The dos and don’ts of reducing disparity

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In an astonishing turn of events, worthy of major international coverage, your humble scribbler finds himself in actual, authentic agreement with the right-wing, free-market- loving think tank, the Fraser Institute.  Sort of.

How this happened is less important than why, which I can summarize thusly: Even a blind pitcher will hit the broad side of a barn once in a blue moon if he’s standing next to a silo. . .or. . .something like that.

The point is when the Institute’s recent report, The Economic Effect of Living Wage Laws, concludes that such legislation in the United States – which is designed to raise poor people’s salaries and, so, reverse growing income disparity – are backfiring, it is largely, albeit lamentably, correct.

“The best available evidence from the U.S. serves as a cautionary tale for us in Canada about adopting living wage laws,” said Charles Lammam, the study’s author and Fraser’s resident scholar in economic policy. “When governments try to legislate wages, there’s typically a trade-off – while some workers may benefit from a higher wage, their gain comes at the expense of others who lose as a result of fewer employment opportunities,”

The press release continues on to explain: “Although activists claim living wage laws can increase wages with minimal costs, the reality is quite different. According to the best available research, a 100 per cent increase in the living wage (for example, going from an hourly minimum wage of $10 to $20) reduces employment among low-wage workers by between 12 and 17 per cent.”

The reason has to do with labour market shock. When living wages are “mandated” to rise regardless of other factors and circumstances, businesses cut back jobs – especially the lower-end ones – and training programs precisely because they are not likewise “mandated” to employ anyone. The relationship between the supply of jobs and the regulations governing pay rates asymmetrically disadvantages workers.

This has the corollary effect of undermining overall productivity and innovation in the private sector despite the fact that Mr. Lammam found evidence suggesting that “employers also respond to living wage laws by hiring more qualified workers and passing over those with fewer skills thereby reducing the opportunity for less-skilled workers to participate in the labour market.”

All of which only means that which we already know: Governments are lousy micromanagers of wages and prices. But can they play any productive role in narrowing the income gap between the rich and the rest? Fraser doesn’t say, but I suspect their answer would be: “a minimal one, thank you very much.”

This is where I (with a sense of great relief) would part company with the Institute.

The socio-economic costs of wage disparities, which are growing rapidly in the western world, are several and serious. As more money flows to fewer people, lobbies and special interests skew public spending priorities.

Suddenly, the infrastructure on which a fair and democratic nation relies – everything from public transportation, roads and bridges to schools and hospitals – becomes less important than tax cuts for the wealthy.

The malign effect on the culture is equally worrying. Prolonged, structural economic inequality creates class systems and all the attendant evils of social immobility: little access to high quality education and jobs; and few, if any, opportunities for meaningful career advancement. In effect, permanent, grinding working poverty becomes the norm for millions until, of course, comes the revolution.

Governments, then, owe it to themselves and to the people – all the people – they represent to be mindful of even the slightest imbalances in the scales of social justice. The role they play is not properly reactive (living wage legislation, as one example), but proactive. Robust, progressive, encompassing social policy designed to create the conditions for broad and general prosperity is what they can and do best.

They should start with a redistributive frame of mind by tithing the personal wealth of rich more aggressively. The notion that economic opportunity trickles down from the top is utterly bankrupt. Rich people spend less of their incomes, per capita, in their local economies than do middle-class wage earners.

Governments should also provide corporate generators of wealth with more incentives for plant reinvestment, job training and apprenticeship programs – for, in effect, a national, private-sector “manpower” program that focusses, once again, on people as much as it now does on profits.

Such are, of course, humble proposals that have, in the current political climate,  about as much chance of being adopted as I have.

On this matter, too, I am certain the Fraser Institute would concur.

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