Monday, May 07, 2007

Living Wage Redux

A group of ec 10 students asked me today about the hunger strike that some students have recently begun to protest the wages of Harvard security guards. A similar issue arose in 2001. Here is what I wrote back then in Harvard Magazine.

The Case against the Living Wage

When a group of students took over an administration building last spring to protest Harvard's wage policy, many people found it easy to sympathize with them. Without doubt, life is hard for workers getting by on $8 or $9 an hour. Moreover, the protest was a welcome relief from the relentless careerism that infects too many students today. The protesters were admirable in their desire to reach beyond their own fortunate cocoons and help those who are less lucky.

Despite the students' good intentions, I cannot support their cause. If any institution should think with its head as well as its heart, it is a university. In my view, there are compelling reasons to reject the students' pleas.

Like most of the prices in our economy, wages move to balance supply and demand. A high minimum wage set by fiat, either through legislation or student pressure, prevents this natural adjustment and hurts some of the people it is designed to help. It is a timeless economic lesson that when the price of something goes up, buyers usually buy less of it. If Harvard has to pay its unskilled workers a higher wage, it will hire fewer of them. Some workers earn more, but others end up unemployed.

Living-wage advocates say that Harvard with its huge endowment can afford to pay higher wages. That's true, but it misses the point. Like all employers, Harvard faces trade-offs. Should extra money be spent hiring more professors to reduce class sizes, or should it be spent hiring more janitors to vacuum classrooms more often? It's a judgment call. If the cost of unskilled labor rises, Harvard faces a new set of trade-offs. Over time, it will respond by hiring fewer of those workers.

A higher wage would also change the composition of Harvard's work force, for wages play a role in supply as well as demand. If the University posts a job opening at $10 an hour, it gets a larger and better mix of applicants than if it posts the same opening at $8 an hour. The person who would have gotten the job at the lower wage is now displaced by a more skilled worker. In the short run, a living wage might benefit those at the bottom of the economic ladder. In the long run, they would be replaced by those who are already a rung or two higher.

Finally, the living-wage protest raises the issue of Harvard's mission in society. The benefactors who give to the University do so to support education, not income redistribution. (And if Harvard were to take up the cause of income redistribution, it would have to acknowledge that even the poorest workers in Cambridge are rich by world standards.) Harvard needs to pay its workers--janitors and professors alike--enough to attract and motivate them. But it shouldn't pay more than it needs to, given the competitive labor markets in which it hires. To do so would compromise the University's commitment to the creation and dissemination of knowledge.