Living Wage as Soviet Plot: Da or Nyet?

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A Soviet propaganda poster from the immediate post-World War II era. In it, a Russian worker resists the lure of consumer luxuries offered by a Western mogul, who is also offering the NATO alliance (that's the document hiding the bayonet-tipped rifle). The quote at the bottom is from Stalin:

Photo by: Wikicommons

A Soviet propaganda poster from the immediate post-World War II era. In it, a Russian worker resists the lure of consumer luxuries offered by a Western mogul, who is also offering the NATO alliance (that's the document hiding the bayonet-tipped rifle). The quote at the bottom is from Stalin: “The peoples of the world do not want a repeat of the disasters of war.”

Mayor Bloomberg does not like a proposal to require some recipients of city subsidies to pay their employees a “living wage.” He detests the idea so much, in fact, that he has twice compared it to something out of the Evil Empire, Soviet Russia.

It’s a comparison that at least some Soviet scholars take issue with.

The mayor said last week during his regular radio appearance that “the last time we really had a big managed economy was the USSR, and that didn’t work out so well.”

This echoed his comments in October: “The last time people tried to set rates, basically, was in the Soviet Union, and that didn’t work out very well. I don’t think we want to go in that direction.”

Donald Filtzer, a Soviet expert at the University of East London, says, “I highly suspect that Mr. Bloomberg is misusing history here.”

“The reference to the Soviet Union is a bit odd,” opined Simon Commander, senior adviser at the European Bank for Reconstruction and Development and a former Russia expert at the World Bank.

“Yes, there was considerable bureaucratic co-ordination of wages in the USSR,” says Neil Robinson, a specialist on the Soviet Union and post-communist countries at the University of Limerick. “That’s not the end of the story, however.”

Finally, a sequel to Red Dawn?

New York City imposed a living wage in 1996 on certain government contractors, like office cleaners and security guards. This was expanded in 2002 to cover more workers.

The living wage proposal hatched over 2009 to 2010 mandates wages of $10 an hour with benefits or $11.50 an hour without benefits. It applies to businesses in developments that—in an act already deviating from pure market competition—have been subsidized by the city.

That original living-wage idea was scaled back last year to apply only to businesses with payrolls over $5 million, and to omit from the bill many lucrative subsidy programs, all subsidies below a certain dollar value and any that had already been awarded at the time the bill is passed. The city’s Independent Budget Office estimated that, with all those limitations in place, the living-wage policy would have affected maybe six or seven development projects each year if it had been in place from 2002 through 2008.

Earlier this year, the policy was further watered down to affect only the employees of the development companies directly receiving the city subsidy, not the retailers who lease space at those developments. Backers of this compromise proposal estimated it would affect all of 500 workers in a city with 3.5 million jobs. There was even a clause that allowed the mayor to opt out of the requirement for specific projects. But City Hall still opposed the measure, which it believes will discourage firms from investing in the city and cost jobs.

On this point, at least, Commander finds the mayor on firm ground. The economic literature, he says, “finds that setting minimum wages ‘too high’ can be self defeating as fewer jobs gets generated. The obvious question is what level is optimal.” He adds: “The idea of having a minimum wage only for workers in firms that receive public subsidies seems an ill-thought out idea and would ultimately likely penalize those firms.”

Backers of the proposal say that firms receiving subsidies get advantages that outweigh the costs of the wage mandate. Economic research is split on the question of what effect minimum-wage laws, or more aggressive living-wage laws, have on unemployment and poverty.

Amid an outcry from local living-wage advocates, Council Speaker Christine Quinn dropped the mayoral opt-out from the compromise proposal last week, prompting the business lobbying group Partnership for New York to withdraw its support for the initiative.

Back in the USSR

City Limits emailed several Soviet experts this week to ask them about the accuracy of the mayor’s shorthand description of how wages were determined in the USSR. Three replied. All agreed that Bloomberg’s take on Soviet wages is accurate as far as it goes, but masks key details—the most important being that the aim of Soviet wage-setting was generally to lower workers’ wages, not raise them.

In the USSR, according to Robinson, wages were set by the State Committee for Labour, or Goskomtrud. But, he adds, “There was considerable negotiation between the planners and enterprise directors over what the wage bill should be.”

“Planners wanted low wages to—crudely—force more people into the workforce and insure that there was a larger return on labor to produce a surplus that they could then reinvest, spend on bombs etc.,” Robinson writes in an email. “Enterprise directors wanted higher wage allocations so that they had money to keep workers from leaving enterprises, so that they could expand their labor force to cope with production bottlenecks, and to give them more flexibility in paying workers.”

According to history of Russia, toward the end of his rule Khrushchev was forced to abandon a Seven-Year Plan two years early.

Under Leonid Brezhnev, who followed Khrushchev, the Soviets reduced central control and wages rose. But since there were so few consumer goods for purchase, workers saw little incentive to work harder and saved their extra income in state banks. Khrushchev was succeeded by two transitional leaders, Yuri Andropov and Konstantin Chernenko, who each died within 15 months of taking office. Mikhail Gorbachev became premier in 1985 and introduced his perestroika market reforms within a year.

“Mr. Gorbachev, tear down this … wage!”

Perestroika was an effort to preserve the Soviet system by making enough economic reforms to save it, and that effort ultimately failed. But there was more behind that failure than wage policy, says Filtzer. “There were lots of other factors in the Soviet system that held down productivity and would have thwarted even the most dedicated and highly motivated worker from improving his or her performance,” he notes.

Robinson and Filtzer point out that many societies, including capitalist democratic ones, regulate wages through minimum wages, the use of prevailing wages, wage scales for public-sector employees, even progressive taxation. And these efforts have more in common with the New York living-wage proposal than anything the Soviets did.

“Superficially there is a similarity between [the living wage] proposal and the USSR in that there is some control over wage payments proposed. But this time the state … is trying to set a higher wage and the [company leaders] want a lower wage so that they get to invest more of their subsidy in other areas (like their own pay),” Robinson writes. “In other words, the opposite of the Soviet case.”

“The mayor is right in that wages were determined by the ‘planner’ or government and bore no relation to the market or to any ind