The other day, I mentioned that Jim Wallis is promoting the “living wage” as major plank in the Democrats’ platform. A living wage law sets a minimum legal salary that’s high enough to allow one full-time wage-earner to support a family of three or four at or above the poverty line.

Unions, religious groups, and others on the left have invested a lot of energy in living wage campaigns–giving this policy more attention than other anti-poverty initiatives, such as the Earned Income Tax Credit or expanded coverage for Medicaid. Yet economic theory says that businesses will respond to an increase in the minimum wage by cutting workers. Empirical evidence from a “natural experiment” (when New Jersey raised its minimum wage but Pennsylvania did not) generated ambiguous or controversial results. Indeed, the effects of increasing the minumum wage are likely to be fairly complex–and different for various subgroups of poor people. Whether the net effect is good or not is an empirical question, not to be settled by economic theory alone.

Scott Adams and David Neumark of the Public Policy Institute of California have published a very well written and persuasive paper entitled “A Decade of Living Wages: What Have We Learned?” (Full disclosure: Neumark was part of the controversy about the Pennsylvania/New Jersey natural experiment–arguing that the minimum wage increase was not beneficial.) Their paper finds that local living wage laws tend to increase wages among the lowest-paid workers but also cause employment to fall among the least skilled. Both effects are bigger when the living wage applies in several neighboring jurisdictions. The two effects work at cross-purposes, but the net result is a small reduction in the poverty rate. Evidence suggests that a few of the lowest skilled people lose their jobs, but others in the same family units see pay increases; and the whole poor population gains income, on balance. But not very much income. Futhermore, the families that benefit are those that start close to the poverty line. Those deep in poverty do not gain income–presumably because they are likely to be unemployed.

The evidence about local living wage campaigns cannot tell us what would happen if the national minimum wage were raised. However, the implications of the existing studies are not very impressive. Therefore, I wonder why living wage campaigns have absorbed so much energy. It could be because …

1. We can envision a living wage at the local level, as a law passed by a city government. Some cities are very liberal, so they are likely to pass these laws. In contrast, the federal government will not do anything very progressive about poverty. And no one is advocating, for example, an earned income tax credit at the local level. But could such a policy work? [See the comment by Nick Beaudrot for a correction; many states do have their own EITC.]

2. Like rent control and environmental protection, the minimum wage is a mandate that government passes for businesses. There is no need to appropriate public funds explicitly for a minimum wage, although the cost of government may rise if the state has to pay more for labor. It’s politically easier to pass a mandate than an appropriation. Proponents predict large benefits and minimize the costs. In any case, they say, “corporations” will pay the price (and who likes corporations?). However, most economists reply that the potential benefits of a minimum wage are small, at best, and the price will be paid by consumers and some low-skilled workers.

3. Proponents of the living wage don’t like economic theory. Indeed, the dismal science rests on some fundamental assumptions that should be questioned. However, I think the limits of economic theory call for more empirical evidence, especially data drawn from experiments or quasi-experiments. My reading of the available evidence suggests that living wage laws may be mildly beneficial, but they are nowhere close to sufficient.

Since November, many Democrats have asked Jim Wallis, the editor of Sojourners magazine, to help them develop a moral message–one that might reduce the Republican advantage among religious voters. Wallis says that he has been telling them to change their policy proposals, not just their rhetoric. He writes:

the minority party has been searching, some would say desperately, for the right ‘narrative’: the best story line, metaphors, even magic words to bring back electoral success. The operative term among Democratic politicians and strategists has become ‘framing.’ How to tell the story has become more important than the story itself. And that could be a bigger mistake for the Democrats than the ones they made during the election.

… What are your best ideas, and what are you for–as opposed to what you’re against in the other party’s message? Only when you answer those questions can you figure out how to present your message to the American people.

This is 100% right, in my opinion. Wallis provides an additional service by sketching out the main points of a liberal agenda that is explicitly moral. He has prompted the right discussion, but his proposals raise questions for me.

For example, Wallis recommends that the Democrats set a target of cutting the number of abortions in half. This would move them past the Clinton-era slogan that abortion should be “safe, legal, and rare.” It could potentially give them very broad support on the abortion issue, because they would safeguard the right to terminate a pregnancy while also telling “pro-life” voters that they (and they alone) had a plan to cut the actual number of abortions.

But would the policy work? Wallis recommends “adoption reform, health care, and child care; combating teenage pregnancy and sexual abuse; improving poor and working women’s incomes; and supporting reasonable restrictions on abortion, like parental notification for minors (with necessary legal protections against parental abuse).” Democrats (including me) like it when the number of abortions falls because women have better welfare and more real choices. We do not like the number to fall because of legal restrictions, even “reasonable” ones. I could imagine embracing a policy that included both sides of the coin, as long as most of the reduction in the abortion rate came from the additional social support, not from the new legal limits. What do we know about the relative impact of those two kinds of proposals? For instance, would “adoption reform” really help?

Wallis also recommends that the Democrats take on poverty. Indeed, it is remarkable how little John Kerry said about the poor and near-poor, given that he was the candidate of the center-left. Even though the median family income of American voters is well above $50,000, I believe that some voters would respond to moral language about poverty, which would pay off politically.

Again, the issue is not what people want–they want less abortion and less poverty–but how to achieve that goal. Wallis is angry about “wartime tax cuts for the wealthy, rising deficits, and the slashing of programs for low-income families and children.” So am I. However, changing the distribution of wealth through the tax code only helps if the government spending is beneficial. Some programs help poor people, but others are wasteful or even counterproductive.

Wallis recommends a national “fair wage”: in other words, an increase in the federal minimum wage. There’s controversy about this proposal, but it appears that “moderate minimum wage increases do not reduce poverty rates,” partly because most of the lowest-paid workers are teenagers who are not poor, and partly because employers cut benefits when the minimum wage goes up. Bigger than “moderate” increases might reduce poverty; then again, they might increase unemployment.

The Center on Budget and Policy Priorities estimates that existing spending programs–mainly, Medicaid, the Earned Income Tax Credit, Food Stamps, and Supplemental Security Income–prevent 27 million Americans from being poor. Nevertheless, about 31 million remain poor, and many more are near-poor. It is quite likely that we could help more people if we expanded the existing programs, although that requires separate evidence. Furthermore, I doubt that many Americans would be inspired by a call to increase spending for Medicaid or the EITC. Who has more innovative and persuasive proposals?

This is a topic that Greg Anrig Jr. and then Matthew Yglesias have been discussing over at TPM Cafe. Most of the discussion has concerned issues–whether young people could be motivated by a particular approach to college loans, Social Security, or healthcare. Some participants believe that it is a mistake to develop special proposals for the young; it’s more important just to propose good policies. Yglesias also notes a dilemma for the left. Young people are strongly libertarian on gay rights and other questions connected to sex and/or religion–the very questions that motivated many older Americans to vote for Bush. “The issues that tend to drive young people into the Democrats’ arms are, unfortunately, precisely the sort of cultural issues that conventional wisdom says the party needs to de-emphasize.”

I’d like to suggest a few openings that are quite unlike the issue-appeals discussed over at TPM:

1. The Democratic Party should give young people more substantive roles in campaigns. According to a study that CIRCLE commissioned from the political scientist Dan Shea (pdf), two thirds of the 403 local Democratic leaders who were polled said that a lack of youth involvement was a “serious problem.” Democratic leaders were much more likely than their GOP counterparts to see the lack of youth participation as a serious issue, perhaps because young people are more engaged in the GOP, which has invested heavily in conservative campus newspapers and clubs and Washington internship programs. Nevertheless, most local leaders in both parties reported doing relatively little to groom the next generation by giving youth significant jobs. Most of their ideas for reaching youth were superficial–they thought they should become more “hip” or throw more parties. They often blamed the media for alienating young people, but seemed unwilling to invest their own resources. Local leaders (both GOP and Democratic) were asked to name the “most important demographic group for the long-term success of their party.” Only 8 percent volunteered “young people.” If they chose another group (most commonly, “seniors”) they were asked to name a second group. Even after three opportunities, a total of only 38% named youth as an important group for the future of their party.

2. The Democratic Party should give the impression that it is open-minded and committed to solving problems by any means that work. Today’s young people appear to be even more pragmatic than their elders: unattached to existing ideologies but concerned about social problems. Marc Porter Magee has been arguing that idealistic young people shun bureaucratic organizations and the civil service, looking instead for opportunities to experiment and be creative in the non-profit sector. They also like such temporary (but paid) volunteer opportunities as Americorps. The country could invest much more heavily in service and what Magee calls “civic enterprise.”

3. We should start thinking about “sleeper” issues. These are issues that arise out of everyday experience and that take a long time to be named–even longer to be addressed. A political party or leader can score points by simply identifying such an issue early. For example, thanks to my colleague Lew Friedland, I’m convinced that high school students face excessive stress today because they feel that their long-term economic security is dependent on their performance in school and extracurricular activities. If anything, they overestimate the economic significance of their choice of courses and the grades they win; and they often perform community service in the belief that it’s necessary for college admission. I think it’s unjust to force young people to shoulder so much risk with so little support; and there may be ways to mitigate the problem. Smaller high schools, with more sense of community and less individual choice, might help. Making college admissions and financing more transparent and simpler would also be good.

(Thanks to Nick Beaudrot for telling me about the exchange on TPM–I haven’t been reading blogs much lately.)

Yesterday, my colleagues at the University of Maryland’s Democracy Collaborative unveiled a new website called Community Wealth.org. It contains a mass of practical information about alternatives to the standard business corporation, including “community development corporations (CDCs), community development financial institutions (CDFIs), employee stock ownership plans (ESOPs), community land trusts (CLTs), cooperatives, and social enterprise.” Gar Alperovitz, Jessica Gordon Nembhard, and other Maryland colleagues have shown that these wealth-generating organizations are rapidly growing and are often highly efficient and sustainable. Alperovitz also has a new book on the subject, which has been excerpted in Philosophy & Public Policy Quarterly (a journal produced by my shop).

These are my two favorite arguments for expanding alternatives to standard corporations:

1) The traditional approach to equity–taxing and spending after the fact–has encountered strong popular opposition in all Western democracies. Besides, it makes the recipients of government aid dependent on the state. Wealth-generation is a preferable strategy for both political and substantive reasons.

2) Alternative economic institutions like CDCs and co-ops are more rooted in communities, less able to move their investments. One of the biggest weaknesses of democracy today is the mobility of capital. As Alperovitz notes in the excerpt, a corporation can influence political decisions in multiple ways, including the “implicit or explicit threat of withdrawing its plants, equipment, and jobs from specific locations.” Besides, “in the absence of an alternative, the economy as a whole depends on the viability and success of its most important economic actor–a reality that commonly forces citizen and politican alike to respond to corporate demands.”

If there is no alternative to the standard corporation, then democracies really must do what firms want. Trying to restrict capital flows simply violates the laws of the market and will impose steep costs. In the market we have, it is not corrupt when democracies favor corporations; it’s just realistic. However, Alperovitz and his colleagues are showing that there is an alternative to the corporation. It’s possible to increase the wealth of people in poor communities by creating economically efficient organizations that are tied to places.