Working for All You're Worth: Some More Thoughts on the Minimum Wage Debate

A few weeks ago, I wrote a brief reflection on the recent debates over the minimum wage for Capital Commentary.  My purpose there, and in the several conversations I've had in social media on this question, was not really to advocate for or against raising the minimum wage; in my view, the economic and political complexities of the issue are such that I'm inclined to be suspicious of anyone who's confident they know the right answer to the question.  My main concern is to call out really bad arguments against the minimum wage, particularly those peddled by Christians.  There may well be a good case to make against the minimum wage, but it seems awfully hard to find people making it sometimes.  

So I want to reflect a bit more fully on what's wrong with one of the common conservative arguments against the minimum wage: that the laborer is only worth his productivity.  The argument goes something like this: Sure, it sounds wonderful to pay people a living wage, but a worker's job is to contribute productivity to a business, adding value by his labor, and ultimately, the business cannot afford to pay him any more than what he brings in.  If a McDonalds worker can only contribute an average of $6 profit per hour to the company by his labor, then McDonalds will go broke pretty quick paying him $10/hr.  Accordingly, raising the minimum wage will simply increase unemployment, and instead, therefore, we should focus on raising worker productivity.  So Acton's Joe Carter says,

"Instead, we should focus on faster economic growth and improving productivity of low-skilled workers. By increasing the value of a worker’s labor, we make it possible for them not only to feed their family but also to help fulfill the needs and desires of their neighbors….The goal should not be to merely give people a living wage but to help them gain the ability to make a life for themselves based on the value of their labor. What the working poor need most is marketable skills and productive jobs, not more handouts disguised as 'wages.'"   

Now, arguments like this have a weaker, pragmatic form, and a stronger, moral form.  The moral version, favored by doctrinaire free marketeers, argues that a laborer ought not to be paid more than his productivity, which marks the just price of his labor—as someone put it to me in a Facebook discussion, "if you can't find somebody who values your labor at $X/hr., then you have no right to employment."  The pragmatic version would be: "It's a cold hard world out there, and the fact is that the only way you're going to get McDonalds to employ people at $10/hr. is by making their labor worth $10/hr."    There are problems with both versions, but I will begin by tackling the moral problem.

 

The moral argument makes a claim about justice, about what constitutes a just wage, a claim that at face value seems like a plausible application of the basic principle of justice: "give to each what is due to him."  If a worker comes in and generates $10/hr. of profit by his labor, well then I should pay him $10/hr.—that's what's due to him.  (At this point, someone in the audience needs to raise their hand and pipe up: "That would only be true in a worker-owned business.  What you really mean is to pay him maybe $8/hr., so as to leave 20% to the shareholders.  In a capitalist system, capital reaps some of the fruits, not just labor."  This is a fairly significant caveat, one that is often ignored by the free-market apologists but needs some careful attention if we are really going to invoke "justice"—at what point does capital start scraping an unjustly disproportionate amount off the top?)  But the problem with this conception is that it flattens out the human person into a mere labor-producing machine; thus de-personalized, labor can be treated as a "commodity" subject to the supply and demand pressures of the market.  There are at least three problems with this reductionism:

First, labor is always attached to a person, and persons are more than mere economic functions.  My friend Jordan Ballor seeks to dodge this objection by saying, essentially, "No one's saying that you, as a person, are only worth $7.25/hr., just that your labor is only worth that much; of course as God's creature you are of inestimable value."  But the problem is that labor is the ordinary God-ordained means by which we secure life, that which is of inestimable value, so they cannot be so easily separated.  Justice to a person means giving them all that is due to them.  And what is due to persons is life, dignity, liberty, and ergo, a share of the fruits of the earth adequate to secure these things for each person, and their dependents (as I argued in my Capital Commentary piece).  This is really not a difficult proposition or one that was at all controversial for most of Christian history.  The goal of any economic and political system should be to try to provide such a share to people.  What would be the alternative?  Well, the alternative would be that any person incapable of generating sufficient wealth by their labor would just be left to die.  The handicapped, the young, the old, any who do not have adequate productivity do not have resources owed to them, regardless of whether they desire to labor (and by extension, workers who have handicapped, young, or old dependents should not be paid to compensate for these dependents' non-productivity).  Such would be the Darwinian reductio of this position.  

Of course, at this point, the free marketeer objects that of course such people should be provided for, but not by the market, not by employment.  How, then?  If not by compensation for labor, then presumably through "handouts," which is precisely what these free-marketeers decry (and what they describe the minimum wage as).  Should they provided for by the government—all of us collectively as a society affirming our commitment to these under-productive people?  Well, maybe, and most developed nations have many policies in place to try to do just this, but most of those opposing the minimum wage also oppose all these welfare programs even more bitterly.  This is a strange irony, given that those advocating a minimum wage increase are trying to reduce dependence on food stamps, welfare, etc.  If not by the government, then by private charity, presumably.  But of course, by saying this, note that we have quietly passed over from treating such provision as a matter of justice to one of charity, which for some means an optional extra.  This is doubly problematic.  For one thing, it ensures that such provision will be spotty and uneven, dependent on how many charitable people have enough money and inclination in particular times and places to provide such care.  For another, it is demeaning and dehumanizing to those receiving it.  Why?  Well because, as these same free marketeers tell us, labor is a great and noble and dignifying thing; it is the ordinary means by which we appropriate a share of the fruits of the earth.  To tell people, "Sorry, your labor isn't worth enough, so you can't work for your food.  But hey, we don't want you to die, so we'll just give you some food" may give them life, but it hardly gives them dignity.  Many charitable organizations, accordingly, try to give the needy work to do to make them feel that they are contributing, and earning their provision (even if the work isn't generating that much value); but rather than leaving this to charitable groups, why not try to instill this ethos in business more gradually—a sense of commitment on the part of employers to find some way in which the less skilled, less productive, may contribute?

Second, more briefly, this reductionism misses the fact that human beings, suppliers of labor power, are not monads, but deeply embedded in familial and social units.  What does this mean?  Well, it means that the labor that someone is bringing into the market actually represents the labor input of many more people, who are not directly represented in that employer/employee contract.  In an earlier age, a man entering the labor market was bringing to it the strength and skills and wisdom and character that were instilled in him by his parents, and by his labor now, was often seeking to repay them by providing for them in their old age.  Likewise, he was depending upon the unpaid labor of his wife, who sustained the home, cared for the children, made meals, did all the things that made it possible for the man to devote all his energies to his job.  Justice requires that we try to recognize the contribution of all these unseen laborers and ensure that the primary breadwinner receives compensation that also compensates all of them.  Of course, here opponents of the minimum wage have an important point to make when they say that low-wage jobs are generally not intended for such primary breadwinners, but for dependents just starting out, or earning a little supplementary income for the family (even if it is increasingly the case that people with families to feed also find themselves trapped in such low-wage jobs).  And of course, the whole concept of the "primary breadwinner" has broken down with the entry of women into the labor market and the rise of the dual-income family.  This is partly a cause, partly an effect of wage stagnation. 

The third consequence of this reductionism is that it falsely treats "skill" and "productivity" as static quantities, almost as if we were talking about the memory capacity of a microprocessor.  To be sure, they say that we need to increase people's productivity by skills training and education (conveniently, without explaining just who is to be paying for this training and education—if businesses, great, but then you are saying businesses have a real responsibility for their employees after all; if the government, well, I thought you wanted to keep the government out of the market).  But often, simply raising the wage can itself be a means of increasing productivity.  Really?  How?  Well, productivity is a function of both how intelligently you work and of how hard/diligently you work.  The latter is determined mostly by motivation; the former often requires extra training/education, though it can also be gained simply by additional attention and readiness to learn from experience, which again, can come from extra motivation.  Motivation is determined largely by morale, sense of self-worth, and loyalty to one's employer.  When you pay someone a pittance for their work, you tell them (a) you're not worth much to me, you're disposable, (b), there's not really that much point to what you're doing, and (c) you don't really have much reason to love or respect me.  What's the result?  Unsurprisingly, low productivity.

I got to witness this first-hand in my first job as a teenager, which paid 3 cents above minimum wage, with little realistic chance of a raise, and in which no one was ever given more than about 25 hours a week, on a constantly-changing, seemingly capricious schedule.  Employees got the clear message from the employer, "You don't matter much to me.  I'm going to find a way to make money with or without you, and if you quit, I can easily just find another teenager or desperate unemployed person to replace you."  Accordingly, almost everyone worked as little as they could get away with.  I'm pretty sure that most of the employees there could have easily boosted their productivity by 50%, perhaps even 100%, simply by feeling motivated to do so—no additional training or education needed.  And this should not surprise us.  Rather, as Christians, it should be the most natural thing in the world to us.  Our motto is, "We love, because He loved us first," or as the great hymn "My Song is Love Unknown" puts it: "love to the loveless shown that they might lovely be."  Jesus's re-orientation of the basic principle of justice in the Golden Rule reflects this inversion of initiative: it is not a matter of "whatever someone does for you, do to them accordingly" but "do for someone according to what you want them to do for you."  If you want someone to serve you, serve them.  If you want someone to be worth $10/hr., then pay them $10/hr., and ask them to rise to the occasion.  And guess what?  This actually works.  Not always, of course—there are always people who will simply take advantage of the favor shown them, without giving anything back.  And not without limit, of course—I can't just pay the burger-flipper at McDonalds $100/hr. and expect him to flip burgers so enthusiastically that he generates $100/hr. of profit.  But I think it does work a lot more often than we give it credit for.  

flipping-burgers.jpg

 

This last point helps us to address the pragmatic argument noted above, which basically says, "Ok, sure it might be great if we could pay people a living wage, but the market simply can't support it."  To be sure, I'm quite skeptical too that our market, as currently configured, can guarantee a living wage in every industry.  And as I've said, there are many reasons why raising the minimum wage might not be the best solution.  But that does not mean that we should simply accept the argument that "hey, the market just can't afford to pay any more; if it could, it would, because it's a competitive marketplace."  The issue of motivation is one problem with this argument: often paying people more will make them work harder for you, generating enough extra profit that you can in fact afford that higher wage.  Of course, someone might then object, "Well if so, then why wouldn't businesses be smart enough to do that?"  To which I offer the simple rejoinder: "How often do you try to cut corners in the short term even when it's going to cost you in the long run?"  None of us are anything like perfectly rational agents; such short-sightedness is human nature.  Plus, I suspect, some employers don't really want (consciously or subconsciously) to make their employees feel empowered.

 

But there is a further problem with the pragmatic argument, that suggests that in many cases, the market may in fact be able to absorb a higher minimum wage without mass unemployment.

It is often assumed in such arguments that competition for the supply of the commodity called "labor" will ensure that the actual wages paid in an industry correspond pretty closely to worker productivity.  But this is not at all necessarily the case.  Most economists recognize that the labor market is not governed by a model of perfect competition, in which employers and workers have equal bargaining power in setting wages, but usually functions as "monopsonistic competition," in which the employer has much greater power, and hence can bid wages down well below the value added by the worker's productivity.  Even if the moral ideal were in fact paying workers according to their value-added productivity (which I have questioned above) a free employment market does not guarantee this.  There are some industries where a worker may actually be adding $12/hr. of profit by his labor, and yet where the employers have managed to get away with paying only $7.25/hr., and this is one of the arguments in favor of a minimum wage, although it may be a somewhat crude instrument for rectifying this problem.

In such cases, where is all the extra money going?  Well, sometimes it is going straight from labor to capital, to the shareholders, as I mentioned above.  The question of the relation of labor and capital raises all kinds of other issues that I don't want to go into here.  But let's consider that in many cases, the extra money is staying within labor, it's still being paid out to employees, but in rather unequal fashion.  So it is often deceptive to claim that a business can sadly only afford to pay workers based on their productivity,  even though that means the lowest-productivity workers do not receive anything like a living wage.  Quite often, the business generates enough extra money from productivity higher up in its ranks that it could, if it desired, redistribute some of this further down the wage ladder.  That is to say, imagine a company in which there were 500 low-skill workers getting paid $6/hr., 12 managers getting paid $60/hr., and 1 executive getting paid $600/hr.  And imagine that the low-skill workers were contributing only $6/hr. of productivity, the managers were contributing $30/hr., and the executive $100/hr.  Obviously, this is radically oversimplified, but the overall structure of our economy looks something like this: increasing profitability has gone almost entirely to increased compensation at the higher levels of income over the last few decades, while wages have stagnated at the low end, with income inequality approaching its highest levels in a century.  Were there the sense of justice and the will to do so, wages could be adjusted as follows: 500 low-skill workers getting paid $7.50/hr., 12 managers getting paid $35/hr., the executive $150/hr.  The total wages paid out would be the same,  everyone would be getting compensated for productivity plus a little bit, but those at the bottom would be 25% better off, a pretty dramatic bump.  Again, many advocates of the minimum wage have this sort of goal in mind, though again, a universal minimum wage across industries and companies is a somewhat crude tool for achieving it.  

 

Again, none of this is to suggest that a minimum wage is a panacea, or that there are not other substantial objections that could be raised against it.  It is not even to suggest that the argument critiqued here—about a worker being worth his productivity—does not have some force, at least in the weaker, pragmatic form.  But clearly, the objection radically oversimplifies both the ethics and the economics of the issue, and fails to imaginatively consider the ways in which the market could be re-oriented toward the goal of a living wage, without this entailing complete economic meltdown.