State-Imposed "Living Wage" is Neither a Living Nor a Wage

by Paul T. Mero (Utah)

For centuries economists have discussed the family wage idea: a wage sufficient for a man to support his wife and children. Adam Smith felt that an expanding economy would eventually create such a wage, yet a wage based on a family's need rather than an individual's production would seem to run counter to employers' interests. Thus the family wage was largely a progressive idea championed by social liberals, unions, and feminists, and sometimes, because the sentiment behind it is very traditional, supported by religious leaders as well.

It was all the more shocking, then, when American entrepreneur Henry Ford instituted a unique profit-sharing policy in 1914. Ford announced that he was raising the minimum rate paid to many of his workers from $2.80 per day to $5 per day. Qualifying employees were "all married men living with and taking good care of their families," single men age 23 and over with "proven thrifty habits," and men under age 23 and women "who are the sole support of some next-of-kin as blood relative." Ford said, "The man does the work in the shop, but his wife does the work in the home. The shop must pay them both." Ford Motor Company's hiring practices excluded married women, reasoning that if its wages allowed a man to provide for his wife and children, it made no sense to hire those dependents.

Ford felt "it would be bad morals to go back to the old market rate of paying." His morality, privately conceived and carried out, was driven by "the hideous prospect of little children and their mothers being forced out to work." Interestingly, Ford later called his wage increase "the best cost-cutting measure" the company ever instituted because it almost eliminated turnover and attracted the best laborers in the area.

Ford's family wage policy is long gone, and in its absence progressive political interests are promoting a "living" wage, the wage at which people can sustain themselves without the help of charities or government. Advocates of the living wage are lobbying local and state governments across America to require businesses, at least those doing business with government agencies, to enact higher wages (a ban on such laws was the subject of SB 138 in the 2001 Utah legislative session).

Here in family-oriented Utah, a family wage might be a popular idea. Many Utahns consider a single wage-earner husband supporting his nurturing wife and dependent children the ideal family. They may be right: numerous studies have shown that two-parent families raise healthier, better-adjusted children than single-parent families, and new data suggest that children who spend more than 30 hours a week in day care may be more demanding, less compliant, and more aggressive when they reach kindergarten age.

The living wage, however, is quite a different story. For one thing, it is not motivated by the private philanthropy of an employer but by the power of the state. Where Henry Ford used his company's record-breaking profits to finance the five-dollar day, state-mandated wage controls impose their costs on the public and the economy. A 1996 living wage proposal for the city of Chicago would have cost the city $20 million each year, requiring a permanent tax hike, and would have mostly helped the federal government through increased tax collections. For another, employers would not be able to exercise the discretion of Ford without practicing discrimination. Under today's labor laws, the living wage would have to be the same regardless of the individual's family circumstances -- a married man with two children would be paid the same as an unmarried teenager living with his parents. And Ford's practice of not hiring married women would be a civil rights violation.

If progressive factions get their living wage mandated, it seems unlikely that the movement's leaders would start sounding the call for a parent to return home. After all, it was progressive feminism that encouraged mothers to leave home for the workplace in the first place. Today's living wage policy is really little more than a huge expansion of state-imposed minimum wage allowances: if the minimum wage is $5.15 per hour, a living wage might be $9 per hour.

More than 60 years ago, U.S. Supreme Court Justice George Sutherland denounced government interference in wage policy. Responding to the plaintiff, a single woman making market wages but seeking higher non-market wages through government wage supports, Sutherland said, "The employer by paying a fair equivalent for the service rendered, though not sufficient to support the employee, has neither caused nor contributed to her poverty. On the contrary, to the extent of what he pays he has relieved it."

A family wage such as Henry Ford's certainly betters the families of the men who are paid it, but it remains an act of private compassion. The living wage as it is championed now is neither compassionate nor economically sensible -- neither living nor a wage.

Paul T. Mero is the president of the Sutherland Institute, a Utah-based public policy research institute. Permission to reprint this article in whole or in part is granted provided credit is given to the author and to the Sutherland Institute.