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
advocates.

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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{ 6 comments }

Chris Meisenzahl January 16, 2006 at 4:51 pm

It is indeed scary. One would hope an economics 101 class would clear it up for them. ;-(

JA$ON January 16, 2006 at 6:15 pm

At the Free Trade Area of the America's I confronted an ACORN worker with the facts about a minimum wage hike (it's inflationary, it will result in businesses hiring fewer workers). She shrugged and said, "We have to do SOMETHING."

I love this site because it gives me the rhetorical ammunition I need for the "field."

Isaac Crawford January 16, 2006 at 7:46 pm

LOL, Ja$on you confirmed what I wrote in my blog, it was like a public confession that ACORN made, that what they do is indeed harmful to the people that they are trying to help, AND THEY KNOW IT! I can forgive most people for not understanding how this stuff works, but to know and then pretend otherwise is unbelievable….

Isaac

averagejoe January 16, 2006 at 8:10 pm

If you believe in a republic or a democracy, at some point the majority is going to control. Looking at income distribution, the majority is not at the top. So the middle/bottom are going to control income redistribution through government action. That's the way it is and if you don't believe it – demonstrated in some elections again today – then you are on the wrong side of history. If you are convinced the people need to be forced to your beliefs 'for their own good', read some biographies from early 20th century. Top down direction does not work and has been replaced with various forms of representative government. Get used to it.

Monahan January 17, 2006 at 5:20 pm

Crhis – I don't think it's a matter of Econ 101. ACORN knows Econ 101. It is just plain bad people. E.G, see The Real ACORN,

http://www.epionline.org/studies/EPI_acorn_10-2004.pdf

ACORN (and their subsidiary Project Vote)
has been implicated in several voter fraud cases in states across the nation.

On March 27, 2003 the Association of
Community Organizations for Reform Now
(ACORN) lost its final appeal of a National
Labor Relations Board (NLRB) ruling, which
found that ACORN had violated the rights of its employees to unionize.

ACORN claims that all employees should be guaranteed “a minimum annual family income at a figure equivalent to the most recent Bureau of Labor Statistics ‘medium living standard,’ adjusted for inflation.”10 In reality, ACORN organizers typically
work 54-hour weeks for a salary of $18,000.
Accounting for overtime hours, ACORN pays a
wage of $5.67 per hour, less than half the level demanded by many proposed “living wage” ordinances that ACORN supports. In some states, such as California and Oregon, this level is below the state-mandated minimum wage. ACORN’s leaders do not pay their own employees a “living wage,” because they know that doing so would limit the number of employees they could hire.11

A legal brief filed by ACORN during the
appeal of its lawsuit admits as much: “As acknowledged both by the trial court and California, the more that ACORN must pay each individual outreach worker—either because of minimum wage or overtime requirements—the fewer outreach workers it will be able to hire.”15

Decision in Association of Community Organizations for Reform Now v. Department of Industrial Relations (1995) 41 Cal.App.4th 298 , 48 Cal.Rptr.2d 486 is available without charge as part of Appendix.

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