A mere recital of the economic policies of governments all over the world is calculated to cause any serious student of economics to throw up his hands in despair. What possible point can there be, he is likely to ask, in discussing refinements and advancements in economic theory, when popular thought and the actual policies of governments…have not yet caught up with Adam Smith? – Henry Hazlitt, Economics in One Lesson.
These words continue to echo in the District of Columbia as legislators and activists once again choose to listen to their well-intended intuition over the lessons of basic economics.
On Wednesday, D.C. Council approved the Large Retailer Accountability Act (LRAA), a bill which requires “big-box” retailers to pay their employees a minimum wage of no less than $12.50 an hour. The bill is backed by labor activists and some religious leaders who claim that employees who are paid the city’s minimum wage of $8.25 (a dollar higher than the federal minimum wage) are not being paid a ‘living wage.’ Should the LRAA be signed by Mayor Vincent C. Gray (D) and pass a congressional review period, all D.C. retailers that work in a space of 75,000 square feet or more and exceed $1 billion in corporate sales will be forced to pay their employees this higher minimum wage.
Wal-Mart has warned the city that the company will abandon plans for three planned stores in the district should the bill be passed into law. Such a statement is being taken as an ultimatum by labor activists. Among the most outspoken is Rev. Graylan Hagler, a senior pastor of the Plymouth Congregational United Church of Christ and a leader of Respect DC – a local activist group that fights for what they call living wages. In response to Wal-Mart’s proposal, Hagler stated, “If you allow a bully to bully you, it’s never going to end. There will be something else. There will always be another agenda. We’ve got some work to do.”
There is no doubt that many labor activists who back legislation such as the LCAA have good intentions. However, if economics is taken into account, we will sadly find that activists who call upon the legal strategies to artificially raise wages wind up hurting the very people whom they are championing the most.
In a 1981 essay on the consequences of economic intervention, Walter Block, a Senior Economist at The Fraser Institute, states that minimum wage laws are designed to raise wages for those at the bottom of the economic ladder. The actual effects of these laws have been to cut off the bottom rungs of the ladder itself, making it more difficult for lesser skilled workers to achieve high or even moderately paying jobs.
You cannot make a worker worth a given amount of money by demanding that a company should pay him a given amount. What justifies a wage is one’s productivity. Should LCAA be signed into law, its actual effect would be to price all workers who do not justify a wage of $12.50 an hour out of the market for large retailers.
Teenagers and inexperienced workers will be the ones who suffer the most from this legislation as they do not have the necessary skills to obtain such a high wage. On the topic of young people and job experience, Economist Hans F. Sennholz writes in his book – The Politics of Unemployment:
On-the-job training not only imparts basic skills, but also stimulates motivation, nurtures a sense of responsibility, and generally prepares young people for rewarding roles in productive society. If they fail to acquire the experience, training, competencies and credentials in their formative years, they will have difficulty holding regular jobs in their adult years… They may never learn the basic discipline and ethos of labor that are so essential in our society. Instead, prolonged unemployment so early in life may prepare them for a precarious and bitter existence on public welfare.
If Wal-Mart and other big-box retailers are coerced into raising the minimum wage, it will have to offset an increase in overhead costs by laying off workers of sub-marginal productivity, cutting back on the hours its employees work, cutting employee benefits, or increasing the prices of the goods it sells. In Wal-Mart’s case, abandoning planned stores in D.C. is unquestionably logical. Why would any business want to enter a city that is increasingly hostile to their company?
If retail workers are truly dissatisfied with their jobs, they can take their skill set elsewhere. Engineering just compensation through measures like LRAA is nothing more than assigning a subjective, arbitrary number to a paycheck. One person may think that they are perfectly capable of living on a wage of $7.00 an hour, while another might have to provide for a family and want $12.00 an hour. In a free society like the United States, employment is a voluntary process where both the worker and the employer enter into a voluntary partnership. No one is forced to work anywhere that they do not want to.
Legislators, activists, and religious leaders do not need to champion increases in pay when workers are perfectly capable of negotiating a raise or moving to another comparable job. There are more practical ways of helping the poor than pushing for state intervention and advocating liberation theology. It is sad to see that D.C. lobbyists and lawmakers may once again end up hurting the very people they are trying to help. If only these men practiced the words of Christ in Mark 12:17 – “render to Caesar, the things that are of Caesar; and to God, the things that are of God.” Doing so would be both moral and economically sound.