There’s a wave of dystopia infecting cities across Texas that one-size-fits-all wages will solve workers cries for a “living wage.”
It’s not what you think though.
Their proposals are to increase only municipal worker wages, they leave out private sector workers who apparently don’t matter as much. Or, maybe city officials understand the costs that this has on the private sector but believe somehow these costs don’t exist in the public sector.
Though appearing as a free lunch, the late economist Milton Friedman may have said it best when it comes to basic economics, “There’s no such thing as a free lunch.”
The Center for Local Governance Director James Quintero and I were recently quoted (see here, here, and here) in opposition to San Antonio’s budget proposal to raise their municipal worker minimum wage from $11.47 to $13 per hour. The horror! But consider this, has San Antonio received a 13.3 percent increase in the value of their public goods and services? I doubt it.
We also released a statement against Austin’s budget proposal to an across-the-board 3 percent increase in wages for city workers. Instead, they should consider alternative wage changes that better match the merit-based pay raises in the productive private sector.
Both cities, and many others statewide, are bleeding in red. San Antonio is $17 billion in debt with $600 million more in unfunded pension liabilities. Austin is $8.7 billion in debt with $1.2 billion in unfunded pension obligations. Making these wounds worse, the minimum wage increase proposal in San Antonio could cost at least $2.8 million annually. Likewise, the wage increase in Austin could cost almost $19 million.
Clearly, both cities cannot afford these artificial pay increases, unless they redistribute resources from the private sector through higher taxes and fees. Dallas has also taken this false path to prosperity by discussing an increase in their minimum wage for city workers.
Proponents of these proposals need a lesson in basic economics. The law of demand states that as the price of labor increases there will be fewer employed. Though cities have the power of the purse, so they can just increase revenues to afford the same number of workers, this will remove resources from the private sector and destroy jobs, capital accumulation, and economic output for the entire city.
There’s a better path: merit-based pay. Workers should be paid their worth, no matter if they are in the public or private sector. But it’s important to appropriately measure a public sector’s value because their salary must be paid through taxes and fees taken from someone else. Though arguably public sector workers should be paid a competitive salary, scarcity of resources must be considered.
Instead of the government acting as an omniscient being regarding the best wage for workers, let workers decide. Many city workers may find it in their best interest, particularly those with the least skills, to not raise their wage. In fact, many more might be willing to work at a lower wage, freeing up scarce resources in the private sector that allows many to have the opportunity to find a job and get off welfare.
City officials should stop impoverishing workers by mandating a one-size-fits-all wage.