If liberals really understood economics, they wouldn’t be liberals.
Boosting Pa.’s minimum wage
The governor wants an increase, but critics say it will hurt business.
By Jane M. Von Bergen and Amy Worden
Philadelphia Inquirer Staff Writers
One more thing to make it even tougher to be in business.
That’s what a proposed increase in Pennsylvania’s minimum wage would feel like to Kyung Hye Park, who owns a modest luncheonette on Chelten Avenue in Philadelphia’s Germantown section.
“We’re slow,” she said yesterday, as one customer nursed a cup of coffee and five people worked behind the counter. “Rent is too high. Utilities are too high.” If the minimum wage goes up, she said, she may reduce hours, or employees, or just figure out whether it’s worth staying in business.
Yesterday, Gov. (Edward) Rendell urged the General Assembly to boost the salaries of the state’s lowest-paid workers.
Speaking at a news conference, Rendell said he wants lawmakers to pass a bill raising the state’s minimum wage from $5.15 to $6.25 this year and to $7.15 by 2007, to keep pace with neighboring states, including New Jersey and Delaware.
There really aren’t too many people working at the minimum wage anymore; even convenience stores and fast food joints are starting around $6.50 to $7.00 an hour. We have, in effect, reached an economic minimum wage, the point below which businesses simply cannot get employees. However, there are always a few exceptions; apparently Kyung Hye Park’s luncheonette is one of them.
So, let’s assume that the governor gets his minimum wage increase; what effect does that actually have? Well, for the people at the economic minimum wage, it doesn’t mean much; they’re already above what Mr. Rendell has proposed. But for those few who are below that amount, it might mean just what Mrs. Park suggested: they have to be let go, because the businesses that employ them can’t afford to pay them any more.
Rendell said that because the federal government has not increased the minimum wage since 1997, it was up to the states to improve their workers’ living standards.
“We must pass an immediate increase in the minimum wage,” Rendell said. “We must get to $7.15 to lift people out of poverty and give people hope.”
Opponents say raising the minimum wage will impose too heavy a burden on employers, causing them to cut jobs or curtail hours, and that the effect could be far-reaching.
Rendell said that if the bill becomes law, by 2007 a total of 423,000 Pennsylvanians would earn more. An additional 100,000 who earn about $8 an hour would likely get raises as their wages were bumped up by the new minimum.
And that would mean what? These people would earn more money, but would they become wealthier or better off? What Mr. Rendell is saying, quite literally, is that he wishes to see an inflation in wages.
We all know what that means: if increases in wages are not coincident with increases in productivity, unit costs for the goods and services produced have to increase, and that means that prices have to increase. In dollar terms, Pennsylvanians would have more, but in real terms (how much they could purchase for their money) they would be no wealthier.
Indeed, they might well be poorer: as income increases, tax rates increase. For some people, pushed into higher marginal brackets, their real, after-tax wealth could be lower. And the real value of whatever savings they had accrued would decrease.
That would be good news to Rasool Howard, 26, who scrubs five toilets, empties 123 trash cans, and spot-mops dozens of feet of flooring daily at Suburban Station. He earns $6.50 an hour, or $189 net a week with no health insurance, after the standard deductions plus $5 weekly for child support.
The 65 cents more Howard would earn per hour “might not seem like much,” he said, “but it would make a big difference. That’s more food and better clothes for my son and I.”
By the time he pays $125 a week for his efficiency apartment on Lehigh Avenue and $18.75 for his weekly transit pass, only $45 is left for food, soap, toothpaste, and, once in a while, a toy from the dollar store for his son, 6.
Of course, the governor’s proposed increase wouldn’t help Mr. Howard, at least not this year: he is already earning more than the $6.25 Mr. Rendell has proposed for 2006. In 2007, he’d see a 65Â¢ an hour raise.
But would that actually mean any more money? Sixty-five cents an hour times forty hours is $26.00 a week. Pennsylvania’s state income tax rate of 3.08% will take 80Â¢. Social Security and Medicare taxes will take $1.99. Local wage taxes (commonly 1% in Pennsylvania) will take another 26Â¢. If the inflation pushed by the minimum wage increase (which would begin before Mr. Howard received his raise) raised his rent by $10.00 a week, he’s now down to a $12.95 raise. Pennsylvania’s 6.0% sales tax will eat up 78Â¢ of that, bringing him down to $12.17. Count on inflation on things other than Mr. Howard’s rent to consume every bit of that.
And that’s due to simple economics: the proposed minimum wage increase has nothing to do with Mr. Howard’s productivity. For Mr. Howard, or anyone else, to receive a real raise, he has to do more work or produce more with the work he does currently. Anything else is just inflation.
Labor unions and advocacy groups such as the Philadelphia Unemployment Project and Jobs With Justice are lining up behind Rendell’s proposal. On Tuesday, they’ll take a bus from Philadelphia to Harrisburg to lobby legislators.
“We can’t afford to lose the fight for the minimum wage in 2006,” said Henry Nicholas, president of the National Union of Hospital and Health Care Employees and of District 1199C, a Philadelphia-based health workers’ union. Describing it as an issue of social justice, Nicholas spoke at a companion news conference yesterday at the union hall on Locust Street.
Well, of course, there it is, that wonderful term, “social justice.” Now, what the heck is social justice?
Michael Novak, of the American Enterprise Institute, wrote a thoughtful article on the concept in the December 2000 issue of First Things. In Defining Social Justice, Mr. Novak points out that there is no accepted definition, but that it hangs out there, pretty much meaning what the speaker means it to be at the time he speaks.
Last year marked the one hundredth anniversary of the birth of Friedrich Hayek, among whose many contributions to the twentieth century was a sustained and animated putâ€“down of most of the usages of the term â€œsocial justice.â€ I have never encountered a writer, religious or philosophical, who directly answers Hayekâ€™s criticisms. In trying to understand social justice in our own time, there is no better place to start than with the man who, in his own intellectual life, exemplified the virtue whose common misuse he so deplored.
The trouble with â€œsocial justiceâ€ begins with the very meaning of the term. Hayek points out that whole books and treatises have been written about social justice without ever offering a definition of it. It is allowed to float in the air as if everyone will recognize an instance of it when it appears. This vagueness seems indispensable. The minute one begins to define social justice, one runs into embarrassing intellectual difficulties. It becomes, most often, a term of art whose operational meaning is, â€œWe need a law against that.â€ In other words, it becomes an instrument of ideological intimidation, for the purpose of gaining the power of legal coercion.
Hayek points out another defect of twentiethâ€“century theories of social justice. Most authors assert that they use it to designate a virtue (a moral virtue, by their account). But most of the descriptions they attach to it appertain to impersonal states of affairsâ€”â€œhigh unemploymentâ€ or â€œinequality of incomesâ€ or â€œlack of a living wageâ€ are cited as instances of â€œsocial injustice.â€ Hayek goes to the heart of the matter: social justice is either a virtue or it is not. If it is, it can properly be ascribed only to the reflective and deliberate acts of individual persons. Most who use the term, however, ascribe it not to individuals but to social systems. They use â€œsocial justiceâ€ to denote a regulative principle of order; again, their focus is not virtue but power.
Naturally, those who use the term tend to think of themselves as having only the best of motivations; who can think that wanting poor workers to have a better life is a bad thing? Unfortunately, such a wish is completely disconnected from those things which determine whether a worker will be poor or not: productivity and the laws of economics.
This notion presupposes that people are guided by specific external directions rather than internalized, personal rules of just conduct. It further implies that no individual should be held responsible for his relative position. To assert that he is responsible would be â€œblaming the victim.â€ It is the function of â€œsocial justiceâ€ to blame somebody else, to blame the system, to blame those who (mythically) â€œcontrolâ€ it. As Leszek Kolakowski wrote in his magisterial history of communism, the fundamental paradigm of Communist ideology is guaranteed to have wide appeal: you suffer; your suffering is caused by powerful others; these oppressors must be destroyed. We need to hold someone accountable, Hayek notes, even when we recognize that such a protest is absurd.
At this point I would disagree: far too many do not see such protests as absurd.
We are not wrong, Hayek concedes, in perceiving that the effects of the individual choices and open processes of a free society are not distributed according to a recognizable principle of justice. The meritorious are sometimes tragically unlucky; the evil prosper; good ideas donâ€™t pan out, and sometimes those who backed them, however noble their vision, lose their shirts. But a system that values both trialâ€“andâ€“error and free choice is in no position to guarantee outcomes in advance. Furthermore, no one individual (and certainly no politburo or congressional committee or political party) can design rules that would treat each person according to his merit or even his need. No one has sufficient knowledge of all relevant personal details, and as Kant writes, no general rule has a grip fine enough to grasp them.
This point seems to have eluded those who are concerned with “social justice.” While we hold it as a point of law that all men were created equal, in fact we were not: we have different abilities, different skills, different talents, different ambitions, different senses of discipline, and different work ethics. We are rewarded differently by the economy precisely because we are not all equal in ability and drive and productivity. And the “solutions” of socialism, to try to level out such inequities, have produced, at the minimum, in the semi-socialist European economies, reduced social mobility, chronicly high unemployment, and an “underclass” the Europeans are very reluctant to recognize. At the more serious levels of socialist economic controls, the results have been truly leveling — at a very low level for all save the favored government and party functionaries.
But the realities of economics will not be seen by those who do not want to see them. Thus, the Pennsylvania General Assembly will slog on, and minimum wage increase bills will be introduced, and everyone will wind up congratulating himself, for having secured a raise for the poorest of Pennsylvania workers. And, in the end, the poorest of Pennsylvania workers will be no better off, because the solutions of our friends on the left are solutions of the heart, but not of the head, solutions which do not recognize that pay is compensation for productivity, and not simply some amount of money being generously given out from above.