Harvard Is Vaulting Workers Into the Middle Class With High Pay. Can Anyone Else Follow Its Lead?

The university doesn’t calculate how much it might save if the parity policy were not in place. But the committee appointed to study the issue in 2001 came up with a rough estimate of $2.4 million to $3.7 million a year. This is pocket change for an institution like Harvard, whose operating expenses last year approached $5 billion.

But as Mr. Summers pointed out, across the economy, better jobs may mean fewer jobs. If, say, Massachusetts were to introduce a similar policy for public services, it would need to find the money. Taxpayers could provide it — or the state could scale back services and cut jobs. And employers forced to pay more may attract better-trained workers, displacing less-educated ones.

There is a substantial body of research suggesting that modest increases to the minimum wage will have only a tiny effect on employment. But there is almost no research on what would happen if a cook’s wage were set at $24, about twice the market rate. Most economists would probably agree that the number of cooks would fall.

Research by David Neumark, a labor economist at the University of California, Irvine, points out that in the parts of the economy most susceptible to automation, imposing a “living wage” might just accelerate the pace at which robots take over everybody’s job.

Still, other economists suggest, Harvard’s innovation deserves a shot. As the noted labor economist Richard Freeman argued in the opinion pages of The New York Times after the release of the Katz Committee’s report in 2001, “Failure to spread prosperity widely has been the major failure in America’s economic success.”

Over the last 40 years, the earnings of workers in the middle of the distribution — half earn more, half less — have increased by an average of 0.16 percent per year, after inflation. That is very close to nothing. Workers without a college degree make about $20 less a week, in today’s money, than they did at the millennium. With a labor movement dwindling into insignificance — only 6.5 percent of private-sector workers are unionized — economists like Mr. Weil and Mr. Katz suggest that new institutions are needed to hold up the bottom half.

Alan B. Krueger, a labor economist at Princeton who headed the Council of Economic Advisers under Mr. Obama, argues that the costs of introducing a parity policy like Harvard’s in other workplaces would be “probably second order” — too small to matter. Higher pay, he noted, brings about efficiency gains: Workers who are paid well are more loyal. They will exert more effort for the company. It’s worth it even if they are more expensive.

Indeed, Mr. Krueger argues, “this kind of policy is pushing firms to a better equilibrium.” From the standpoint of Massachusetts, he adds, think of all the new tax revenue that higher wages would bring about. By that reasoning, considering the consequences of low wages across society — poverty and its contingent ills, family instability, addiction — policies to set a floor on the price of labor could well justify their cost.

Article source: https://www.nytimes.com/2018/09/08/business/economy/harvard-living-wage.html?partner=rss&emc=rss