The Living Wage: Lessons from the History of Economic Thought

172 Pages·2009·0.57 MB·English

by  Donald R. Stabile

The Living Wage
The Living Wage
Lessons from the History of Economic
Thought
Donald R. Stabile
St Mary’s College of Maryland, USA
Edward Elgar
Cheltenham, UK • Northampton, MA, USA
© Donald R. Stabile 2008
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system or transmitted in any form or by any means, electronic,
mechanical or photocopying, recording, or otherwise without the prior
permission of the publisher.
Published by
Edward Elgar Publishing Limited
The Lypiatts
15 Lansdown Road
Cheltenham
Glos GL50 2JA
UK
Edward Elgar Publishing, Inc.
William Pratt House
9 Dewey Court
Northampton
Massachusetts 01060
USA
A catalogue record for this book
is available from the British Library
Library of Congress Cataloging in Publication Data
Stabile, Donald.
The living wage : lessons from the history of economic thought / Donald R.
Stabile.
p. cm.
Includes bibliographical references and index.
1. Minimum wage. 2. Living wage movement. 3. Economics—History. 4.
Minimum wage—United States. 5. Living wage movement—United States. I. Title.
HD4917.S67 2008
331.2⬘3—dc22
2008037671
ISBN: 978 1 84844 197 2
Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall
Contents
Preface vii
1. Introduction: the living wage 1
2. Sustainability: subsistence, necessities and unions 12
3. Capability: work and wages, virtue and skill 58
4. Externality, community and wages 98
5. Lessons from the history of economic thought 133
Bibliography 150
Index 157
v
Preface
In Fall 2006 a small group of students at St Mary’s College of Maryland
where I teach took over the office of the college’s president and refused to
leave until the college’s administration agreed to consider giving its lowest
paid workers a living wage. After several days of negotiating the adminis-
tration gave in to the demands of the students and the college held a series
of community forums to discuss the issue of the living wage. Having written
several books and articles on what economists thought should be done to
help workers get better wages (Stabile, 1984, 1993, 1996, 1997, 2000) my
sympathies should have been with the students and their efforts. Instead, I
found myself to be of two minds, that is, wanting to see the workers gain a
better life but objecting to the approach being used to get it for them.
On reflection I recognized that my objections had three sources. First, the
students supporting the living wage insisted that a living wage should be
given to workers because of ‘social justice’. In their discussion at the com-
munity forums the college held they did not offer a definition of what they
meant by ‘social justice’ and since those forums were poorly attended it was
hard to determine whether all students believed in ‘social justice’ however
defined. The definition of ‘social justice’ was crucial because, my second
objection, the approach the protesting students were using to get a hearing
was coercive and I wondered what theory of ‘social justice’ could be con-
sistent with coercion. One could argue, I suppose, with apologies to Barry
Goldwater, that coercion in defence of ‘social justice’ is no vice. But I
remained unconvinced. The third cause for my objection was that the
workers at the college were organized into and represented by a union.
Having always held a favourable view towards unions, I wondered why the
union had not negotiated a wage scale that included a living wage for the
lowest paid workers and a suitable structure of pay for all other workers
based on seniority and skill level. Why were students interfering in matters
that were more appropriately a part of collective bargaining?
This book is a result of my reflections on these objections and why I felt
in two minds about the living wage and the movement around it. In it I have
documented what leading economists said both for and against the idea of
a living wage for workers as a way to move the debate over the living wage
away from a debate over the definition of ‘social justice’ towards a consid-
eration of the economic issues involved in that debate. In writing it I have
vii
viii Preface
tried to present fairly both sides in the debate because there are lessons to
be learned from both sides of the debate. The concept of a living wage is
more complicated than its advocates represent it to be, and if nothing else
this book reflects those complications. Economists have been thinking
about work and wages for a long time, including the idea of a community-
based subsistence wage, and there are lessons to be learned from them.
In drawing out those lessons I want to avoid any suggestions that we
should follow those lessons in the spirit of asking, ‘What would Jesus do?’
The economists whose ideas form the basis for this book were intellectually
oriented men who wrote in the context of their time. While the concern of
many of them for a community-based subsistence wage transcends that
context, the ways they thought that wage would be achieved reflect what
was feasible in their day. Several weeks after our campus’s flurry of activity
over the living wage, I gave a talk to our Economics Club on Adam Smith
and the Living Wage. It was well attended for that sort of talk. One student
asked me whether Smith would have supported the efforts of community
organizations to secure a living wage for low-wage workers. I confessed that
I did not know nor did I know whether Smith would have supported labour
unions. I did know that he wanted a better life for workers because he was
in favour of the sustainability of the workforce. Because sustainability has
become such a powerful slogan among students they readily understood
what I meant. The terms I use to categorize the arguments of the debate
this book details – sustainability, capability and externality – developed out
of that talk to the Economics Club at St Mary’s College of Maryland.
Thus when it comes to giving thanks to the persons who helped in the
production of this book my first gratitude is to two sets of students. The
students who took over the president’s office motivated me to think about
the living wage in a new way and to do what I always do, ask what the
history of economic thought had to tell us about the issue. The students
who attended my talk asked questions that led me to explain Adam Smith’s
subsistence wage in terms of sustainability, capability and externality and
thereby helped me to organize the debates over low wages in the history of
economic thought. In addition Andy Kozak an old friend and colleague at
St Mary’s College of Maryland read the manuscript and offered his usual
encouragement and enthusiasm for the project. Jerry Friedman, a new
friend at the University of Massachusetts/Amherst where I have many old
friends, also read the manuscript and helped me tremendously with textual
criticisms as well as with an improved organization of the chapters. Finally,
I thank the staff at Edward Elgar Publishing – especially Tara Gorvine, Bob
Pickens and Alan Sturmer – for their congenial support in the publication
of this and previous books. The task of transforming a manuscript into a
book is much easier when it is done graciously and effectively.
1. Introduction: the living wage
INTRODUCTION
For the past decade a social movement with a goal of providing workers
with a living wage has been growing in the US. Comprised of labour unions,
religious groups and community organizations, the movement has focused
on helping low-wage workers in local areas get higher wages through the
use of political action and moral persuasion (Pollin and Luce, 2000: 1;
Freeman, 2005: 14–15). The movement has made small gains in attaining
its goal of a living wage, with success in about 100 municipal governments
by 2003 and victories at some major universities (Luce, 2004: 33–5). In
2007, the state of Maryland implemented a living wage law that required
contractors doing business with it to pay their workers a living wage of
$11.30 an hour in high-cost areas and $8.50 an hour in rural areas.
Advocates for a living wage typically support it by arguing that it is nec-
essary for ‘economic justice’ and a ‘fair economy’ (Pollin and Luce, 2000:
title page and 1). This appeal for justness and fairness has long been a stan-
dard argument in favour of the living wage. The living wage movement
began in the US in the 1870s and in 1906 one of its early advocates,
Monsignor John Augustine Ryan, published an influential book, A Living
Wage: Its Ethical and Economic Aspects. Ryan set forth his thesis as, ‘The
laborer’s claim to a living wage is of the nature of a right’ (Ryan, 1920: 3).
He did not rely on economic arguments, feeling that moral value took
precedence over economic value (Ryan, 1920: 68). More recently, Jerold L.
Waltman has presented an expanded update of Ryan’s work, The Case for
the Living Wage, which he dedicates to Ryan. Waltman focuses on the polit-
ical aspects of the living wage and justifies it on moral grounds rooted in
religion (Waltman, 2004: 29–53).
ECONOMISTS AND THE LIVING WAGE
The typical economist today, however, would argue that justice, fairness,
rights and dignity are not economic concepts and the movement for a living
wage begs important questions of what and why. What is a living wage and
why should we provide workers with one? In a free market economy, such
1
2 The living wage
an economist would say, wages represent a market estimation of what a
worker adds to the production of goods and services that society wants.
Under this value-added approach, workers paid low wages have low pro-
ductivity. Paying them a living wage greater than their value-added involves
a transfer of income from someone to low-paid workers. Who that someone
should be and what implications the transfer of income will have on eco-
nomic performance are issues that the typical economist would want
answered before joining the movement for a living wage. Until those issues
are resolved to their satisfaction, most economists today are not going to
be members of the living wage movement.
In addition, these economists would argue, the market system rests on a
structure of incentive. People in an economy should decide for themselves
what productive activities to pursue to earn the best living possible. The
quest for income draws those people into the most lucrative activity avail-
able to them in terms of the value they add to the economy. That income
will enable them to purchase a range of goods and services from others in
the economy. The standard of living itself then becomes an incentive for
productive activity. A living wage would tamper with this incentive struc-
ture and upset the efficiency of a value-added economy. Given the impor-
tance economists place on efficiency, they would not support a living wage
that undermines the incentive structure.
This lack of support for a living wage from economists, however, is a
recent occurrence. We can see the how recent this opposition is through a
glimpse at the history of the movement for a living wage. The movement
began in the US in the 1870s and followed one that started a bit earlier in
the UK (Pollin and Luce, 2000: 27). We can find evidence of its existence in
the UK when, in 1894, The Economic Journal reported on ‘A remarkable
series of articles on “A Living Wage”. . . in the Leeds Mercury’ (Economic
Journal, 1894: 365). By 1912, Philip Snowden, a Member of Parliament
who would later become Chancellor of the Exchequer in the first Labour
Party Government, had published a book, The Living Wage, an account of
legislative efforts in the UK to secure a decent standard of living for
workers. In Snowden’s book as well as in Ryan’s A Living Wage, the authors
grappled with all the issues present-day advocates for a living wage face,
such as how to define a living wage and what justification can be found to
support it.
More important from the perspective of this book, a surprising part of
this early living wage movement is that its members counted economists as
supporters of the living wage. Ryan used the writings of John Stuart Mill
and Alfred Marshall in support of his definition of a living wage (Ryan,
1920: 95–6). Similarly, in a chapter in his book titled ‘The economy of high
wages,’ Snowden offered the following statement, ‘From Adam Smith