Thoughts on wage legislation

In a wide-ranging interview for the Maine Times, Gov. King recently remarked that “the 20th century is a testament to failed government solutions to social problems.” Taken at face value, King’s bold assertion is absurd. One could just as easily argue that the nineteenth century, during which rates of economic growth, unemployment, and personal bankruptcies were far worse, is a testament to the failures of the unregulated market economy. The governor’s grand historical narrative fails as a guide to public policy.

Fortunately, Angus King doesn’t always play the role of philosopher king. The administration does lament the continuing economic disparities between regions in Maine and acknowledges the persistence of unacceptable levels of poverty. And King has indicated, at least rhetorically, that government has some role to play in alleviating that poverty.

The battle for the governor’s soul between free market ideologue and moderate pragmatist is sure to be tested by the legislature’s recent decision to increase the state minimum wage from $5.15 to $5.40 per hour. I fear the free marketer is all too likely to win out– especially in the face of well financed business lobbying. Nonetheless, there are several good reasons why the governor ought to allow this intrusion in the market:

1. Even after the recent boost, today’s minimum wage jobs pay thirty percent less in real, inflation adjusted, terms than thirty years ago. Steady increases in the minimum wage in the fifties and sixties were accompanied by dramatic job growth and reductions in inequality. Today’s economy is fifty percent more productive than a generation earlier. Profits and economic growth even escalated after the recent boost in the minimum wage. As long as demand remains strong, there is little doubt that employers will keep adding workers even if wages rise modestly.

2. Many of the jobs at or just above the minimum wage in this state are service sector jobs. They cannot easily be relocated to other states or nations in search of cheap labor. In any case, several other states in our region, including Vermont and Massachusetts, have recognized that the current federal minimum is too low. They have already set higher state levels. Further and more dramatic moves in the federal minimum wage would be desirable, but Maine can safely take a modest first step.

3. Workers aren’t just another productive input. How they are treated has a major impact on their productivity. In an article on a minimum wage ordinance in Los Angeles in The Nation Magazine, University of California Riverside economist Robert Pollin reports that firms paying $7.25 an hour were competing successfully with firms paying far less. He suggests: “The key to their competitive success was a high morale/ high productivity work environment, which included almost no absenteeism or turnover.” And conservatives forget that workers, unlike other “inputs,” are also consumers. Our current economic growth is heavily dependent on consumer debt. That cannot continue forever. Only if we raise the bottom layers will we be able to put economic advance on a sounder foundation.

4. Conservatives can say what they will, but society is unlikely to allow working Americans to persist in starvation and hunger. Public policy has driven many off welfare. This agenda has been premised on the popular assumption that if one works hard, one can escape poverty. Yet recent studies of poor women in Maine by Stephanie Seguino and Sandy Butler for The Maine Center for Economic Policy indicate that many of those driven off welfare receive below poverty level wages. They will continue to need and demand some form of assistance, either in the form of private charity, restored welfare, or increases in the earned income tax credit.

The last is the best public policy tool because it creates an incentive to work and is broad based without being unduly intrusive in citizens’ lives. Nonetheless, even this tax credit costs taxpayers and is an implicit subsidy to businesses that choose a low pay, high turnover work strategy. Because such a strategy is subsidized and is often easier to implement on a short term basis, it is too often the strategy of choice. In the short term, it works for business, but it entails severe social costs.

Moderate conservatives could achieve a victory of which they might be justly proud. But such an outcome will require a little willingness to bend on their aversion to all forms of government intervention. Modest boosts in the minimum wage, especially during a booming economy, would leverage greater worker productivity and continuing consumer demand. And business screams to the contrary, it is hardly micromanagement. It encourages high road competition among business and brings out the best in democratic entrepreneurialism. Indeed, it beats the inadequate and demeaning paternalism to which we must inevitably resort when the worst ravages of poverty grip our communities.

John Buell is a political economist who lives in Southwest Harbor. Readers wishing to contact him may e-mail comments to jbuell@acadia.net.