Utopia, you are standing in it!

Laila Harre was tremendously frank about the social upheaval necessary for a living wage to work in her radio debate were Eric Crampton this morning.

When pressed about job losses as a result of minimum wage increases, Harre said she was willing to live with some university students losing their jobs if it meant mature age workers, care workers were her example, were paid a decent living. Crampton immediately reminded her that many of these newly unemployed teenagers were not university students.

Best 2 Minimum Wage Cartoons Ever, from Henry Payne, Updated for Seattle's $15 "Economic Death Wish" @HenryEPayne http://t.co/vatUzkHMss—
Mark J. Perry (@Mark_J_Perry) August 18, 2015

Central to the radio debate was a remark that Eric Crampton made at the beginning. His point was whether it was employers or society who are responsible for making up the incomes of low productivity workers.

Again and again, Harre regarded that top up of wages to be the responsibility of the employer even if that required them to turn themselves into a co-op.

This is exactly the point that Paul Krugman made nearly 20 years ago about why a living wage is so important to its advocates as a point of social philosophy.

Crampton made the point this morning as Krugman has that every problem the living wage attempts to solve can be solved better and with fewer risks to jobs through job subsidies and family tax credits.

These subsidies and tax credits are not enough for living wage advocates such as Harre because she believes people should earn a decent living from their work. There should not be the need for a top up from the government as a point of human dignity. Returning to Krugman:

…I suspect there is another, deeper issue here–namely, that even without political constraints, advocates of a living wage would not be satisfied with any plan that relies on after-market redistribution. They don’t want people to “have” a decent income, they want them to “earn” it, not be dependent on demeaning handouts.

Harre is so offended by the low pay of some workers that she is willing to see some of them lose their jobs as long as others are paid more. She is not harmed by this low pay; she is just offended by it.

Harre then goes on to argue the cooperatives may be the answer. Within a cooperative, wages would be more equal with everyone on a living wage at least.

The usual argument for cooperatives is they are more efficient than other forms of organisation. Workers’ cooperatives should be able to slowly undercut other firms on price because they do not have to pay a profit to the capitalists. I discuss length why there are so few cooperatives here.

Harre owns an upmarket restaurant. She recently became a living wage employer, which means paying $19.80 per hour.

The obvious question for her is why did she take so long to become a living wage employer if all those productivity gains from paying a living wage are real. Perhaps she had to wait until she had a fat enough profit margin to chance her arm.

(I have since learned that last month was not the first attempt by Harre to become a living wage employer. She was certified as a living wage employer in 2014 but continued to pay two of her kitchen staff less than the living wage. Her explanation was she did not have sufficient profit margin to pay them the living wage at that time. Nice to have that choice.)

At bottom, this efficiency wage hypothesis about the living wage is entrepreneurs are unaware of the higher quality and greater self-motivation of better paid recruits for vacancies but wise bureaucrats and farsighted politicians notice these gaps in the market. Bureaucrats and politicians notice these gaps in the market before those who gain from superior entrepreneur alertness to hitherto untapped opportunities for profit do so and instead leave that money on the table. Crampton made similar points to these.

The slowness in which Harre as an entrepreneur picked up on these efficiency gains on a living wage suggests that the associated productivity gains are not just money left on the table just waiting to be picked up effortlessly.

In other areas, the left is far more sensitive to the risks of interpersonal comparisons of utility. The job losses from trade liberalisation never justify the lower prices to consumers and new job openings elsewhere.

This position reverses itself when it comes to the living wage. The Left is willing to experiment with the fortunes of low paid workers so that their offence at how low they are paid is fixed at the expense of their employer. This is rather they themselves as taxpayers pay higher taxes to fund more generous family tax credits. That would place no jobs at risk.

Fortunately, many economists prefer Pareto improvements. This is where after a policy change at least one person gains and no one loses or at least the winners compensates the losers for their losses.

Most of the Left over Left are of the same view about the priority of losers and the need to compensate them whenever evil neoliberals want to deregulate or remove the tariff.

The Left over Left are completely preoccupied the fate of the workers who have lost their privileges from regulation or tariff protection rather than the consumers who are now richer.

Without missing a beat, the Left over Left changes sides and become brutal utilitarians when it comes to the minimum wage and unemployment and investment in human capital.

Minimum wage advocates fail to take seriously that low paid workers who lose their jobs because of minimum wage increases are real living people who suffer when their interests are traded off for the greater good of their fellow low paid workers, some of whom come from much wealthier households.

As Rawls pointed out, a general problem that throws utilitarianism into question is some people’s interests, or even lives, can be sacrificed if doing so will maximize total satisfaction. As Rawls says:

[ utilitarianism] adopt[s] for society as a whole the principle of choice for one man… there is a sense in which classical utilitarianism fails to take seriously the distinction between persons.

Harre must be commended for her willingness to argue frankly and marshal evidence in favour of her cause. The fact that she ended up having to argue that society seem to have to be run as a co-operative shows how difficult it is to have a living wage.