06 May, 2014

Wages: Minimum, Market, or Just?



In the current debate about wages, both sides are presenting some good points in support of their own side and against the other side. This article will attempt to look at these points and address them from a distributist perspective.

The Minimum Wage

The argument for raising the minimum wage is that it is nearly, if not completely, impossible to live on such a low wage. This claim is true. The idea that a head of household should be able to actually earn a living wage is one of justice and which no distributist could argue against in good conscience. However, we could oppose this particular method of achieving that end.

There are two false premises that form the basis for justifying using the minimum wage to achieve this end. The first is the "one size fits all" approach to solving the problem. The second is that, because big businesses can afford the increase in the minimum wage by cutting into profits, that is how they will pay for the increased wage.

When it comes to determining wages, one size definitely does not fit all. Establishing a high minimum wage across-the-board will definitely have several negative impacts on certain aspects of economic activity. To begin with, it will eliminate the possibility of the entry level job - those jobs specifically established to give those in or just finished with high school their first working experience. These jobs are not intended for heads of households, but for students still living with their parents who are trying to earn extra money to get (and maintain) their first car and start saving up for the big step of moving out on their own. Along the way, they will hopefully also learn important lessons about how to manage their own money, and about how much living in the "real world" and paying for every day items like toothpaste and bathroom tissue really costs. These are the typically low-end and low-skill jobs that pay enough to accomplish those needs. These jobs are not intended to support families, but to give first time workers needed experience and references to move on to better jobs with better pay.

However, if the minimum wage is increased as much as some are proposing, employers will rightfully want to employ someone with the skill and experience appropriate to what they will be required to pay. In the city of Seattle, they are currently debating raising the minimum wage to $15, but those who favour this don't really answer the question about who will (and who won't) get an entry level job if it pays $30,000 per year.

Another problem with this one size fits all approach is that not all businesses can equally afford to pay such a wage. Those who advocate raising the minimum wage point to the fact that big businesses can afford it. However, they only bring up the big businesses, and this is another area where they end up getting justly criticized for the short-sightedness of their approach. They completely fail to answer the question of what will happen to small businesses if the minimum wage is raised as much as they want.

This failure should open the eyes of those who think that the free-market capitalists, the right-wing conservatives and Libertarians are for big business and the left-wing liberal Keynesian capitalists and socialists are against big business. Raising the minimum wage, especially raising it by a large amount will kill many small businesses. They simply do not have the economic resources to absorb such an increase to their daily operating expenses. Oh, its true that big businesses are complaining about the proposed increases, but that is only because they can earn larger profits with a lower wage even if their local competition stays in business. As those in favor of the increase repeatedly state, big businesses can absorb these costs and still earn profits. They know that the small businesses cannot survive such a high minimum wage, they know that many small businesses will fail if their efforts succeed, so why do the supposed opponents of big business capitalism continually push for higher minimum wages? Keynesian capitalism relies on the continued existence and success of big businesses to work. Small businesses really aren't a factor in the overall scheme of Keynesian capitalism so, despite their verbal attacks on big business, they seem to simply not care about the small businesses.

The other false premise of their position is that big businesses will cut into profits to fund the increase in wages. While it is true that they may need to cut into some profits to meet the increased minimum wage, the money to cover the increase in pay will also come from the elimination of jobs, the decision not to open new positions, and increased prices for the products and services the business offers. In other words, the CEOs will still get their very large pay checks, the share holders will still get their dividends, but the middle and poor classes will lose employment and face higher prices.

The Market Wage

While those on the "conservative" side have levelled the same arguments against the minimum wage I have outlined above, their position is also based on a few false premises that I will attempt to address here.

One of the most consistent statements from the opponents of raising the minimum wage is that the market already sets the wage at its proper value. This is an assertion that we are just supposed to accept and we are regarded as economic ignoramuses if we don't. However, what defines the market wage? Let's consider the following example.

Suppose your community has several small businesses offering a service. Their prices for this service are generally the same and what they pay their employees who do the work is also generally the same. There is enough need in the community to support those businesses at their current prices and wages. In economic terms, the cost they charge for the service is the market cost, and the wages they pay are the market wages.

Now, let's say a large chain store moves into town. They offer the same service for a lower cost, either enduring an unsustainable small profit, or offsetting any loss, from other profits of their enterprise. Because of this, the companies that already offered the service go out of business. Some of the employees get picked up by the chain store, but at a lower wage.

Many "free market" economists would argue that this new cost for the service and the new lower wage now represents the market costs. Is that true? In fact, the only reason that the other businesses failed is that the chain store engaged in anti-competitive activity. It came in at below-market costs, and payed below-market wages. It did not come in at the current market costs of the community. It acted in a predatory manner making less profit than it would make the service viable in order to eliminate the competition. This can only be defined as "free market" if not conforming to the market values is part of free market economics. However, economics classes extol the market value as the surest and truest determining factor of ensuring that the market is working as it is intended. Yet, many of the same economic pundits who criticize the fallacies of the minimum wage crowd completely excuse these activities.

Another problem with those who argue for the market wage is the concept of the entry level job. While I generally favor the concept of the entry level job, those whom I see working these jobs are increasingly older adults trying to support families. Look at the baggers, stockers, those taking your orders at fast food restaurants, or the many jobs traditionally viewed as "entry-level" and you will see fewer high school students or young adults just starting out, and more adults who are working multiple jobs in order to support their families. Simply labeling a job as "entry-level" does not make it one if those who are being hired to work them are not entry-level employees with few personal responsibilities saving up to move up to a better job and move out on their own. If these positions are being filled by adults of various ages seeking to earn a living wage to support themselves and their families, then these have ceased to truly be entry-level jobs - at least for the present time.

Another failure of the market wage crowd is the assertion made by many of them that any agreed wage is by definition a fair wage. After all, the employee could go work somewhere else for better pay, right? However, they gleefully criticize the Obama administration over the fact that the job market continues to be very bad for job seekers. In other words, at the same time they say that those unhappy with their wage should go out and get better jobs, they know those unhappy with their wage cannot do so because better jobs are not available.

The fact is that wage negotiations are only ever fair and just if both sides in the negotiation are in equal positions. They both want something and can freely go somewhere else to get it if they are not satisfied with the current offering. Such a thing may be the case in an economy with plenty of local businesses offering competitive jobs in the same field, but is not the case when there is one large business which controls the majority, if not all, the local jobs in that field. Just as prospective employees have a bargaining advantage if they have a rare skill that is needed, a big employer has a bargaining advantage if employees are desperate to get or keep their jobs. History shows that this advantage can lead to all sorts of abuses of labor. After all, this is why child labor laws and unions came into existence.

Another false claim is that low wages are actually the fault of government. The argument goes that large businesses can get away with paying low wages because the government provides assistance programs that actually subsidize those low wages. The premise of the argument only works if the government assistance came first, and the low wage jobs followed. Historically, the reverse is the case. Assistance programs were created to help those who already had jobs paying an abysmally low wage. No matter if you can argue that the continued existence of these assistance programs "allow" businesses to continue to pay low wages. The real answer is that, if conservatives want to end government assistance, they need to pressure businesses, especially big businesses, to pay a wage that eliminates the need for that assistance.


The Just Wage

Distributists don't promote an egalitarian society where everyone earns the same income and has the same provisions. We accept that there will be rich and poor in society just as we insist that the rich have a moral obligation to assist the poor. We believe in private property, but that the rights to private property are not absolute and, since rights only exist on the basis of obligations, private property rights only exist with social obligations. Even though distributism would result in more worker-owners of businesses, we realize that employees will continue to exist.

The just wage is not a fixed idea. It is not a minimum wage imposed across the board, nor is it a market wage which can be manipulated through anti-competitive behavior. It is the idea that a job should pay a wage that allows a person not only to provide the basic needs of his family and maintain his status, but also enough extra that, through diligence and effort, he can improve his situation. The just wage is a human right based on our social obligation to one another, which is another example of why economics simply cannot be separated from ethics.

The just wage allows for entry level jobs with a lower wage. It allows different industries to pay different wages according to their situation. By favoring smaller local businesses, distributism strives to keep the market availability of jobs at a competitive level by having multiple employers for jobs in the field. Locally owned and operated businesses can best determine the just wage in a given community. They are also more answerable to the local community in regard to the wages they pay.

The just wage concept also does not eliminate the need for assistance. It is still possible for an area to become economically strained and in need of assistance. Distributism allows for this through churches, local groups, and different levels of government in keeping with the principles of subsidiarity.

Labor is not an impersonal commodity. It is a relationship between people. The wage paid for labor as well as the work performed is an aspect of that relationship. Both employee and employer are morally obligated to act with justice toward the other.

2 comments:

  1. If you have a good work ethic and learn good negotiation skills, the whole issue of just wage/minimum wage goes away.

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  2. Your statement only applies to good economic times.

    As I pointed out in the article, good negotiation skills only apply to the situation if you have a good bargaining position. When jobs are scarce and potential employees are plentiful, then the employer really doesn't have to negotiate. This was the case of the many hard working factory and industrial workers of the late 19th and early 20th Centuries who could barely earn enough to support the minimum requirements on two incomes. I know many people, particularly young people, with very good work ethics who can't really negotiate because, if they don't accept the employer's terms, the employer will simply hire someone who will.

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