The issue of a living wage has loomed large over campus this year. Despite all this attention, few student voices have come out in opposition to it. However, it is doubtful that this is because the vast majority of Vanderbilt students support LIVE’s anti-market policies. Rather, the lack of vocal opposition is likely partially a result of the fact that defending the status-quo generally tends to inspire less energy. Perhaps more importantly, however, is the fact that many of us who are opposed to the implementation of a living wage feel we have made our arguments time and time again over the past few years. Sometimes it seems there isn’t much left to say.
Yet, as opponents of the living wage rest content that we have made our case, LIVE continues to increase its agitation on campus. Since LIVE’s decision to storm into a Board of Trustee’s committee meeting earlier this year, it has received national coverage in the New York Times, substantial coverage in the Tennessean, and what seems like weekly coverage in campus publications. The living wage movement is not likely to go away any time soon. Thus, those who truly believe that a living wage is harmful cannot disappear either. Whether or not it feels repetitive, the arguments opposing a living wage must be made yet again.
The primary flaw with a living wage is that it ignores the information a wage is supposed to communicate and uses it as a tool on the path to some ideologically-dependent notion of equality. Both supporters and opponents of a living wage can claim that Vanderbilt needs to reevaluate its wage rate. However, there are fundamental differences in what the camps believe Vanderbilt should be looking for when performing that re-evaluation. While supporters of the living wage advocate looking at some combination of what Vanderbilt can afford to pay and what workers need in order to pay their bills, opponents argue that Vanderbilt needs to reevaluate the wage rate to make sure it is competitive and that workers are not being exploited. Exploitation is a term with a precise economic meaning: it is the difference between the marginal revenue product of a worker and his wage rate.
The ability of unskilled workers to move between jobs ensures that, if Vanderbilt is exploiting workers, they can look for a job where they will be correctly compensated for their marginal revenue products. With a single-digit employment rate, Nashville appears to be a highly competitive market, which ensures an efficient calculation of wages. However, there are obviously high transaction costs to a large quantity of workers moving from job to job in order to adjust wage rates. That’s why Vanderbilt should preemptively reevaluate their wage rate to keep it in line with the market rate.
Vanderbilt is an easy target for a living wage campaign because people can point to its large endowment and insist it is obvious.Vanderbilt can afford to pay workers more than businesses that hire similarly skilled workers. However, this ignores the fact that much of the endowment is ear-marked for something. It creates the mistaken impression that Vanderbilt is sitting on a pile of money that it could be putting to use, but is, instead, wasting or hoarding it. This picture is mistaken; Vanderbilt has a lot of resources, but they are not unlimited. They are not even so large as to exceed the amount Vanderbilt would like to use to improve the educational experience of its students, the quality of its research, and the lives of its 20,000 employees. When Vanderbilt spends more money on the salaries of unskilled workers, it will have to take that money from somewhere. It is a mistake to talk about raising wages as if it is something Vanderbilt can do with no opportunity cost. It is true that Vanderbilt is not a profit-driven business. It is, however, a $ 3 billion dollar institution that in order to maximize its potential must be run according to best-business practices.
The second problem with a living wage is that it simply may not have the effect its supporters intend. By now, most people acknowledge that textbook economics predicts unemployment will increase when a wage is inflated above the market rate. Some supporters of a living wage have argued that the empirical evidence does not bear this out. However, while a couple of often-referenced studies have argued that, because the demand for unskilled labor is inelastic, employment effects will be negligible, this is certainly not the general consensus among the field. Harvard economist N. Gregory Mankiw, points out, “Most research on the minimum wage finds that it reduces employment. Emphasizing the Card-Kruger evidence is like a doctor prescribing a drug relying on a single controversial study that finds no adverse side effects, while ignoring the many reports of debilitating results.”
Further, it is likely Vanderbilt will not only reduce the number of people it hires, but that more people will be willing to work at the new, higher rate and, thus, more people will come to Vanderbilt looking for a job. While this might sound good at first blush, many of them are high-school drop-outs. Several studies have shown that when a wage rate increases by approximately 10 percent, high school enrollment decreases by two percent. Increasing the number of people in the unskilled labor force will do nothing but exacerbate economic difficulties in the future.
Sometimes LIVE will take issue with these criticisms. However, the debate is often framed as something more black and white: the morally concerned supporters of the living, against the logical (also known to detractors as callous) opponents of the living wage who are interested in efficiency. However, looking more carefully, it does not seem things are that stark. The real dispute falls somewhere in the middle of a debate about the specifics of policy and a broad and unbridgeable conflict between fundamental goals: it is a disagreement about principles: what fairness is and what it means to help people.
I think it is largely the fault of the living wage’s opponents that the debate has not been seen this way. While we have done a good job of pointing out the flaws with the other side’s plan, some of our arguments have been marginalized because we have failed to stake out a proactive position with regard to a problem we’d have to be foolish to pretend does not exist: something does need to be said about the conditions in which many people who work full-time find themselves. We can let people tell us we are cold-hearted, allowing the other side to take the moral high ground and contenting ourselves to laugh them off as irrational. But we do not need to, nor do I think we should. As a conservative who believes that “easy” solutions like the welfare state and the living wage are fundamentally flawed, I feel a special obligation to look for and promote more creative solutions that capitalize on the principles that underlie the free market, such as freedom, incentive, and individual initiative, rather than simply ignoring the problem because “easy” solutions fail.
Opponents of the living wage and other anti-market policies should take this extra step not only for the sake of the workers, but also for the sake of defending and strengthening the free market. The problem facing workers is real, and, as long as it’s there, people will offer solutions. If those of us who have a respect for the market and a hope for its potential don’t offer solutions, those with far less respect will. And we will rarely like those solutions. As Milton Friedman said, “ If free markets weren’t so damn efficient, they could never have survived because they have so many enemies and so few friends.”
So what market-friendly solutions can be offered by opponents of the living wage? One is to advocate the expansion of the earned income tax. The earned income tax is either a reduction on taxes paid or an actual allotment of funds to the lowest paid workers. This is not a hand-out; it is contingent on work. This initiative solves a problem inherent in living wage, which is that you can’t pay workers differently based on size of their family, so the living wage cannot in any way take into account the circumstance, of the individual; Vanderbilt would be paying a living wage calculated based on supporting a family of four to a substantial number of single workers. The earned income tax credit is far less costly then implementing a living wage. Obviously, there is no way to increase the earned income tax credit for Vanderbilt employees, but therein lies another of its advantages. Why should we be exclusively concerned with the employees at Vanderbilt? In what sense is it fair for an employee to earn more for performing the same job at a wealthy employer than at a less wealthy one? The final benefit of the earned income tax credit is that it ensures that wages continue to signal what they are intended to signal.
Another tactic is to point out other issues that are contributing to the plight of many Vanderbilt workers and discuss ways that they can be addressed. One problem that many single mothers employed at Vanderbilt face is that their husbands are not making child-support payments. There are ways in which we can talk about that issue on a national level, but there area also ways in which we can encourage Vanderbilt to help provide its employees with the information and the resources necessary to address such issues.
Another way to approach the debate would be to change the focus from Vanderbilt’s bottom-line pay to the possibilities available for upward mobility: the opportunities it offers employees to improve their skills, earn more responsibility and increase their wages. Vanderbilt already has some programs in place that foster this end. In addition to the enormous tuition discount offered the children of employees, which enables the building of skills and productivity in future generations of families that are often caught in poverty cycles, Vanderbilt offers free GRE classes to its employees. This is important because a GRE is an important component of upward mobility, and not just internally at Vanderbilt. It would be of significant value if an employee wanted to get a salaried job elsewhere. And, surely, there is more that Vanderbilt can do to help employees earn higher salaries, rather than simply giving them higher salaries. This is much more valuable, because if an employee earns the higher salary though increased productivity that gives him the ability to move around the job market.
Further, students should encourage Vanderbilt to reevaluate the internal structure regarding performance-based pay raises, the possibility for internal promotion and other internal incentives. Vanderbilt students should advocate the position taken by Chief Human Resource Officer Kevin Myatt who said, “I would rather spend time and energy to put a program in place to provide people the opportunity to gain new skills. That skill will allow them to provide the best for their families regardless of where they work.” These ideas work within the context of the market and focus on empowering individuals rather than simply asking Vanderbilt to essentially give them a handout above and beyond the market value of their wage. While Vanderbilt is not specially equipped to ignore the dictates of the labor market wage rate, it is in many ways specially equipped to provide its employees with education and information. This is, after all, an institution devoted to the importance of learning; there is no reason that mission should be limited to students.
A final solution I offer is to look for ways that students who are truly passionate about the plight of unskilled workers can make a difference without falling back on the easy solution. The thing that holds many of Vanderbilt’s lowest paid workers back from studying for the GRE is time. Perhaps regularly scheduled childcare, courtesy of an organization of Vanderbilt students, would help give them the time they need. Vanderbilt student organizations do a tremendous amount of good by volunteering for people around the community; why not focus on the needs of the employees? Taking the time to facilitate and execute private action is difficult, but perhaps necessary, because the easy solutions often simply do not work.
As the debate over a living wage continues to rage on, opponents need to keep repeating their objections because they are valid and the issue is important. However, if we hope to have any chance at fighting off the enemies of the free market, we need to move beyond pure criticism and begin to suggest proactive solutions.
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