disappearing, even as the rest of Maryland
added 120,000 jobs and other cities across the country prospered. The
living-wage bill was just one expression of a fiercely anti-business
climate that helped precipitate Baltimore's economic collapse.
Sensible observers would call Baltimore in the nineties an urban
disaster, but to the nascent living-wage movement, the city became the
poster child for future activism. Looking to the "success" of the
living-wage campaign in Baltimore, a host of left-wing groups, including
Ralph Nader's Citizens Action and the Association for Community Reform
Now, or ACORN, joined forces in 1995 in a national "Campaign for an
America That Works," which made the living wage central to its demands.
The campaign was so radical that it had no impact on the national level.
But on the local level, where the political environment is usually far
to the left of Washington, it popularized the living-wage idea, which
began to catch on in city after city.
As it spread beyond Baltimore, the living-wage movement at first
purposely kept its aims narrow. Early legislative victories applied to
just a few workers. In 1996, for example, Milwaukee County passed a law
increasing the minimum wage only for city-contracted janitors and
security guards to $6.25 an hour. New York City's law, passed over Mayor
Giuliani's veto, applied only to government-contracted security
personnel, cleaning workers, and temporary employees.
Soon, though, living-wage supporters began to win ever broader laws,
covering ever more workers and businesses. Detroit's 1998 living wage
applied to any business or nonprofit with a city contract or to any firm
that had received $50,000 or more in economic development
assistance-ranging from the Salvation Army to small manufacturers
located in the city's economic development zones. San Francisco's law
went beyond city contractors to cover workers at the city airport, on
the grounds that businesses there leased land from the city; airlines,
newsstands, fast-food restaurants-none was exempt. In early 2002, New
Orleans, ACORN's national home, enacted the first citywide living wage
in the nation-something the movement would like to see replicated
everywhere. Today, 42 states now have at least one municipality with
living-wage legislation.
The movement owes much of its success to the model campaign-exportable
anywhere, anytime, fast-that its proponents, above all ACORN's national
living-wage center, have created. The prospective living-wage activist
can find everything he needs to know in a step-by-step manual, concocted
by ACORN director of living-wage campaigns Jed Kern and Wayne State
University labor economist David Reynolds.
The manual echoes the organizational theories of legendary radical Saul
Alinsky. Coalition building is key. Alinsky's modus operandi was to get
diverse constituencies to support his various causes by emphasizing
their shared interests. In the same way, ACORN urges local living-wage
campaigns to build powerful coalitions of Hispanic workers, inner-city
ministers, and various community advocacy groups.
To pull off such coalition building in practice, you need more than a
manual, of course; you need money-and the movement has lots of it,
thanks to the backing of leftist foundations. The Tides Foundation
(currently lending financial support to groups opposing war in Iraq) has
given hundreds of thousands of dollars to local and national living-wage
groups. The Ford Foundation has been another big contributor.
The coalitions the movement has assembled have included hundreds of
religious groups, allowing organizers to present their economic agenda
as deeply moral-even divinely sanctioned. Labor groups have signed on,
too, and some 60 coalitions of labor and interfaith religious groups
have sprung up nationally since the mid-1990s to campaign for the living
wage.
The Los Angeles-based Clergy and Laity United for Economic Justice
(CLUE) is a prominent example. Formed during a successful living-wage
campaign in Los Angeles, CLUE brought together an Episcopal priest who
had worked to unionize Santa Monica's hotels, a Baptist minister who
once invited a union local into Sunday services to get signatures for a
hospital unionizing drive, and a rabbi who had campaigned against the
Hollywood stereotyping of Palestinians as terrorists. To highlight the
plight of "exploited" hotel service workers deprived of the living wage,
the religious trio staged a dramatic procession through Beverly Hills to
deposit bitter herbs at the doorstep of the Summit Hotel-evoking the
Jewish tradition of using such herbs to recall the Israelites'
deliverance from Egyptian bondage.
CLUE is only one of countless examples of the living-wage movement using
religion to give it moral clout-in Providence, Rhode Island, churches
even held a "living-wage Sunday." "It makes it hard to sound negative
about a living-wage campaign when it's presented in those terms," says
Jeffery Hunter, a government-affairs specialist with the Greater Detroit
Chamber of Commerce, which fought in vain against one of the nation's
earliest living-wage laws. Indeed, the very notion of a "living" wage
makes anyone who opposes it seem like . . . well, an executioner.
Living-wage campaigns have repeatedly outflanked the business community
by practicing what ACORN calls "legislative outmaneuver." Local groups
work behind the scenes for months before going public. They draft
partisan economists to release timely studies on the prospective
benefits of the living wage before opponents can come up with any
countering data, and they try to keep any actual legislation off the
table until the very last minute, so that there's no fixed target for
opponents to get a bead on. ACORN rationalizes these stealth campaigns
by arguing that the business community will use, in the words of Kern
and Reynolds's organizing manual, a "bag of dirty tricks" to fight the
legislation. ACORN ominously-and ludicrously-warns: "Many companies
today engage in tactics which hark back to the bloody [unionizing]
battles of the 1930s."
ACORN's stealth tactics worked particularly well in Detroit. The Motor
City business community had no idea that a living-wage ordinance was
about to wallop them until just weeks before it showed up on a citywide
referendum. "The organizers won," a labor newsletter observed, "by
slipping quietly under Detroit's corporate and political radar." Same
story in Boston: "The living-wage ordinance wasn't picked up on the
radar until it was too late," complained a local business publication.
The Boston law, the publication adds, "initially looked and sounded like
yet another innocuous piece of feel-good legislation," but its small
print included onerous provisions that required city contractors to work
under the supervision of a living-wage enforcement committee and to
prefer Boston residents for jobs over applicants from beyond the city
limits.
These stealth campaigns can produce legislation so bad that it even
turns earlier supporters of the living wage into enemies. In Detroit,
then-mayor Dennis Archer, initially an ally of the living-wage proposal,
excoriated its backers after it became law, because they "did not
consult with business or with the [Detroit Regional] Chamber, [so that]
the ordinance unfairly impacts on small business and non-profit groups."
One hard-hit nonprofit, the Southeastern Michigan Salvation Army, chose
not to renew several city contracts to provide housing services to the
poor, because the living wage raised its costs too high. "We had a good
working relationship with the city, but we ended that," says a
spokesman. ACORN has since accused the Salvation Army-the Salvation
Army-of "the big lie" for opposing its living-wage agenda.
Providing the intellectual muscle (such as it is) for the living-wage
movement is a small group of Marxoid economists, led by University of
Massachusetts-Amherst professor Robert Pollin, a longtime board member
of the Union of Radical Political Economists, founded in the 1960s to
bring Marxist economics to American universities. Pollin, a New School
Ph.D., began serving as an advisor to living-wage campaigns in the
mid-1990s, and in 1998 he co-authored (with Stephanie Luce) the book
that has become the movement's bible: The Living Wage: Building a Fair
Economy.
In The Living Wage, the class war rages on-and on. Businesses, assert
Pollin and Luce, have grown increasingly hostile toward workers in
recent years. Their sole evidence for this claim-that the unionization
rate has plummeted over the last three decades-ignores the conventional
explanations for union decline in the U.S.: more intense global
competition, the shift to a service-oriented, knowledge-based economy,
and more generous benefits at non-unionized companies. But never mind:
to keep the ravenous capitalists under control, they argue, government
clearly needs to impose a national living wage on the private sector.
And that's just the beginning. Caps on profits, mandated benefits, rules
to make unionization easier, massive taxation-government will manage the
economy from top to bottom in The Living Wage's warmed-over socialism.
Indeed, for Pollin and Luce, only one economic goal ultimately matters:
raising worker salaries-no matter what the cost to the broader economy.
Consider their discussion of prevailing wage laws, which set pay rates
for public-sector construction projects. Pollin and Luce argue that
these laws show what good living-wage legislation will achieve-and what
damage the absence of government economic control inflicts on workers.
The authors cite a study of nine states that repealed prevailing wage
laws and then watched construction-worker annual salaries fall $1,500,
or 6 percent. To the authors, this is entirely bad news. Nowhere do they
try to estimate the savings for government (and thus for taxpayers) once
the laws stopped demanding artificially high wages for construction
contracts. Nor are the authors interested in the productivity gains for
the construction industry-and hence for the economy as a whole-when
wages settle at levels dictated by supply and demand, not government
bureaucrats.
The complete rejection of a free-market economy by these living-wage
gurus-and by the living-wage movement itself-is too much even for many
liberal economists. One of the most telling critiques of The Living Wage
came from self-professed liberal economist and New York Times columnist
Paul Krugman. In an article archived on the "cranks" section of his
website, Krugman observes that "what the living wage is really about is
not living standards, or even economics, but morality. Its advocates are
basically opposed to the idea that wages are a market price-determined
by supply and demand."
But then, if living-wage advocates truly understood the free market,
they'd know that it ultimately is far more moral than the centrally
controlled economic system they endorse. If there is one thing that the
last 50 years tell us, it is that the free market provides far greater
economic opportunity and a decent standard of living for far more people
than government-controlled markets. Pollin and Luce charge that the
American economy is failing, because poverty levels in the United States
aren't declining significantly. But the authors disregard the effect on
the poverty level of the vast stream of immigrants-many of them poor and
without skills-cascading into the country every year. What was
remarkable about the American economy during the 1990s, when about 13
million low-skilled, low-wage immigrants arrived, is that poverty rates
didn't soar, and actually declined slightly-showing the muscularity of
our economy in lifting even many of these newcomers out of poverty. A
recent Sphere Institute study of low-wage workers in California found
that more than 80 percent moved up the economic ladder during the 1990s,
their average income more than doubling, to $27,194. If that's not
economic justice, nothing is. As for those Pollin (following the Census
Bureau) calls poor: 40 percent own homes, 97 percent own color
televisions, two-thirds have air conditioning, and about seven in ten
own cars. This is hardly the poverty of a Vietnamese peasant or a 1930s
sharecropper.
What's most appalling about Pollin and Luce's economic theorizing,
however, is the cavalier way they talk about confiscating income from
middle-income Americans to pay for their living-wage scheme. In a
follow-up article to his book, published in the far-left Nation
magazine, Pollin proposed a national living wage of $7.25 per hour, more
than $2 above the current minimum. To achieve this, he says, would
require a redistribution of income "equal to a reduction of only 6.6
percent in the incomes of the richest 20 percent of households, from
roughly $106,600 to $100,000." Only 6.6 percent? Stripping $6,600 a year
away from a family making $106,000 a year-a construction worker married
to a secretary might well earn this much-is no insignificant levy (even
though Pollin's math is wrong). Down more than $550 a month, such a
middle-class family might have to forgo sending one of their kids to
parochial school, or put off adding a room onto the house for the new
baby-goals they may have worked very hard to achieve.
Not only is Pollin's national living wage wildly unfair; it wouldn't
work. Numerous studies show that increasing the minimum wage produces no
significant reduction in poverty levels and may even increase the number
of families living in poverty by eliminating many low-wage jobs. A
recent Congressional Budget Office report, for example, estimates that
upping the minimum wage to $6.65 an hour (40 percent less than Pollin's
proposal) would eradicate between 200,000 and 600,000 jobs. Moreover, it
would wreak economic havoc, costing employers $7 billion a year in
additional payroll costs. Nor, it's important to add, are minimum-wage
earners necessarily struggling economically in the first place. About 64
percent of those receiving the minimum wage today aren't heads of
households or sole earners. Many are children still living at home or
second wage earners in their family. The average annual household income
of a minimum-wage worker in the United States is nearly $44,000. And of
course, almost no workers stay at the minimum for long.
Understandably, given these considerations, most economists today favor
earned-income tax credits, not government-mandated wages, as a more
effective way to aid the working poor. These tax credits, applied for
when filing, provide thousands of dollars in cash rebates from federal
and state governments, supplementing the income of low-wage workers
without imposing direct new costs on businesses.
Pollin and his radical economist colleagues have regularly descended
from the ivory tower to try to convince local elected officials around
the country that living-wage laws will help low-wage workers without
destroying jobs or significantly raising government expenses. In a 1997
study on a proposed living-wage law in Los Angeles, for instance, Pollin
claimed that the legislation-doubling the minimum wage for government
contractors-would increase the city's contracting costs by only $7.5
million. The wage hike, Pollin argued, would require just a $40 million
increase in contractors' payrolls-something they could easily absorb, he
held, given their total sales of $4 billion; little, if any, of the
additional cost would be passed on to government.
In a later city-commissioned report, UCLA economist Richard Sander-who
calls himself a "progressive Democrat" and a defender of narrowly drawn
living-wage laws-demolished Pollin's rosy scenario. Sander estimated
that the actual cost of the legislation to city government would be $42
million-six times Pollin's estimate. Moreover, Sander noted, adding $40
million to firms' salary costs, as the law proposed, was nothing to
sneeze at-as is evident as soon as you compare the new costs not with
companies' total revenues, as Pollin did, but with their very much
smaller profits.
Los Angeles eventually enacted narrower living-wage legislation, and
Sander has completed a study of it. He found that the city, and not its
contractors, is bearing all the cost of its living wage. Hit with the
legislation, L.A. vendors either raised prices or reduced services to
the city. Adding in the expense of monitoring compliance with the law,
the city bears "more than 100 percent of the cost," Sander says.
Joining the radical economists on the front lines of living-wage
campaigns are the unions, which have their own reasons for supporting
the legislation. For unions and their political allies, the threat of
the living wage has become a powerful means to pressure firms to
unionize. About two dozen current living-wage ordinances, and about a
dozen more proposed laws, specifically exempt unionized companies from
the legislation. So if a local city contractor paying $2 below the
living wage unionizes, it won't have to raise salaries-at least in the
short term.
No wonder that many living-wage campaigns erupt in places where unions
are fighting tough organizing battles with local businesses. In Santa
Monica, for example, a living-wage campaign got under way after a local
hotel union had failed in a three-year effort to organize workers in the
city's tourism district. The living-wage legislation that Santa Monica's
left-leaning City Council then crafted and passed, with heavy union
input all down the line, subjected every business in the tourism
district to its terms-except unionized hotels. Santa Monica voters
recently overturned the law in a referendum, though advocates are trying
again.
These kinds of union-tailored living-wage laws are so blatantly
pro-labor that they may be illegal. When a law forces employers to
choose between paying higher wages and accepting a union, says Atlanta
labor lawyer Arch Stokes, it amounts to a collective-bargaining
ordinance. Municipalities don't have the legal right to supersede
federal labor law and pass such legislation.
Municipal unions like living-wage laws, too, for a different reason. By
raising the cost of city contracts, these laws make privatization
efforts less appealing and thus protect the cushy jobs of city workers.
After all, if cities can't save much money by contracting out work
traditionally done by high-paid municipal workers, what is the point of
privatizing? ACORN puts it bluntly in its manual: "The Living Wage
undercuts the incentive to privatize."
Ironically, even as ACORN battles to make businesses and nonprofit
contractors pay higher wages, the State of California is suing the group
for paying its own workers below the minimum wage. ACORN argued that
minimum-wage laws infringe on the group's First Amendment right of free
speech. If it had to pay the minimum wage, the organization
says-shamelessly echoing the arguments of the businesses that it is
forever seeking to regulate-it would have to hire fewer people, making
it harder to get its message out.
The living-wage movement's next steps are clear-and potentially
devastating to urban prosperity. Activists are working hard to expand
the number of those covered by existing living-wage legislation. In New
York City, one of the first places to enact a living-wage law, the new
City Council and Mayor Bloomberg recently extended it to 50,000 or so
privately employed health-care workers. The powerful union SEIU/1199,
representing some home health-care workers who fall under the extended
legislation, lobbied heavily for the change. Thanks to Mayor Bloomberg,
New York will now have the largest number of workers covered by any
living-wage law in the nation. Other cities have expanded their laws,
too. Oakland's initial edict, to take just one example, originally
applied only to city contracts, but in early 2002 city lawmakers
extended it to firms in the government-subsidized Port of Oakland.
It's not just the number of those covered that the movement wants to
expand. ACORN activists have begun advocating more capacious living-wage
laws that incorporate affirmative-action requirements, restrictions on
employers' use of part-time workers, mandatory vacation time, and
prohibitions on using revenues from public contracts to hire law firms
to resist union-organizing efforts. San Francisco, already moving in
this direction, amended its law a year after it passed to include
certain health-care benefits on top of the wage boost.
As living-wage laws get broader and more expansive, supporters are also
trying to offload some of the cost, increasingly burdensome to cities,
onto state and federal government. The revision of the New York City
law, for instance, zeroed in on health-care workers because many of them
work in state-funded institutions. City Council members who sponsored
the legislation justified it by saying that the state's share of the
cost will be five or six times higher than the city's. And Detroit's law
included contracts that the city simply administered but that were paid
for by federal agencies, such as Housing and Urban Development.
Emboldened by their successes, living-wage advocates have gone on to
help organize local coalitions to lobby for much broader left-wing
economic programs, under the slogan "sustainable economics." ACORN's own
organizing manual says it best: "[A]cross the country grassroots
projects are using Living Wage as a campaign tool for building broad and
comprehensive progressive agendas."
Sustainable economics covers a whole agenda of government social and
fiscal policies to redistribute income and regulate business that add up
to socialism by another name. The Milwaukee coalition responsible for
that city's living-wage law, for example, is now pushing for an
economic-development plan that includes more money for community
job-training programs, laws that bolster union organizing and that
require "socially responsible banking," government investment to create
"environmentally friendly" jobs-and on and on. Its agenda even leaps
beyond economics to require multicultural public school curricula, more
ethnically diverse teaching staffs, and greater inclusion in curricula
of topics such as workers' rights, the history of the labor movement,
and family leave laws.
Lest this grand program sound like mere pie in the sky, note that
living-wage advocates in California have already succeeded in getting
the state's assembly to pass a sustainable economic plan for the greater
Sacramento area. Startlingly, this plan forces growing suburban
communities to share tax income with the city, and it restricts suburban
growth, so that residents and businesses will find it more difficult to
move just outside the city limits. Having created the policies on
taxation, crime, and education that propelled the middle class out of
urban America in the first place, the Left is now looking for a way to
slow that flight by governmental fiat. It's yet more bad news for
cities-especially since the rest of the country fortunately is still
free and has plenty of room.