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A living wage can pay for itself

Before I make the economic case for paying our college’s hourly workers a living wage of $14.08 per hour, I want to get two points out of the way. First, the moral argument for a living wage should supersede the economic argument. Our college’s graduate qualities include commitments to justice, civic responsibility and global engagement. Paying our hourly workers enough to get by is not something we aspire to because of these values. It is a prerequisite to claiming them. Second, if anyone is still under the impression that $11 per hour is a living wage, I would encourage you to attempt the Living Wage Campaign’s budget simulator. In it, participants try to budget for one month in Wayne County on $11 per hour with a few generous assumptions, such as no preexisting debt, perfect health and a safe neighborhood. Participants consistently find they have to omit basic cost of living expenses such as new clothes for their children and insurance payments just to stay afloat.

A frequent criticism that members of the Living Wage Campaign draw is that we’re out of touch with the economics of the situation. Raising the wage implies a cost, and the College is working under a finite budget. Also, according to the basic labor supply-demand model we learn about in Eonomics 101 (ECON 101), a firm can’t raise its wage without hiring fewer workers. I hope to show in this column that neither of these claims tell a complete story, and that a living wage can actually benefit the College economically. There is plenty of economic thought to support this claim.

There are a variety of theories, each with empirical studies to back them up, that repeatedly show that firms benefit from having adequately paid employees. Efficiency wage theory and partial gift exchange theory hold that firms who pay above “market wages” experience higher productivity and morale and reduced staff turnover. It has also been empirically shown that living wages are linked to improved health outcomes, namely reduced rates of smoking, among hourly workers. With a living wage instituted, our college’s hourly staff would be healthier, more motivated and more loyal. The costs we pay to recruit and retain hourly workers would be dramatically reduced. This isn’t even mentioning the positive economic effects that a living wage would have beyond our campus. Adequately paid workers would mean greater food security, reduced poverty and more overall economic activity in Wayne County. A living wage would benefit both our college and our community.

If you attended our panel a few weeks ago, you may have heard President Bolton or cabinet members discussing the idea of “equitable wages.” This means The College of Wooster is paying wages consistent with other employers in town. This would be fair, if our college were like other firms in the city of Wooster. Our college, being among the largest employers in Wayne County, operates under monopsonistic conditions. Firms operating under these conditions, having the influence they have over labor markets, act as price setters rather than price takers. Their labor supply curve is upward sloping, rather than fixed. For non-econ majors, that essentially means the amount we hire is a result of the wage we pay. If we want to hire more, we have to pay more. This is especially pertinent to our college, which is currently experiencing a labor shortage. We are not able to support our campus with the number of hourly staff members we have. Given that our college operates under monopsonistic conditions, paying a living wage seems like a clear solution to this issue. Our hourly staff members put in high quality work every day to keep our campus as beautiful and well-functioning as it is. However, only so many people will be willing to put in this quality of work at the wage our college offers. I submit that if our college were to pay hourly staff members the wage they deserve, we would not face our current labor shortage. It is true that increasing wages represents a cost for our college. However, we also must consider all of the ways in which a living wage can save costs. In addition to being a moral imperative, a living wage has a variety of economic benefits.

One more semi-related thing to mention: empirical evidence shows that cities raising the minimum wage to $15/ hour has a negligible effect on employment. The next time someone tells you “living wages will cause unemployment,” I hope you’ll respond saying there is no significant evidence of this, other than an imaginary model from ECON 101. 

Gabriel Melmed, a Contributing Writer for the Voice, can be reached for comment at  GMelmed21@wooster.edu.

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