Mandating Unemployment with “Living Wage” Laws

by | Aug 12, 2001

Living wage laws, the altruist's modernized euphemism for compulsory wage rates, have met a setback.

Living wage laws, the altruist’s modernized euphemism for compulsory wage rates, have met a setback, of sorts, in a Missouri lower-court ruling. Attempting to avoid state-law preemption which barred cities from imposing minimum wage laws higher than the state’s, St. Louis voters adopted a living wage ordinance requiring that contractors who, directly or indirectly, deal with the city must pay $8.84 an hour, with health care benefits, or $10.76 without. Striking down the ordinance, the Missouri Circuit Court found three fatal errors: (a) the title of the legislation did not match its core purpose, violating the state constitution; (b) imposing “comprehensive family medical coverage” on city contractors was unconstitutionally vague, and (c) the ordinance was in conflict with state-mandated minimum wage laws. Elaborating the final point, the judge found that private enterprise, having little or no direct connection to the city’s grants or subsidies, would be required to pay the living wage rates. As an example, an accountant retained by a grantee of the city to audit the grantee’s books at a site that was receiving financial aid would be subject to the wage requirements of the ordinance, and the requirement would have to be maintained long after the city’s financial assistance was terminated. This, the court held, caused the ordinance to be in conflict with the state minimum wage law.1

The stricken legislation was bad both morally and economically. Distilling the paradoxes of minimum wage laws, monopolistic labor unions and unemployment, Ayn Rand in 1963 wrote, “As a result of the high [union-coerced] wage rates, employers can afford to hire fewer workers; as a result of curtailed production, employers need fewer workers. Thus, one group of workers obtains unjustifiably high wages at the expense of other workers who are unable to find jobs at all. This—in conjunction with minimum wage laws—is the cause of widespread unemployment. Unemployment is the inevitable result of forcing wage rates above their free-market level. In a free economy, in which neither employers nor workers are subject to coercion, wage rates always tend toward the level at which all those who seek employment will be able to obtain it.

“It is relevant to consider against what obstacles businessmen have had to fight and to go on producing—when one hears labor leaders proclaiming, in indignant tones, the workers’ right to a ”larger share” of the ”national product.” To paraphrase John Galt: A larger share—provided by whom? . . . For excellent, more detailed discussion of these issues, see Ludwig von Mises, Planning for Freedom, especially the chapter entitled ”Wages, Unemployment and Inflation,” and Henry Hazlitt, Economics in One Lesson (New York: Harper and Brothers, 1946), especially the chapters entitled “Minimum Wage Laws” and ”Do Unions Really Raise Wages?”2

The City of St. Louis has been spared increased unemployment—temporarily. Temporarily because the court did not rule living wage laws inherently unconstitutional. In fact, as a local leader of the Association of Community Organizations for Reform Now (ACORN) declared, the judge had laid out the ways that the ordinance could be changed to make it legal.


  1. Missouri Hotel and Motel Assn. v. City of St. Louis, Div. 3, Mo. 22nd Cir. Ct. (7/18/01)

2. Capitalism: The Unknown Ideal, Signet PB, pages 86, 88
Copyright © The Association for Objective Law. All rights reserved. Republished in Capitalism Magazine by permission of TAFOL.

The Association for Objective Law is a non-profit corporation whose purpose is to advance Objectivism, the philosophy of Ayn Rand, as the basis of a proper legal system.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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