Who is responsible for the living wage?

Who is responsible for the living wage? August 13, 2013

The right to a just wage, or a living wage, is one of the cornerstones of Catholic social teaching. Blessed John XXIII probably put it best when he said that “the remuneration of work is not something that can be left to the laws of the marketplace; nor should it be a decision left to the will of the more powerful. It must be determined in accordance with justice and equity; which means that workers must be paid a wage which allows them to live a truly human life and to fulfill their family obligations in a worthy manner.”

Clearly, the responsibility to pay this wage lies with the employer, the business. And yet, this is too often given short shrift in the economic and political debate. For the right, the only just wage is the market wage – this is ethical in that in rewards effort and it is efficient in that anything higher would lead to unemployment and so hurt workers. The left is certainly more concerned with issues of justice in wages. But even here, there is a strong tendency to defer to the prerogative of business and the iron law of the market and focus instead on the role of government in “topping up” received wages with social benefits. Indeed, both sides often align in supporting in-work benefits such as the earned income tax credit – because it both boosts the wages of the poor and does not “distort” labor markets.

Now, Catholic social teaching has always defended social benefits. And prudence dictates that we should certainly support programs like the earned income tax credit that have been shown as effective in reducing poverty. But at some fundamental level, this is letting the employer off the hook. Providing workers with a living wage is a strict duty of justice. It is an obligation.

This can be seen through the prism of the different types of justice. As Thomas Storck has argued, paying a just wage is part of commutative justice, the justice of exchange and contract between two parties. The worker agrees to provide his/ her labor and the employer is “obliged strictly” to pay a just wage. This comes directly from Pius XI. Not paying a just wage is akin to not paying a contracted debt. For sure, we can easily think of extreme circumstances in which businesses will not be able to pay either debts or wages, but I want to focus here on normal times.

We can also look at this from the perspective of distributive justice, the way in which society distributes its common resources to meet the needs of all. John Medaille has written a number of thoughtful papers from this perspective, arguing that the just wage is related to the distribution of resources among the factors of production (labor, capital, land) that comes prior to any exchange. This fits with the emphasis of Blessed John Paul II on the priority of labor over capital, and his view that a just wage is the best route toward the universal destination of goods in modern society.

So the justice inherent in a “just” wage is both commutative and distributive. But social justice also comes into play – as Pius XI said so clearly, “it is of the very essence of social justice to demand for each individual all that is necessary for the common good”. But this only works if each person “is supplied with all that is necessary for the exercise of his social functions”. When it comes to wages, as Thomas Storck notes, this has a clear implication: if the employer is not able to pay a living wage owing to circumstances beyond his control, the authorities must step in and make the necessary social and institutional changes. As Pius puts it, “social justice demands that reforms be introduced without delay which will guarantee every adult workingman just such a wage”. It doesn’t get much clearer than that.

As Blessed John Paul II put it, “a just wage is the concrete means of verifying the justice of the whole socioeconomic system and, in any case, of checking that it is functioning justly”.

Note that this differs from the neoclassical approach, which assumes that workers are paid in line with marginal product and the economy is always at full employment. But we know this isn’t true in practice. Furthermore, newer approaches to labor economics see wages more as the outcomes of a bargaining process between workers and employers, with the outcome depending on the relative bargaining power of the parties.

The question really boils down to whether higher wages will lead to lower employment or lower profits. This is, of course, a prudential question. But as evidence, just look at trends in the United States over the past three decades. Real wages have fallen far behind productivity, real median income has stagnated, and the profit share has risen sharply. Most of the gains in growth went to profits and capital income. In other words, there is more evidence for the bargaining power explanation than the neoclassical explanation, especially in light the weakened position of labor in recent decades. Putting it another way, workers have been the victims of a serious injustice.

What about the role of government? Here, I believe, the principle of subsidiarity comes into play, and it is no accident that Pius XI is the intellectual force behind this principle. Subsidiarity says that wage setting is the responsibility of the employer and the worker, determined under a balanced bargaining position between employers and unions. It is the role of the state as a higher level authority to provide the underlying conditions so that the lower level authority can reach a just outcome as effectively as possible.

This includes putting in place the proper legal and institutional framework, pushing ahead with social and institutional change if necessary. It includes legislation of minimum wages – yes, employers should not pay a living wage solely because the government tells them to, but we need the force of law nonetheless. (think about it: we also have a duty not to kill, but we also need laws against murder!). And it includes the kinds of social protections that flow from our common dwelling in a market economy, such as unemployment insurance and social security.

This is not to say there is no role for direct interventions in the labor market that go beyond the minimum wage. Think about a deep recession. In such a case, a business has the choice of letting workers go, or cutting wages across the board. The second option is better for the common good, and the government is justified in providing wage subsidies for a specific period of time to help business protect workers. This is the basis of the famous German Kurzarbeit system, and it worked really well during the global financial crisis. And certainly, we can think of plenty of circumstances whereby in-work benefits like the earned income tax credit serve a useful social purpose, such as targeting assistance to certain marginalized groups.

In a globalized world, these issues have important cross-border dimensions. If one country insists on better wages, a company is too easily able to slip across borders to a more “business-friendly” jurisdiction. This is especially perilous for poorer countries. Too many poor countries have entered a ruinous race to the bottom in terms of wages and labor standards, always afraid that another country will entice away business. This is a grave injustice, brought home to us by the devastating fire in the Bangladeshi garment factory.

But no single country, or single company, can fix this kind of global injustice, which is really a structural sin on a global scale. It calls for a cooperative response at the global level. Governments need to agree on minimum labor standards, committing not to undercut each other. In turn, corporations need to agree to pay decent wages and benefits when they enter these low-income countries. For example, they could agree to a voluntary code monitored by a strictly independent entity with fully transparent processes. And because the world is globalized – as the Church has recognized – we need a supranational dimension of oversight that goes beyond the prerogatives of the nation state.

Fundamentally, we need a new attitude on the part of business, an attitude that prioritizes the welfare of workers over maximizing profits and minimizing tax liabilities. We need a better recognition that business has a duty to society, a duty that comes with ownership of the means of production. By not paying a just wage, not only is business shirking its duty in justice but is forcing the taxpayer is picking up the tab.

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  • Chris Sullivan

    Thank you Morning ! Very well said.

    God Bless

  • David Cruz-Uribe, SFO

    Very well put.

  • Kurt

    We hear much about changing the definition of marriage. How about changing the definition of “job” ? A job is a means to self-sufficiency. You are NOT a “job creator” if you are offering 30 hours a week of work at $8/hr. You have not organized work into a job.

  • I want to agree with you, but I can’t quite make sense of a couple things.

    For starters, one question left unaddressed is the effects on unemployment. Particularly in a place like China, how many jobs are you imagining will be available if they are required to pay even $5/hour?

    This isn’t just a theoretical concern. We can see very clearly what happens when unions are powerful in a very poor country. The majority of people are excluded from access to the union jobs: “As few as 30 million Indians work in the formal private sector or government…” which is just 4% of the working age population!

    You praise flexibility with wage cuts in Germany during a recession, but countries like China are much worse off. Wouldn’t that justify the $2/hour wage at the Foxconn factory, then?

  • Kurt

    Tim —

    I think the point of worker organization is to see that we get a fair share of the value our labor adds to a product. I’m not sure how not underpaying workers for value added hurts anyone else. In fact, if they are family members (even extended family members the way many such societies are organized) or the shopkeepers that workers then purchase from, it seems others benefit (the losers are the often multinational corporations).

    Is it your position that better to have two unskilled workers paid $3/hr than one skilled employee paid $6 hr?

    • That depends. Would the unskilled workers otherwise be left to be day laborers making $0.20/hr? (Mind-bogglingly, more than a billion people earn even less: http://www.earth.columbia.edu/articles/view/1780 ) On the other hand, would a minimum wage (whether by law or moral conviction) induce employers to provide training for some of the unskilled workers and boost them to a better path? (see http://econ.lse.ac.uk/staff/spischke/revminw9.pdf)

      Look, if you have a policy or a concrete moral rule that benefits workers and only has negative effects on wealthy shareholders, I’m all for it. But what I want us to be vigilant about is overlooking possible negative effects on the poorest because that is too painful to think about. We must not let the amorality of the ultra-rich justify an attitude which says, “If a global minimum wage means a higher standard of living for me and the relatively skilled people I know, then let’s just assume it’s also good for those foreigners. Maybe they’re better off as rural day laborers anyway.”

      Would you or Julia be willing to comment specifically on the situation in India? You can find one account of what I am talking about by clicking my name. (I want to join you all in unambiguously saying we should oppose any job anywhere that pays less than $5/hr. But where you seem to be imagining that would mean a slight decrease in excess jobs and everyone lifted out of poverty, I strongly suspect it would mean a deepening of a global class divide and huge decline in the prospects of hundreds of millions of vulnerable people.)

      • Kurt

        Would you or Julia be willing to comment specifically on the situation in India?

        It is worth further investigation and there should be regulatory adjustments if it is found to be socially advantageous. I’m not an expert on India.

        I’m also not too quick to take a business journal’s word that all of these provisions can be abolished with only positive results. “Cowboy capitalism” (crash and burn business models that hire up and then leave thousands without work all while executives never get harmed), lack of workplace safety, and denial of the right to worker organization are all serious problems.

        I understand the factory owner who doesn’t want to expand because of problems with labor market rigidities should business contract. I also understand the business model where a guy gets a 2 year order from Fruit of the Loom to deliver some underpants by undercutting F of the L’s existing supplier with low wage rates. And knowing he can fall prey to same, invests little in building a production facility. That is how we get firetraps and hundreds of people burned to death.

  • Here are my comments from a blog I recently wrote on our website at http://www.transforming.org.za.

    About 3 years ago, our domestic worker came to us and asked for time off to take her child to the dentist. I decided to go with her to the visit. The child’s teeth were rotten and the dentist asked “Why is your child not brushing her teeth?”, To which our domestic worker devastatingly replied “I can’t afford a toothbrush!”. At the time, we were paying our domestic worker R3500 per month. We thought this was not only fair but actually a high wage as our friends and neighbours were paying on average R2000 per month. At the same time I had been working with a group of blind and disabled Zimbabwean illegal immigrants and refugees. A friend, who works in marketing, approached me and explained that a client of his required 10,000 scarves to be made for a marketing campaign. The client was prepared to pay R30 for the labour component of each scarf. He had worked out that to knit a single scarf would take approximately 4 hours. This meant that a person could knit two scarves in one day and be paid R60 for the day’s labour. This seemed very low. I said to my friend that I would go home and pray about it. I searched through the Scriptures, looking in the concordance for words like wage, labour, work, worker, employer and exploitation. What I discovered was eye opening and left me deeply convicted. Throughout Scripture, the onus for setting wages is the responsibility of the employer and Scripture repeatedly warns against those who exploit workers. One Scripture which stood out to me was Isaiah 58. The context for this text is set in verse 3, which says “you live with your pleasures while you exploit your workers”. The text then goes on to talk about five areas: 1) Food (“feed the hungry”); 2) Shelter (“provide the poor wanderer with shelter”); 3) Clothing (“clothe the naked”); 4) Basic needs (“satisfy the needs of the oppressed”); and 5) Things that will break the cycle of poverty (“untie the cords of the yoke”). As I looked at these five areas, I realised that unless the wages that I paid were providing for all five of these areas, I was exploiting my worker. I realised that I had been setting wages based on norms of what others paid and not on what was right. I realised that the minimum wage to be paid should not be less than what is required to live. As I reflected on this, I recalled many times asking myself the question “How does she live on this?”, but never truly seeking an answer to that question. This led me to the damning conclusion that I had been exploiting my domestic worker. I decided to phone my marketing friend and tell him that I would not be involved in providing exploitative work and I resolved to immediately try to put this wage issue right with my domestic worker. To do this, I said to my domestic worker that I would cover all of her living expenses for the next three months. I also realised that this had to include her family. In her case she had a working husband and two children ages 6 and 14. I sat with her and worked out how much she needed in each of these five areas: 1) Food (nutritious food) – as we sat and talked about her food requirements, I realised that this was an area in which her, and many poorer people I have subsequently come to know, significantly compromise in. In the inner-city of Johannesburg, the average working-class family of four, normally survives off about R500 to R1000 a month on food. The diet consists primarily of maize meal, with spinach or cooked vegetables, and the occasional treat of a little meat. Any dietician will tell you that eating in this way for a sustained period will result in a variety of health issues. In order to calculate a nutritious diet, I sat with a dietician and asked her advice on what should be purchased on a monthly basis and on a weekly basis. I then went shopping for the monthly shop with our domestic worker for the first three months. We shopped at Pick and Pay and bought in bulk where we could. I realised after this exercise that her family of four required approximately R2000 per month for a nutritious diet. 2) Shelter (dignified shelter) – we visited our domestic worker at home and found that she was staying in a 5 m x 4 m single room. Her husband and her shared a double bed in that room, while her 6-year-old daughter and a 14-year-old son slept on the floor. There was a fridge in the one corner of the room and a small kitchen cupboard with a two plate stove on top of it which the family used to cook. The family shared ablution facilities with about 4 other families on the same floor. This was not the kind of shelter I would have imagined a family staying in where both the mother and father were employed. They paid R 1600 a month for this single room. As I investigated, I found the minimum rental cost of a two roomed apartment with its own ablutions was R2250 per month; 3) Clothing (adequate clothing) – Jesus said that if a man has two coats he should give one away and so the standard here for me was to make sure that everyone in the family had at least one set of adequate clothing for each of the various activities they participated in. We went shopping and ensured that the children had school uniforms, clothing for sports or other activities as was required by the school, that the children had clothes to play in and clothes to sleep in. We did the same for the adults; 4) Basic needs (all of her family’s basic needs) – items we included here were monthly costs for water and electricity, monthly transport costs, monthly cellphone needs,education of the children and groceries (including a toothbrush!). We did not include any costs for health care as we believed these could be obtained for free at the local clinic. 5) Things that will break the cycle of poverty (things like education and savings) – In Rerum Novarum, a papal decree issued by, Pope Leo XIII in 1891 which deals with the rights and duties of capital and labour, he states that if “a workman’s wages be sufficient to enable him to comfortably support himself, his wife, and his children, he will find it easy, if he be a sensible man, to practice thrift, and he will not fail, by cutting down expenses, to put by some little savings and thus secure a modest source of income”. In other words, the wage should provide enough that if managed wisely, the worker will be able to save some money to break out of generational poverty. Each month I reviewed what we spent in each of the 5 areas and at the end of the period, I had worked out that her family needed at least R9000 to R10,000 per month to live. As she was married and her husband was working, I decided to set her wage at R5000 per month (half of what was required). In order to meet the additional budget required, I looked at the first part of Isaiah 58:3 “you live with your pleasures”. Often we say we can’t afford to pay our workers more because we have extended our standard of living beyond what we need. As I looked at the “pleasures” in my budget that I could do away with in order to ensure that I could pay a living wage to my domestic worker, I quickly found a few areas where I could make a change. There were so many things in my life that I had prioritised over ensuring that she was paid a living wage. I found that by sacrificing a few non-essential items, I was able to pay her justly. As part of this journey, I have begun to read quite extensively on this issue. I have learned that there is a huge difference between paying a minimum wage and paying a living wage. Minimum wage levels have never kept pace with increases in the cost of living. There are also many implications of us paying a wage which is below that which is required to live, including implications in health care, education, safety and security, and opportunities for breaking free from generational poverty. For me perhaps the most severe of these implications is shortened lifespans – in our HIV/AIDS ravaged nation, the life expectancy of the average South African is currently 52 years. For those who earn under R 5000 per month per family, this life expectancy is significantly reduced. In essence, this means when I pay a
    wage below a living wage, I am reducing the life expectancy of that person perhaps by as much as 20 years. In the back of my head is the question, “How is this different to murder?” I have also realised that most of my wealth, privilege, and opportunities have been provided to me because of the structural inequalities which exist and have existed for a long time within society. The South African National Planning Commission list nine challenges facing South Africa as 1) Poor Educational Outcomes; 2) High Disease Burden; 3) Divided Communities; 4) Uneven Public Service; 5) Spatial Patterns which marginalise the poor; 6) Too few South Africans are Employed; 7) Corruption; 8) A Resource Intensive Economy and 9) Crumbling Infrastructure. Underpinning all of these, they argue, are the two root challenges of A) Poverty and B) Inequality. Regarding poverty in Sub Saharan Africa, this region is the only region in the world where the number of poor people (people living below the poverty line) is increasing. Regarding inequality: the levels of inequality in South Africa have rapidly increased since 1994. Economists now tell us that South Africa has the dubious distinction of being labelled as the most unequal society in the world. This means both the number of poor and the gap between rich and poor has been getting worse, not better in South Africa since 1994. The issues we face as a nation are huge and are going to require considerable effort to overcome. Martin Luther once said: “If I profess, with the loudest voice and the clearest exposition, every portion of the truth of God except precisely that little point which the world and the devil are at that moment attacking, I am not confessing Christ, however boldly I may be professing Christianity. Where the battle rages the loyalty of the soldier is proved; and to be steady on all the battle-field besides is mere flight and disgrace to him if he flinches at that one point.” In South Africa, it is clear that the biggest battle for justice that we face has to do with the double-sided pernicious enemies – poverty and inequality. This is where we need to engage the world the most if we want to create a society which is just. I honestly believe, that paying a living wage to workers is not only just, but is probably the single most important thing we can do to address poverty and inequality in our country. Furthermore, as we pay a living wage, and workers are able to purchase nutritious food, live in decent shelter, buy adequate clothing, provide for all of their basic needs and have space in their budgets to save and invest so that future generations do not need to live in poverty, we will find not only is poverty and inequality being addressed, but we will also find a reduction in the other challenges facing South Africa. The time is now for us all to review whether we are paying a living wage.

    • Tim H

      How beautiful. Thank you for your witness.

      Your process and decision for paying your worker a living wage are inspiring. Yet, I do not understand why you turned down the work for the blind and disabled Zimbabwean immigrants. How did they end up spending their time instead of knitting the scarfs for 7R per hour? Did a better opportunity come along for them?

      (For reference for others, 10R = $1 roughly speaking.)

      • Hi Tim, thank you for your kind words. The work to knit scarves was exploitative, and I was not going to get involved in that. Most of the blind and disabled community earn more than that amount through begging. We have worked with some of the community to look for both work and new business opportunities over the last two years, mostly rather unsuccessfully, although there have been a few signs of hope. We have a new business workshop happening in two weeks time for some of these friends and hope that it will lead to dignified work. I wish I knew the answers to some of these things, but often it is a real struggle.

  • Bill Walker

    Reblogged this on Bill Walker | Blog and commented:
    The Catholic Social Teachings tradition provides a compelling case for there to be a living wage.

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