Living wages: The government is worse than Wal-mart!

Posted on May 13, 2013 by


At least that is what this new report says.  The government has more low-paying jobs than Wal-Mart and McDonalds combined.  While one has to smile at the obvious inconsistency–President Obama wants to mandate increased wages on the private sector while in effect he has the most low-paid workers in the country–the presuppositions in the report are just plain wrong.  According to the CNBC summary,

The report says that when tax dollars underwrite bad jobs, the economy as a whole is weakened.

In one sense, this could be considered true.  For example, if this is taking scarce resources that could be used profitably in the private sector, then the economy as a whole is weakened–there are less total goods and services produced by the private sector that can be allocated across all sectors.  This effect is commonly called crowding out–when public sector spending crowds out private sector activities by bidding away scarce productive resources.  But this is not the sense in which the report is saying the jobs are bad. Rather, the jobs are bad because of the low wages they pay.

“People at these levels of income have to go on food stamps or other forms of government assistance and this just compounds the problem,” Traub argued. “They’re not making a living wage and the economy suffers.”

But this is just confusion about how markets work, and indeed, the first law of economics–scarcity.  At the end of the day, even government faces scarcity–there are only so many tax and borrowed dollars to spread around.  If the government increases wages, they will have to reduce the number of people getting those wages.  Clearly for those people that lose their jobs, a lower wage is better than a zero wage. 

But an even more pernicious lie within this study is the oft-repeated claim that there are bad jobs.  Now I may agree (as the TV show says) there are Dirty Jobs, and there are certainly jobs that none of us want.  But that doesn’t mean that jobs are bad.  First, from an individual perspective, we know that any voluntary transaction improves individual welfare.  So the individual taking the job is better off.  It’s not clear to me why we ought to consider the welfare of those that are not part of the economic transaction–if we exclude them, social welfare is undeniably higher.  But second, and much more important–work is unambiguously good in the abstract.  We were created by God to work, and if we can’t live in a utopia where the law of scarcity does not apply, then we ought to prefer a low paying job to no job. 

Finally, we should not discount the skills development that accompany low-wage jobs.  Think what skills an employee of McDonald’s gets.  Now the progressives would have us think this is a dead-end job; indeed its almost as if you are stamped “loser” for having a “hamburger-flippin” job.  But nothing could be further from the truth.  Consider a teenager that works three years at McDonald’s.  Perhaps working the fries, then the counter, and ultimately as an assistant manager.  What skills does this signal to another employer (even in something unrelated to food service delivery)?  First, the teenager wasn’t fired for three years–that says something about his or her work habits.  Second, there was mobility upward to increasingly demanding positions, suggesting the teenager performed reasonably well in each capacity.  Third, they worked the counter.  I think we can all agree that the counter can often take some incredible customer relations skills–can you think of some of the rude people you’ve stood in line with?  All of this suggests that if a future employer invests even more money to train this teenager in increasingly complex tasks (which will ultimately pay much better) that he or she is worth the risk because of his or her performance at McDonald’s. 

If the low wage jobs the government offers are not providing similar opportunities at skills development, then the answer is not more pay but end the public sector job and let these low-wage employees go to the private sector low-wage jobs where they can gain skills. 

Any voluntarily taken job is better than no job. 

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