The Living Wage: A Hand Up, or Bad for Business?

Living wage advocates say a hike in the federal minimum wage will help people out of poverty, but critics contend hiking the minimum wage prices low-skilled workers out of the market and punishes small businesses. Ed Gordon explores the issue with economists David Swinton of Benedict College in Columbia, S.C., and Bernard Anderson, professor of management at the University of Pennsylvania.

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ED GORDON, host:

Now, we hear from two leading economists. David Swinton is president of Benedict College in Columbia, South Carolina, where he joins us via phone. Mr. Swinton analyzes the economic status of African Americans. Much of his work is published in the National Urban League's State of Black America. And Bernard Anderson is professor of management at the University of Pennsylvania's Wharton School. He was the assistant secretary of labor under President Bill Clinton. And he joins us from the studios of Audio Post in Philadelphia.

Gentlemen, thanks very much. Professor Anderson, let me start with you. As we heard in that story, the reality of, quote, "the living wage" does not mean that you have a total safety net. Many of these people, even in the states that have bumped up the federal minimum wage, are living on a wing and a prayer to a great degree.

Mr. BERNARD ANDERSON (Professor, Wharton School, University of Pennsylvania): Ed, I'm sympathetic to the goal of the advocates of the living wage, but unfortunately, the government can't repeal the law of the marketplace. The demand for labor slopes downward. And when you raise wages, you inevitably lose some jobs, unless the demand for labor is rising at the same time. And the living wage is a very inefficient and ineffective way to reduce poverty. The reason is that it covers a relatively small number of workers.

If you set the wage at a level that would reduce poverty, that means the wage would have to be set at $10.00 an hour minimum, and it also reduces employment opportunities in small businesses that are driven out of the market because they can't pay that level of wages to their workers. And so there are better ways to reduce poverty than enacting living wage legislation.

GORDON: David Swinton, it seems to me a tremendous Catch 22 anyway that you go in terms of trying to really help American's poor here.

Mr. DAVID SWINTON (President, Benedict College): Well, I seldom disagree with my friend Bernard Anderson. However, I don't think setting the living wages or minimum wages would have the impact that he suggests. In the first place, I think, as economists would say, setting a minimum wage or a living wage, if it was universally set, is really a shift in the demand curve and not a movement down the same demand curve.

Most of the studies of minimum wage legislation have found very little real employment loss. There would be no particular reason for employment loss from competitions domestically, since everybody is facing the same wage. There might be some impact from international competition. However, any adjustment in the wages and the idea that workers should receive a living wage for a good week's work seems to me to make a lot of economic sense.

And so far hey haven't generally been statewide, but so far in the many cities they have implemented these wages, and some of them are broader than others, they haven't noticed any significant loss of employment.

GORDON: Professor Anderson, it seems the wave, if you will, the trend, if you will, that we are seeing upwards to perhaps as many as 30 states this year who will enact the idea of this living wage, so whether or not it will help in the long run, it seems the politically expedient thing to do now.

Mr. ANDERSON: Well, let's look at the evidence. Many of these states that you referring to, Ed, really are not enacting living wages. They're simply raising the minimum wage. Philadelphia, for example, recently enacted an increase in its minimum wage and set the figure at one-and-a-half times the statutory minimum wage, which is $5.50 an hour. Well at that level, that means that the wage, which incidentally is covering a very small number of workers, is only about $7.72 an hour, which a full-time worker working all year still would not be able to lift the family out of poverty.

And I think we have to look at the coverage of the living wage and the negative affects that it has. Let me say, that looking at the evidence, the evidence on the living wage impact is that it is very limited and the results are very mixed. I think it's widely acknowledged among economists that the living wage is an inefficient and ineffective tool for reducing poverty.

GORDON: David Swinton, very quickly, with about a minute left, here's the reality, we're going to see more people who are going to have to deal with this level of income based on what we are seeing over the course of the last few months. Just this week, Ford announcing the kinds of layoffs that will affect and move people from solidly middle-class to those hovering around this line, correct?

Mr. DAVID SWINTON: Yes, and I think what we're trying to do and what people are trying to do with the living wage movement is to have some impact on the very bottom of the wage structure. As you probably know, over the last 30 or 40 years, the bottom has actually moved down relative to both other wages and what minimum wages used to be. And so even though they raise it to $7.73 and that may not get you all the way out of poverty, I'm sure the people who get an extra two dollars an hour appreciate that.

Mr. ANDERSON: And David...

Mr. SWINTON: That some movement to reduce the poverty level for those workers relying on that level work is important, whether or not it (unintelligible).

Mr. ANDERSON: But David, the way to, the way to reduce poverty, David, is to expand and increase the value of the earned income tax credit. When we were in the Clinton administration, we could not increase the minimum wage because of political opposition. But we increase the value and expand the coverage of the earned income tax credit in 1994 and the rate of poverty declined over the next three years by 15 percent.

Mr. SWINTON: Yes, I don't object to that policy either.

GORDON: Yeah.

Mr. SWINTON: But I think that we cannot just rule out adjusting the minimum wage to get it back to, at least where it was, in real terms to relationship to other hourly wages. And in relationship to the historic minimum wage.

GORDON: All right.

Mr. SWINTON: And I think both of those strategies have some cogency.

Mr. ANDERSON: I agree.

GORDON: All right, gentlemen, I have to stop you there. David Swinton, president of Benedict College and Bernard Anderson, professor of management at the University of Pennsylvania's Wharton School, I thank you both for joining us, appreciate it.

Mr. SWINTON: Thank you.

Mr. ANDERSON: Thank you.

GORDON: Coming up on today's Roundtable, T.V. networks consolidate. Will this mean fewer faces of color on the screen? That and more up next on our Roundtable. (Soundbite of music)

GORDON: This is NPR News. (Soundbite of music)

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