The New York City Council has dealt Mayor Giuliani’s privatization campaign a body blow. In September it passed a bill over the mayor’s veto that requires city contractors in four industries—security, cleaning, food services, and temporary office work—to pay their workers a “prevailing” private-sector wage as defined by the city comptroller. The expected price tag of the wage legislation: at least $16 million a year. New York thus joins a growing list of municipalities—including Baltimore, Milwaukee, and Santa Clara County, California—that have adopted such misguided measures.

The bill’s premise is ludicrous. It supposes that city contractors, left to themselves, would somehow pay less than the market’s actual prevailing wage. Yet city contractors answer to the same law of supply and demand as other employers. The point of the bill is to keep them from adjusting pay in response to, say, a surplus of janitors in the labor pool or a downturn in requests for them. Rest assured, the city’s “prevailing” private-sector rate will only go up, up, up—never reflecting downward pressure on wages.

The Council’s meddling in the labor market is a patent effort to destroy competition in city services and to protect New York’s municipal unions, which lobbied furiously for the bill. Because the bill requires the city comptroller to survey union and non-union businesses alike, the “prevailing” wage will reflect inflated union pay scales. For a non-union contractor, the law will mean both higher payroll costs and, necessarily, higher bids for city jobs, weakening the city’s chief incentive for privatizing services. If contractors don't charge that much less, why bother?

Two competing visions of the city’s economy were at stake in the battle over the wage bill. The Council, taking its cue from the now defunct command economies of the Soviet bloc, believes that city government should police economic outcomes and ensure “fair” results in pay, housing, and other goods. The mayor, by contrast, has a far more expansive idea of the city’s economic potential, one in which government delivers essential services as efficiently and inexpensively as possible and thus encourages the private sector to generate prosperity for all New Yorkers. Score one for the Council. 


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