Tuesday, March 8, 2011
Nudging the Private Sector to Decency
In 1965 the University of California opened a new campus in the sleepy beach town of Santa Cruz. One of the unexpected consequences was that a lot of local residents suddenly discovered what they were worth.
Geographically isolated, its resource extraction economy having expired, Santa Cruz County had become dependent on summer tourism. With its major industry seasonal, there weren’t many full-time, year-round jobs. When people grew up, they tended to move away, and the housing stock was rented to retirees, who could live well on a fixed income.
Employers could get away with being stingy, and employees who wanted to stay in the area, or were stuck there, got used to it. So when UC-Santa Cruz started hiring people at prevailing University of California wages and benefits, it was an eye opener.
One single mother I knew had been working at the cosmetics department of the local department store and applied for a job as a library assistant at the university. When she got it, her wages went up 30 percent, and her health and pension plans got better, too.
At this point in our narrative the free-market true believers are no doubt having an apoplexy, but it’s a good thing. Not the apoplexy (except perhaps in the case of a few individuals I won’t name), but rather the university’s economic influence on the community to which it came.
I don’t know what economic studies say about situations like this, nor do I really care. They contradict each other so much that you have to parse the issue is through common sense and personal experience.
For instance, when it comes to the minimum wage, I think about the local car wash. Every time the minimum wage goes up, they post a snarky sign saying that due to the increase in the minimum wage, they regretfully had to increase their rates. This has been going on for thirty years, and every time I drive by on a sunny Saturday afternoon, the line of cars waiting to be washed reaches nearly to the street.
It would appear that when the minimum wage goes up, it affects their competitors, too. If the car wash is forced to raise the price of a car wash by a buck, so is everyone else. And if that buck is chump change to me, with my 10-year-old car, it’s certainly less than chump change to all the folks taking in the new Mercedes. So I’m highly skeptical if someone tells me that raising the minimum wage kills jobs and businesses. The car wash does not lie.
Similarly, common sense and what I saw with my own eyes tell me that Santa Cruz became more prosperous when the university arrived. The higher wages on campus may have meant that a local insurance agent had to pay more to get a good receptionist, but there were also more people to whom he could sell policies. Perhaps not everybody won, but everybody had a better chance of winning.
Rather than being some alien factor, the public sector is in fact simply one more piece of a free market, and an integral one at that. When it influences the market — by setting a minimum wage, requiring a prevailing wage on public projects, paying good wages and benefits to employees, or paying direct benefits such as Social Security and unemployment compensation — it is establishing an economic baseline that benefits nearly all of us. That sounds to me like promoting the general welfare, which the Constitution says, not once but twice, is one of the objects of government. Economic reality may require some downward adjustment to the baseline from time to time, but we should never forget that the adjustment affects us all and is no cause for celebration.