BEFORE last week I was a mere sympathizer of the Living Wage Campaign -- supportive but silent. Only after attending the rallies and camping outside Madison Hall did I realize the level of organization and intellect of the campaign's leaders. The campaign is no whim; it has been eight years in the making. We are in touch with University workers, faculty and national leaders and are keenly aware of how complicated this issue is.
I am writing now in response to those who criticize the campaign for lack of foresight and knowledge but have not bothered to attend teach-ins or read the supporting materials. Specifically, this is for the people who think that those who support the Campaign need a refresher of ECON 201.Well, I remember a lot more than supply and demand.
The recent "market wage" flyers show how imposing a wage floor above market equilibrium creates unemployment by reducing the quantity of labor demanded and increasing the quantity of labor supplied. This is a classic theoretical argument, but it does not fit the living wage for two reasons.
First, ECON 201 students might remember studying demand elasticity, which measures responsiveness to price changes. Demand for labor is generally inelastic -- that is, employers are not very responsive to changes in the wage rate because their labor needs tend to remain stable. A marginal increase to a living wage will not significantly reduce the quantity of labor demanded and will not lead to unemployment.
Second, because the University is an individual employer and not an entire market, it is misleading to equate the living wage with a wage floor.Rather, the living wage represents an upward shift in the University's individual demand curve: tastes change reflecting the desire to care for employees, and income increases as the budget for labor expands.
A living wage will not cause unemployment, but will in theory create a labor surplus as more workers compete for University jobs.Critics argue that today's poorest employees will be replaced by others and not benefit at all from a living wage, but this concern is already addressed by the campaign's demand for the prioritization of currently employed workers.Those with years of experience and personal commitment deserve to keep their jobs.
As for the surplus labor, economics teaches that markets naturally adjust to shifts in supply and demand to reach new points of equilibrium. Accordingly, other Charlottesville employers will increase their wages to attract the surplus workers, and eventually the market-clearing wage will equal the living wage. Because the University is Charlottesville's largest employer, the living wage has the potential to alleviate poverty in the wider community.
Will this create inflation? Not necessarily. The potential changes in the low-wage sector are probably too small to influence the larger economy.Even so, firms can plan creatively to increase wages without driving up prices. The campaign has shown that a living wage does not require raising tuition. What is needed is a reprioritization of currently available funds.
Students of macroeconomics should remember how increases in government spending can stimulate growth because of the Keynesian "multiplier effect." If financed through the University's vast endowment as proposed, the living wage will create a similar infusion of funds, and the extra income will multiply throughout the Charlottesville economy.
Economics uses the term "externality" to refer to indirect social costs or benefits associated with a private transaction. Low wages impose unwanted social costs by perpetuating poverty. These externalities include the burden on state social services, low economic growth and high crime rates. Society already pays for poverty in the form of taxes.
Think $9.37 is a lot? Many University employees still need food stamps or Medicare to support their families.When state services are insufficient they must take on second and third jobs, working up to 70 hours per week just to get by. Part-time University employees and contract workers do not make even the below-living wage base salary of $9.37. They are officially eligible for health benefits but face prohibitively high premiums.
As a community, we have three options: First, let the poverty continue and bear the social costs; second, raise taxes; third, "internalize" the social costs by paying a living wage.
We at the Living Wage Campaign are confident that you don't want to pay more taxes. We're also hopeful you have compassion for your fellow human and feel personally responsible to fight poverty rather than perpetuate it. After all, this is about more than economics. While economic models are useful for analysis, they offer no substitute for one's conscience.
Shoshana Griffith is a fourth year in the College.
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