Anti Business Policy Of The Livable Wage example essay topic

The living wage movement is an economic reform movement that has become one of the most important public policy issues that has come up within the last 10 years. Although there is no single definition, it is often defined as an hourly salary that allows working families of four to have an income that is above the federal poverty line. This means that the livable wage laws often stipulate that hourly wages should be two to three times above the federal Mininum wage. However, unlike the Mininum wage, the living wage has so far only been enacted on the county and city level. Cities and counties enforce the living wage for companies that have contracts with their respective cities and counties, receive subsidies from their cities or counties, other economic benefits cities and counties provide to companies, and in some cases a livable wage is required for the tourist areas of the particular city. For cities and local governments, the livable wage is perceived as a measure to increase the welfare of the poor.

However, like everything in life the livable wage creates its on costs that along with its benefits of increased wage to some low income earners. Although the livable wage has a good intention of decreasing poverty, it is not consistent with the American spirit of capitalism because the livable wage promotes an economy that does not support business. America has always been a business friendly country. America is a business friendly country because of the American belief in a hands-off approach to commerce and the economy. This is called "laissez-faire" economics; the system allows American companies to make decisions that are best for the firm which in turn increases wealth throughout society because it makes an incentive to increase productivity.

It also turns out that this system of capitalistic economics is the most efficient at allocating scarce resources. For example, the opposite of capitalism, a command economy, failed in the Soviet Union. The Soviet Union's economy failed because it tried to allocate resources through central planning, instead of having businesses determine how much of a product to produce. Our system of limited government interference in business has allowed American society to become the wealthiest societies in the world. The lack of government intervention income has become ingrained with the spirit and ethos of American society, and the livable wage goes against the important American ethos of friendliness towards business. The proponents of the livable wage take for granted how well our economic system works.

They see the livable way as a solution that will some how magically cure urban poverty without imposing too many burdens on business. The livable wage will help some poor people make more money, but it also has so many consequences that hurt societal welfare even more. The reason why the livable wage creates so many problems is because it goes against the American ethos of capitalism. Capitalism is the guiding spirit of American society. It allows businesses to make their own choices in order to produce the greatest profits.

This motivation to achieve profits has allowed America to grow strong. Telling business the optimal wage for their employees goes against capitalism. Business should have the right to make their own decisions based on profit because this system of centrally managed allocation of resources is inefficient compared with capitalism. The belief and implementation of free markets and pro-business policies have allowed the American nation to become the strongest country in the world.

The entrepreneur is a special type of business person that is hurt by the livable wage. Our nation's economy is diverse and adaptable because entrepreneurs are always willing to take risks to make money and stay competitive. Entrepreneurs act as the catalysts for the American economy. They take the capital risks to create new products, services, and technologies. The American entrepreneurial spirit to take risks and innovate, in order to make profits, would be greatly harmed because of the high costs to start a new business in a city where a livable wage is present. Entrepreneurs will likely be dissuaded into starting business when they have to pay for low skilled employment that is three times more then the federal Mininum wage.

For example, some cities with a livable wage also stipulate that businesses in tourist areas have to pay the livable wage like the city of San Francisco (Living Wages: A Report by the Federal Reserve Bank of San Francisco). These tourist areas would look very attractive to entrepreneurs and business owners because of the potential profit they can make from tourists and high amount of consumers in tourist areas. Entrepreneurs might have ordinarily started a business at the San Francisco fisherman's wharf but because of the higher labor costs they would then have an incentive to start a business at some other city like the fishermen's wharf at Monterrey. For cities to force compliance with the Mininum wage in tourist areas is a potentially devastating action for business entrepreneurs. There is no stopping business to move to other cities where there are no exorbitant costs for wages that are associated with the living wage. The livable wage itself opposes the motivating factors that have made the American economy strong.

The United State's strong economy will become weaker because of the livable wage's high costs on entrepreneurs. In addition to creating artificially high costs on business entrepreneurs, the livable wage hurts established businesses in cities in many ways. There are many empirical studies of the livable wage law after taking effect hurting the local businesses after taking effect. One example of the negative effects of the livable wage on businesses is examined in the United State's third largest city Chicago. Chicago's living wage ordinance was almost passed in 1996. It did not pass the city council that year because of the economic study done by the economic professors from the University of Chicago and DePaul University.

Chicago later adopted a livable wage that was a smaller percentage increase from the Mininum wage. The proposed 1996 Chicago ordinance stated that all firms that do business with the city of Chicago or receive benefits from the city government through loans, subsidies, other forms of government assistance pay their employees $7.60 an hour. The $7.60 wage was much higher than the Mininum wage at the time which was $4.25 at the time this livable wage ordinance was proposed (web 08. pdf). A study by the Employment Polices Institute, a nonpartisan group that has research performed by independent university economists, tried to examine the total cost to the local economy and total benefit of the living wage ordinance. In their analysis of the ordinance the direct costs on employers was calculated to be $35.7 million. The authors of the study found that employers could respond to the increased labor costs in three ways, raise prices on goods and services, fire some of their employees, relocate to another city or disassociate with the city economically (web 07-1999. pdf).

Based on their data the livable wage creates three negative consequences for business. The first and most obvious consequence is the increased labor costs that some firms would have to pay. The second negative consequence would be businesses that raised cost on labor may pass the costs of the livable wage back on to consumers. This would increase costs for services of that firm. If the firm did not have market power (some monopolistic power and ability to influence prices in the general market) it would lose revenue because a consumer could buy the product or service at a competing firm in the market for a cheaper price. The third consequence would be that businesses would have less incentive to do business with the city of Chicago, since the ordinance stipulated that the livable wage applied to companies that had contracts with the city, received subsidies, or loans.

City contracts, subsidies, and loans are helpful to businesses. Business benefits from the large capital investments cities can sponsor and contribute to businesses. The living wage would have made it less attractive for companies to do business within Chicago. Businesses faced with such decisions maybe would leave Chicago for a city that would have been more business friendly; the consequences for less business activity in Chicago would have been great. Chicago's economy would be weekend by the excessively high livable wage that almost passed in 1996. The livable wage would have had a ripple effect in Chicago's economy because of the negative effects of the livable wage on business.

Some firms would choose to leave the city, this would have destroyed potentially thousands of jobs for the low income earners that the living wage was intended to help. Another inefficiency that would occur from discoursing business, I see would be increased costs for the local city government. For example, it would be much harder for the city government to get bids for contracts for janitorial work. Businesses would pass on the increased labor costs to the government. The city government would be forced to offer even more incentives to potential bidders for city contracts. The costs for the city to attract businesses to do services would go up further forcing the local city government to pay more to contractors.

The final ripple effect from the negative effects of the livable on established businesses would be increased costs to consumers. The increased costs would hurt all consumers in the local Chicago economy. The anti-business policy of the livable wage would hurt everyone is society. The livable wage's effort to increase equality and help the poor is laudable.

However, the livable wage presents a dangerous precedent in social reform because it is an anti-business policy which is caused from limiting free market capitalism. The livable wage tells companies what they must pay their employees, and the costs of the mandated wages are often many times higher than the federal Mininum wage. This regulation is unnecessary and hurts American business which then hurts the economy as a whole. Instead of a social reform that goes against business, politicians should use reforms that do not have unintended costs on business like lowering the taxes of low income families. Instead of a social reform that goes against the American ethos of supporting business, a policy lowering taxes for would be more efficient in helping low income families.

All social policies must be examined carefully for their effects on business because of the importance of businesses in the welfare of the economy".

Bibliography

Economic Analysis of a Living Wage Ordinance. Employment Policies Institute. 20 Sep. 2004 Why the Living Wage is Wrong for Allegheny County.
Allegheny Institute. 20 Sep 2004.