Creeping Socialism and the Living Wage

SCOTT M. ROSEN
Recently, the American University Board of Trustees sought to placate a group of campus advocates for economic myopia while ensuring that the interests of the campus community at large were considered. With the announcement of its new eleven dollars per hour wage policy , it appears that the university has failed in both of its objectives.

The initial demand for an augmentation in the wage rate was championed by AU Solidarity, a student led advocacy group for "social[ist] justice" via a university mandated living wage . This policy was also supported by the various unions, which represent different campus labor interests (look for a living dues hike) and elements of the student body government (the same fine folks who brought you Snow Day).

While the new wage rate hike and the supplementary health insurance package comes with a sticker price of $600,000 (about sixty dollars per student if the burden is distributed evenly among the tuition paying undergraduate and graduate student body), some of the more ardent proponents of the living wage are still dissatisfied. Apparently, President Ladner and the Board of Trustees did not concur with this stalwart group of financially astute labor activists that they should have been more extensively consulted in the university's decision making process. Additionally, the agreed upon hourly wage falls short of the $12.58 that AU Solidarity had initially called for.

Though it is somewhat commendable that Ladner and the Board of Trustees did not acquiesce to the leftist demands for a full living wage and that they devised their specific policy without close consultation with those with a vested interest, it is rather disconcerting that one set of radicals can pressure the university to implement any sort of ill-guided policy. Can mandatory diversity training and fully subsidized contraceptives be far behind?

Some may note that characterizing a wage floor, which is voluntarily set by the university as being socialist (as this publication has implied) is somewhat deceptive. After all, socialism tends to be associated with government policy not poor business decisions by private firms. However, it is important to note that concept of the living wage is influenced by the same logic that hyper-egalitarian economics is based upon.

According to the socialists, all profits constitute an unearned surplus by the capitalists at the expense of their employees. Under this theory, wage rates do not reflect the true value of employee labor, and thusly, the means of production is being exploited by the greedy elites. The prescription offered to us by the reds in order to ensure that a just society exists is to redistribute that surplus to the oppressed underclass.

Similarly, the advocates for the living wage bemoan the salaries of those at the top while clamoring for just wages at the bottom, yet this begs the question, how does a rational firm set wages? The answer: Just like it would do with any other price it must pay. A wage is merely the price of one's labor. Individuals are paid based upon how much their services are valued by their employer, or more precisely, by their productivity. Likewise, laborers seek the best employment opportunities that are available to them. They may opt to take a job based upon the wage rate, benefits package, location or other positive attribute. Under this flexible market system workers are able to maximize their profitability (based upon their skill levels) and firms receive the maximum utility from their workforce.

A wage floor disrupts this efficient allocation of resources. These floors compel a firm to purchase labor at no less than a designated rate. While such services as cleaning bathrooms or vacuuming carpeting may only require labor that is worth an hourly wage below the eleven dollar limit, the university will now be obliged to overpay for these services. Clearly, this economic imbalance is unsustainable.

The living wage advocates would have us believe that the implementation of a wage floor is merely a matter of cost, and aside from us relinquishing a couple of extra dollars, there will be no other adverse effects. This is not so. The university must now pay more for labor, which will reduce its demand for this commodity. The lower demand for labor means that certain employees risk being left unemployed while others receive the generous wage increase. Additionally, the school will become more hesitant in hiring new workers and may opt to increase the responsibilities and tasks of the current workforce. This will result in fewer economic opportunities for those who are willing to work for less than eleven dollars an hour and will impair the efficiency of services on campus.

Even if the university does choose to retain the current number of employees and there are no (short term) changes in employment, this will not magically make the university and outside contractor workers more efficient and thus worth the new price. Were the employees truly underpaid as the labor activists suggest, the university would find it impossible to maintain a workforce and most AU workers would have long ago found other employers. In fact, the higher wage rate will attract a larger pool of employees, which will make it more difficult for less skilled workers to gain (or retain their) employment with the university.

While the folks who advocate for the living wage may exude selflessness in their effort to be generous with other people's money, there is little reason for the rest of us to greet the new wage policy with even a hint of joy. True, we may not be forced to subsidize the full $12.58 an hour wage that our egalitarian inclined friends may have clamored for, but even this more modest proposal will raise tuition costs (instead of coming from university fat as was promised) while doing more harm than good for the workers. If we could magically bring prosperity to all by simply fixing prices, does anyone think that the American University would be the first to discover this fact?