March 9, 2014

NG | Raise Wages of Cornell Workers

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Several weeks ago, Cornellians debated President Obama’s proposal to increase the minimum wage to $10.10 an hour. If the legislation passes, then millions of people will see their wages increase, and that’s great. If the legislation fails, however, Cornell should raise wages for all its workers anyway.

Smarter people than I, actual economists, have already analyzed Obama’s proposal to increase the minimum wage extensively, so rehashing arguments about why a minimum wage is inherently positive and its net benefit to the American labor force is unnecessary here. Most arguments against a minimum wage, however, harken to a basic supply and demand curve to show why a wage increase will lead to fewer jobs. It’s simple Econ 101; in the labor market, a minimum wage creates a price floor. More people would want to work at the higher wage, but businesses will hire fewer people because of higher costs. Labor supply outstrips demand, which translates into unemployment.

In any labor market, the law of supply and demand will always hold to some degree, but applying it in the strictest sense to Cornell workers is disingenuous. Cornell’s identity as an educational institution economically and ethically distorts the economy it controls enough that a simple supply and demand model doesn’t apply. Fears of unemployment are not an argument against raising the wage for everybody employed under Cornell, because those fears are unfounded.

Signs that Cornell’s economy don’t apply are everywhere. An email invitation to participate in a survey that promises money actually follows through with money. Listserv spam is the only risk that comes with free food. All of these are consequences of Cornell’s captive market. In an economic sense, of course, a captive market simply means Cornell students have more limited economic choices on-campus than off-campus.

The market distortions, however, are profound. Cornell is the only employer on campus, and Cornell’s geographically diverse student body is less likely to work off-campus. This is a monopsony:  Many students are willing to sell labor, but Cornell is the only buyer in town. Cornell, thus, has the power to depress wages by paying less than what students would want otherwise. To an extent, this is true for non-student workers too: Cornell employs a fifth of all workers in Tompkins County, and provides at least six times more jobs than Ithaca College, the second largest employer. This is a monumental amount of economic power concentrated within a single employer.

Students act as consumers, too, and Cornell as a result must maintain a large enough workforce that provides services to students. The sheer number of students in this captive market requires a minimum number of secretaries, administrators and custodians. If the student body grows — as it has done with each subsequent entering class — Cornell must hire more workers to scale up its operations. The University already passes higher costs on to students in its tuition, and those higher costs have had little effect on how students pay their way through Cornell, as I’ve mentioned before. Unlike an actual business, it does not need to cut costs by cutting labor. As a consequence, raising wages at Cornell does not decrease Cornell’s need for dining hall workers, but falling student enrollment does.

All of these arguments, of course, show that a higher wage at Cornell is not bad, rather than being good. But that’s precisely the point: The single plausible argument against a minimum wage is that it creates net harms. At the very worst, raising the minimum wage at Cornell changes nothing on balance. Raising the minimum wage, then, at a basic level is an altruistic economic distortion.

These economic distortions sound abhorrent, but they are central to Cornell’s identity as an educational institution. If there is a stark difference between a college and a business, then the nature of that starkness is based on an altruistic nature of leadership and academia — that learning is an unquantifiable and universal right. Without that altruistic ideal, Cornell is little but a corporation that sells a good to consumers.

But altruism is not in itself good. It generates social power, which is good. Although we might lose money by increasing wages for all, Cornell stays financially solvent in ways that aren’t about balancing checkbooks. Cornell stays solvent by being altruistic in giving students a good college experience, because satisfied students in the future will contribute donations to the institution. In other words, Cornell’s purpose should never be to make money; deviation from that altruistic ideal is harmful to the institution. It is not only a natural consequence of Cornell’s educational purpose, but part of its very essence.

For student workers, better wages becomes a requirement for that ideal. The financial aid office, for example, awards Federal Work Study as part of a student’s financial aid package. In order to meet the same work study award amount, students who work lower wage jobs must work more hours than those who have higher wage jobs. For the lower-paid student, working more hours creates a trade off with other things, like friends, homework or club activities.

Many individuals, however, will see the better pay that they deserve for working at a world-class institution. It is guaranteed that they will sleep better at night.