Friday, October 9, 2015

Why I Oppose the $15 Minimum Wage

I recently disputed the claim that we should freeze minimum wages artificially low because some people get paid badly. The idea that, because America underpays its soldiers, we should also underpay our laborers, offends me, because it normalizes the devaluation of human beings. But I recently spoke with friends about the proposed $15 national minimum wage hike, which got me thinking: will doubling America’s enforced wage floor really fix anything? What problem really needs fixed?

The calls for such a steep increase in the minimum wage come primarily from three cities: New York, San Francisco, and Chicago. Not coincidentally, these are three of America’s most expensive cities to live in, a standing becoming more pronounced as financial services and tech development pool more money in select hands. However, anyone who’s visited these cities knows that food, clothing, and luxuries aren’t more expensive than other cities; frequently, they’re cheaper than elsewhere.

Rather, this higher cost of living is driven entirely by rent. A recent article about how concentrations of wealth have priced service providers out of San Francisco’s land market addresses not only the disappearance of routine commercial service providers from an iconic American city, but the flippant prejudices of well-heeled, mostly male, tech professionals. Those who don’t find themselves squeezed because laundromats, auto shops, and other services close, disdain those who do find themselves squeezed.

Consider the principal cities where $15 demands exist. New York is built mostly on islands; 8 million people live in only twenty-five square miles on Manhattan. Chicago is built on reclaimed swampland which still requires periodic drainage. San Francisco is a peninsula. All are circumscribed in available land area. Flat, buildable land will always exist at a premium. Expansion projects, like Battery Park City, have limited potential, but only at great fiscal and human expense.

Meanwhile, cities with vast potential for either outward growth, or what Brown et al. call “backfill,” languish. New growth around cities like Omaha and Kansas City continues along the Eisenhower-era “suburban sprawl” model that young, upwardly mobile professionals now disdain. Eastern Rust-Belt cities like Cleveland and Detroit, with massive potential for physical renovation, remain substantially untouched, even with rock-bottom land values and untapped labor pools. In essence, supply and demand aren’t stabilizing like they should.

We’re witnessing, in essence, the visible limitations of libertarian capitalism. Just as the dot-com and housing bubbles of the last fifteen years created lemming-like commodity rushes, jacking prices artificially high and hastening their collapse, the current concentration of highly skilled work in very limited geographical markets has warped other relevant market values. We’ve systematically overvalued land while undervaluing work. The problem began long before wages stagnated, and flooding the market with money won’t solve it.

This supply-demand graph, familiar from
economics textbooks, demonstrably applies
only to commodities free to float. Human
labor is not one such commodity. Neither
is rent.
Catholic economist John C. Médaille describes what he calls “the fictitious commodities”: labor, land, and money. These commodities, often graphed according to the supply-demand arc we remember from high-school economics classes, seldom behave according to such simple motivations. Wages in places like Manhattan aren’t low because cheap hamburgers aren’t in demand; in many cases, they don’t even reflect over-educated but underemployed workers’ skill sets. They’re low because prices don’t float. The supply-demand arc doesn’t apply.

People move to large, crowded cities because they want work. It’s that simple. The disappearance of good-paying blue-collar jobs in America, from manufacturing to family farming and beyond, creates pressure for people to relocate where they perceive jobs happening. Just as the Enclosure Movement in 18th Century Britain led to massive growth in cities like London and Birmingham, the disappearance of upwardly mobile industrial jobs and concentration of college-educated employment drives American city growth today.

Worse, as some workers chase jobs to large cities, others choose to stay put. Where I live, in the Great Plains, even many skilled professionals like plumbers and accountants, don’t receive $15 an hour, because they don’t need it. Many people like low living prices and the attendant lack of pressure to overwork, thus proving Médaille’s claim that money and labor aren’t floating commodities. Doubling the wage floor in low-demand locations would torpedo regional economies.

Transfusing money into overextended markets will temporarily alleviate such pressures. However, over the long haul, just as TARP payments didn’t stop reckless bank behavior, boosted wages won’t solve the innate disequilibrium when too many people want too few houses. We’re witnessing a problem, not of market allocation, but of simple hoarding. Lopsided job distribution in specific cities creates inefficient markets. If people could get good jobs in Ohio, others wouldn’t need wage hikes in California.

1 comment:

  1. Points well taken,Kevin. Don't you think the pressure for higher (much higher) minimum wages fits nicely into our habit of seeking simple solutions for very complex problems?