Jerry Johnson’s column last week reminds us of those in our community struggling to makes ends meet. Bozeman is an organic community. It’s very different from many other Rocky Mountain towns, for example Sun Valley, created out of thin air by Averell Harriman, the railroad and banking magnate. And unlike Sun Valley or Aspen, Bozeman is filled with “real people” rather than the glitterati. This adds to its appeal.

When our local politicians consider policies aimed at retaining this character, I hope they keep in mind a principal first year medical students learn—“First, do no harm.” Let’s apply this to two contentious issues.

Affordable Housing

Bozeman’s high housing prices make home ownership difficult for many folks. Absent constraints of geography or politics, higher prices will eventually increase housing supply and bring prices down. In every market niche, competitors rush to meet the demands of lower income consumers. Why won’t this work for housing?

What happens if the City tries to hasten this process by requiring developers offer a significant percentage of their new homes at “affordable” prices? Perversely, this policy will further reduce the supply of housing. Here’s why.

Entrepreneurs only bring products to market if they expect to recover their costs and make a reasonable return. If the City imposes “affordable price” requirements, builders will respond by building fewer homes in Bozeman. Instead they’ll focus on positive returns outside the city. Further, artificially lowering home prices will increase the demand for them. Then politicians get to decide who gets the limited homes available at below market rates. They are the real winners.

There are policies that might help. A Bozeman Chronicle editorial on February 5th suggested some: “... [the city] can increase ... supply through a ... program of annexing land into the city, thus alleviating the shortage of lots.... Or it could relax restrictions on manufactured-housing projects. Bozeman housing will become affordable only when it is no longer perceived to be a desirable place to live or when the political will allows developers to build less expensively.”

A Living Wage

There is one way for low-skilled workers to improve their opportunities for higher wages: by increasing their skills, education, and productivity. Their best step to a better job is to first have a job. We should avoid reducing the opportunities for entry-level employment. Unfortunately, a policy that forces businesses to pay a “living wage” does just that. It’s a straightforward process.

Mandating a fixed floor for wages affects employers. They have incentives to cut payrolls, substitute capital for labor, and reduce working hours and benefits. In 2005, the UK’s Low Pay Commission surveyed employers' responses to a rise in the minimum wage. They found 37 percent cut staff, only 4 percent hired more; 31 percent cut hours worked, only 3 percent increased them; and 28 percent cut overtime hours.

Just as price caps reduce the supply of goods and services, prices floors produce surpluses. In this case, the surplus is of skilled workers attracted to jobs paying artificially high wages. For example, a job paying $15 per hour that is worth $10, will attract workers worth $12. This will freeze out the low-skilled worker.

Successful businesses understand high human capital is a scarce resource. Given a choice, they prefer the more highly skilled worker. Even the liberal Economic Policy Institute understands this, admitting that higher minimum wages “will attract good workers.” How does reducing employment opportunities for low-skilled workers jibe with the goals of living wage advocates? It’s their burden to explain -- if they can.

We should also avoid discriminating against stores like Wal-Mart. The results can be especially pernicious for low-skilled workers. When Wal-Mart opens a new store, workers eagerly line up for the chance of employment. For example, a new store in Glendale, Ariz., received 8,000 applications for 525 jobs.

These applicants obviously think Wal-Mart offers a better job than their next best alternative. Banning Wal-Mart only reduces their employment choices. Can this help these people? (Also, how does boycotting Wal-Mart help low skilled workers?)

It’s unfortunate that well-meaning people often promote policies that harm those they claim to want to help. Let’s help Bozeman’s leaders avoid this seductive trap.