The idea of extreme minimum wage increases, which is also known as a living wage by unions and the political left in the U.S. and socialist regimes around the world, has been with us for centuries. In fact, last December 6th President Obama in making a political speech for an increase in the national minimum wage to $10.10 used Adam Smith and The Wealth of Nations, published in 1776, as the foundation for his argument.
Anytime a reference to Adam Smith, the Father of free-market economics as President Obama referred to him, is made to support an economic argument about minimum wages or a living wage you need to be cautious as those were not hot topics of the day in the 1770s. Of course, as it turns out on further investigation, Adam Smith was not an advocate of increasing wages for the purpose of fairness or for any other social ideal. The problem he was wrestling with in the 1770s was England was the richest country in the world but paid its workers less than Americans were made in the thirteen colonies for the same work. Adam Smith wrote in The Wealth of Nations:
‘It is not, accordingly, in the richest countries, but in the most thriving, or in those which are growing rich the fastest, that the wages of labour are highest. England is certainly, in the present times, a much richer country than any part of North America. The wages of labour, however, are much higher in North America than in any part of England.’
Smith argues that the real standard of living for common workers–that is, what a common worker can afford to buy–had been rising due to technological advances.
He goes on to say that it is through industrialization and efficient production that wages as measured by what they can buy will continue to increase. Quoting Adam Smith in support of minimum wage legislation is a real stretch. From his writings, it is more likely that Adam Smith would say that rapid economic growth with a tight labor market such as we experienced in the mid to late 1990s in the U.S. was the best way to benefit the average workers.
Why begin the discussion about extreme minimum wage increases with quoting Adam Smith? The answer is simple; one needs to understand how it began and the history of it over time in order to understand how to address it under the current circumstances. You often see Adam Smith quoted as being an advocate for increasing wages which benefits all workers up and down the economic ladder, but he did not make that argument as part of his economic theories or any other theories.
Overtime, most economic and social writers have addressed the issue of a minimum wage or in their minds a fair wage. Karl Marx and Frederic Engels created an economic system based on the idea, of course as implemented in Russia, China and Cuba to name a few, it failed. The Catholic Church as a response to Das Capital has called upon employers for over 100 years to pay a living wage. Father Paul Ryan, a leading social and economic writer of his time wrote his thesis entitled A Living Wage in 1912. His book became the foundation for all social and labor arguments for a living wage that followed including the very first national minimum wage passed in 1938 under President Franklin D. Roosevelt.
So, with the final approval by the Los Angeles City Council on October 1, 2014 and a commitment from Mayor Garcetti to sign the ordinance, the minimum wage for hotels will increase to $15.37 on July 1st next year (LA Hotels and the Minimum Wage). This is just the latest effort in a century long crusade to secure higher wages. The heated rhetoric and local efforts to enact extreme minimum wage increases around the country are championed by labor unions and their political supporters versus private employers. It will not fade away as Chambers of Commerce continue to hope it will — there are over 130 cities already with living wage laws around the country.
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