Below is Hahnel's defense, from _ABCs of Political Economy_. (I bought a copy, but if anyone has a hard time obtaining the book, they might be able to find it on a site like chomskytorrents.org. Alternately, feel free to email me.)
As I'm no economist, I hope anyone who disagrees with Hahnel offers their opinions.
Tayssir
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Living wages
Establishing a minimum wage, and raising it faster than the inflation rate, is both equitable and "good economics." Similarly, living wage campaigns in a number of American cities have been among the strongest initiatives to make US capitalism more equitable over the past ten years. Minimum and living wages are important programs to steer capitalism toward the high road to growth. Opponents invariably argue that minimum wage laws and increases in the minimum wage hurt the people they are supposed to help by increasing unemployment. Unless the demand for labor is infinitely inelastic raising wages does decrease employment to some extent as simple supply and demand analysis reveals. What opponents do not want to admit is: (1) Demand for labor is often wage-inelastic in the short run. (2) Even in the short run raising the wage rate, unlike raising other prices, can be expectedto shift the demand curve for labor to the right as well as move us up the demandcur ve for labor. Because workers spenda higher percentage of their income than employers, wage increases increase the aggregate demand for goods and services in the short run which will make employers more likely to hire workers because they will have less trouble selling the goods those workers make. While wage increases move us up a given labor demandcur ve andred uce employment, shifting the labor demand curve out – as wage increases also do – increases employment. That is also simple supply andd emandanalysis, but just not the kindopponents of minimum wages want to consider. (3) The wage rate is a distributive variable, andas our Sraffian model of wage, profit, and price determination in chapter 5 demonstrates, there are an infinite number of combinations of long run equilibrium wage rates and profit rates that are possible in any capitalist economy. The only difference between combinations where the wage rate is high andprofit rate low, and combinations where the profit rate is high andthe wage rate low, is that the former are more equitable andthe latter less so! So in the long run increasing the minimum wage just moves us to a more equitable distribution of benefits in capitalist economies. As long as appropriate macro economic policies are usedto preserve full employment of the labor force there needbe no loss of employment in the long run at all. Thomas Palley provides an excellent defense of "the new economics of the minimum wage" in "Building Prosperity from the Bottom Up," in the September/October 1998 issue of Challenge magazine. <http://www.findarticles.com/p/articles/mi_m1093/is_n5_v41/ai_21118356/print>
Opponents' criticism that living wage campaigns in a single city will cost jobs in that city as employers move to other locations is more compelling on theoretical grounds. It is nothing more than an example of the "race to the bottom effect" which critics of corporate sponsored globalization are right to worry about. For that matter, it is no different from making local environmental regulations stronger, or local business taxes higher. Anything that raises costs to businesses in one locale makes it more likely that they will move their business and jobs to another locale. But the lessons those working on living wage campaigns need to draw from this is not to give up, but to expand the living wage into adjoining jurisdictions, and to press for restrictions on the right of businesses to pick up and move. Just as a national minimum wage is better than minimum wages in some states but not others, the more jurisdictions covered by a living wage, the less likely there will be job losses because businesses would have to move farther. And while it is common today to think "freedom of enterprise" means businesses are free to do whatever they want – including murderous releases of toxic pollutants and life-threatening working conditions – the fact is that corporations are licensed by governments and can be held accountable to community needs. In the 1980s the Ohio Public Interest Campaign, OPIC, collected enough signatures to get an initiative on the ballot that would have placed serious restrictions on how quickly, and for what reasons, corporations in Ohio could shut down and move out of state. Unfortunately the initiative was defeated when businesses outspent supporters by more than ten to one. Theory aside, there is strong empirical evidence that local living wages have not led to significant job losses where they have been enacted. Partly this is because living wage ordinances often only cover city employees and employees of private employers who do business with the city. Robert Pollin and Stephanie Luce present evidence regarding job loss along with an excellent analysis of a number of living wage campaigns in The Living Wage: Building a Fair Economy (The New Press, 1998). As of February 2002 70 cities and counties in the US had adopted some form of living wage. Successful living wage campaigns also provide opportunities to press private employers not covered by a city ordinance to pay their employees a living wage. The living wage ordinance in the city of Cambridge helped workers, local unions, students, and progressive faculty at Harvard University win substantial wage concessions from a recalcitrant institution and its neoliberal president, Laurence Summers, in the winter of 2001 – after a long campaign that included student occupations of university offices. A much less publicized campaign at American University in Washington DC where I work issued a report in February 2002 titled "A Living Wage for Workers at American University: A Question of Fairness and Social Responsibility" recommending an hourly wage of $14.95 in 2001 dollars for a 35-hour workweek based on standards for the DC metropolitan region developed by the Economic Policy Institute and Wider Opportunities for Women. Oakland passed one of the nation's first living wage ordinances in 1998, but due to the City Charter this law did not apply to the Port of Oakland. A local coalition is trying to win passage of "Measure I" that would force the port authority to pay 1500 low wage workers at the airport and seaport wages consistent with the living wage established by the city ordinance.