Vertical Demand Curves

by Russ Roberts on January 16, 2006

in Work

A key issue in the debate over the virtues of the so-called living wage is whether the demand for labor slopes downward—will employers hire fewer workers when legislation forces employers to pay more?

ACORN, the Association of Community Organizations for Reform Now, is the most important advocate of living wage ordinances as reported in this New York Times Sunday Magazine article.  (Don’s post on the article is here.)

I have read elsewhere that ACORN in 1995 tried to get itself exempted from the state of California’s minimum wage legislation.  I have always wondered whether this was an urban legend.  Could it possibly be true?  It appears to be true unless someone has hacked into the Findlaw website.  (Here’s the Court’s judgment against ACORN.  If that doesn’t work, try googling this: Association of Community Organizations for Reform Now v. Department of Industrial Relations (1995) 41 Cal.App.4th 298 , 48 Cal.Rptr.2d 486.  I’d like to see ACORN’s brief as well if someone knows how to dig it up.)

Most of ACORN’s critics delight in pointing out the hypocrisy of ACORN.  How could an organization that fights for higher wages deny its own workers those higher wages?  But I’m more interested in the arguments that ACORN used to make their case.  Here, from the court’s decision, is why ACORN argued that applying the minimum wage to ACORN would have an adverse impact on the organization:

According to ACORN, this adverse impact will be manifested in two ways:
first, ACORN will be forced to hire fewer workers; second, its workers,
if paid the minimum wage, will be less empathetic with ACORN’s low and
moderate income constituency and will therefore be less effective

The first argument was that demand slopes downward.

The second argument is why I’d always wondered whether this story was an urban legend.  The second argument seems worthy of Saturday Night Live if the show were written by economists.

I am proud not to be a progressive.


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