This week is Living Wage Week. The aim of this campaign is to encourage employers to pay their lowest paid employees a Living Wage – the amount necessary to meet the basic cost of living –rather than the legally required minimum wage. Currently, the minimum wage is £6.19 per hour, whereas outside London the Living Wage is £7.45. The basic cost of living is determined by the cost of “an adequate level of warmth and shelter, a healthy palatable diet, social integration and avoidance of chronic stress for earners and their dependents”.
Almost five million workers are paid less than the living wage.
Ed Miliband, the Leader of the Opposition, spoke in support of the campaign: “There are almost five million people in Britain who aren’t earning enough the living wage; people who got up early this morning, spent hours getting to work – who are putting in all the effort they can – but who often don’t get paid enough to look after their families, to heat their homes, feed their kids, care for elderly relatives and plan for the future. Too many people in Britain are doing the right thing and doing their bit, helping to build the prosperity on which our country depends, but aren’t sharing fairly in the rewards”.
Miliband makes a powerful point, and it is plausible to hold that employers are morally required to pay a Living Wage. Indeed, the provision of the Living Wage is likely to be a requirement of distributive justice according to a number of influential theories such as those of John Rawls, and Joseph Raz.
However, given the moral importance of the Living Wage, it is interesting that the campaign is not focused on changing the law so that employers are legally required to pay the Living Wage. Rather, the campaign maintains that payment of the Living Wage should be voluntary.
This is particularly surprising given that many people accept that employers should be legally required to pay a minimum wage. It is difficult to think of a plausible justification for the minimum wage that does not also justify the Living Wage. For example, one ground for requiring the payment of a minimum wage is the idea that all people are owed a basic minimum standard of living. However, it would be odd to claim that the minimum people are owed is less than the basic cost of living enabled by the payment of the Living Wage. So, on what grounds should it be compulsory for employers to pay the minimum wage but voluntary to pay the Living Wage?
This question raises a number of interesting issues, and I am unable to consider most of them here. Nevertheless, one of the arguments against legally requiring employers to pay the Living Wage is that it would increase unemployment. There are at least a couple of responses to this. First, we should note that similar arguments were made against the introduction of a minimum wage, and there is evidence that the introduction of the minimum wage did not increase unemployment. It is possible that legally requiring the Living Wage would also not increase unemployment. Second, even if legally requiring the Living Wage resulted in greater unemployment, it could still be morally justified. In order to defend this claim, consider the following:
Principle of Maximum Employment: The legally required minimum wage should be at the level that maximizes employment.
On first blush, this may seem an attractive principle. After all, even if we set aside the financial costs, unemployment can cause significant harm to a person’s self-esteem and mental health. In at least one respect then, a reduction in unemployment is a very good thing. However, it is an implausible principle. In order to illustrate this, consider the following:
|
Policy |
Employed
|
Unemployed |
|
|
A |
Minimum Wage = Living Wage |
89% |
11% |
|
B |
Minimum Wage ≠ Living Wage |
90% |
10% |
Imagine that we have to choose between Policy A and Policy B. If we accept the Principle of Maximum Employment, we should choose Policy B, as it results in a greater percentage of the population employed. However, under Policy A, a greater number of people are paid enough to meet the basic costs of living (although it is important, let’s set aside the number of employed people who benefit from the Living Wage). Given the significant benefits to those receiving the Living Wage under Policy A, it seems plausible to hold that we should choose Policy A, and the legally required wage should not necessarily be at the level that maximizes employment.
One response is that legally requiring the payment of the Living Wage would greatly increase unemployment. The costs of being unemployed to this large number of individuals are significantly bad that they are not outweighed by the benefits received by those who are employed on the Living Wage.
Now, it is difficult to know the point that the benefits to the employed on the Living Wage are outweighed by the costs to the additional number of unemployed people. My point is that even if legally requiring employers to pay the Living Wage results in greater unemployment, it does not necessarily mean that we should not legally require employers to pay the Living Wage.
My final point on the voluntary payment of the Living Wage is that the campaign has focused on the benefits of paying a living wage for employers, and not only on the benefits for employees. For instance, according to the Living Wage Foundation, paying employees a living wage results in greater productivity, higher morale, and lower absenteeism. To an extent, this emphasis is understandable. After all, employers are more likely to pay the Living Wage if it benefits them (concerns with this aspect of the campaign have been raised elsewhere). However, if paying employees the Living Wage were good for business, on what grounds would it be morally problematic to benefit the businesses by legally requiring them to pay employees the Living Wage? There are answers to this, but I think that it is an interesting issue to explore further.
A living (or minimum) wage may or may not be beneficial to the working poor, but it is certainly not the best way to help them out. As you mention, it increases unemployment. It also raises the cost of the goods that everybody purchases. It helps people who don’t need help, such as teenagers living with their parents. It is in effect a tax on consumers and investors.
A far better solution would be a negative income tax for the poor. The US has something like this; it’s called the earned-income tax credit. It has several advantages over a minimum or living wage. It helps only low-income families. It is funded through tax revenue, not through increases in the price of goods. And it probably even increases employment of the poor, since it in effect raises their wages without increasing the cost to their employers.
How are the MW and LW set? My guess is that the MW was originally designed to be something like the LW, but over time it hasn’t kept pace, even adjusting for inflation, because expectations around what “an adequate level of warmth and shelter, a healthy palatable diet, social integration and avoidance of chronic stress for earners and their dependents” changes over time. [Folks like me might see this as an example of Baumol’s cost disease… since the unemployed (whose productivity increases over time are low by definition) expect to share in the productivity improvements of others.] So is the LW simply a recalibration of what the MW was originally supposed to be, or are they arrived at through completely different algorithms? Without knowing something of how we got here and what the two numbers are supposed to be doing, I find it hard to know which one is preferable.
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