The ‘living wage’ fallacy
The April jobs report was bad news for the post-COVID-19 economic recovery. Across the United States, employers added just 266,000 jobs and the unemployment rate ticked up to 6.1%. This was well below economists expectations of 1 million new jobs and an unemployment rate of 5.8%. To make matters worse, while February’s numbers saw an upward revision from 468,000 to 536,000, March’s were revised downwards from 916,000 to 770,000.
Economists across a fairly broad spectrum – including those leaning liberal like Noah Smith and Jason Furman, Chairman of President Obama’s Council of Economic Advisors – attributed at least some of this to ‘enhanced’ federal unemployment benefits. These add $300 a week to existing state unemployment payments so that, in Minnesota for example, an unemployed worker can be receiving the equivalent of as much as $26 an hour in benefits, something many employers of less skilled work will find hard to match. As I noted recently:
If unemployment insurance offers people an income comparable to working — or even greater — many of them will quite sensibly opt not to work.
Some disagree. A common response I’ve seen online is that people will work as long as they are paid a ‘living’ or ‘livable’ wage.
What is a ‘living’ or ‘livable’ wage? Obviously, it would appear to be any wage which you can live on. If a job doesn’t offer you enough pay to live on, you wouldn’t take it.
The response is that ‘living’ doesn’t mean just staying alive but living to some standard of material comfort. But that isn’t an argument for a ‘living’ wage; it is simply an argument for a higher wage dressed up in hyperbole.
And this brings us to the substantive problem. Across the country, activists are pushing for a minimum wage of $15 an hour. This, we are told, is a ‘living wage’. But many of the jobs going unfilled are offering at least that: Amazon, which already pays $15 an hour as a minimum, is raising pay to $17 an hour to attract workers. The $15 an hour figure was plucked out of thin air in the first place – there is no reason why this amount specifically comprises a ‘living’ wage – but, even assuming it does, many of the jobs going unfilled now are offering it. In large part, then, it cannot be that people are simply sitting tight waiting for a ‘livable wage’ to come along.
The ‘living wage’ argument confuses a rhetorical tick for a substantive point. As the economy struggles to emerge from the COVID-19 recession, we need to focus on what is really happening.
John Phelan is an economist at the Center of the American Experiment.