Can rich countries afford a living wage?
Britain’s Conservative led government has just approved a significant increase in minimum wages, the first real-terms increase since 2008. The cries of low-paid workers have finally reached the ears of market libertarians in this season of party conferences prior to next year’s general election.
Debates about the minimum wage have received wide coverage in the press recently, on both sides of the Atlantic. US President Barack Obama wants to raise America’s federal minimum wage from $7.25 to $10.10 an hour. And in Europe, Germany will have a minimum wage for the first time starting next year – at a higher rate than either Britain or America.
Supporters of a minimum wage increase point out that substandard wages actually cost businesses, due to high staff turnover, constant recruitment, training costs, and the impact this can have on customer retention.
At the same time others insist that a minimum wage is not necessarily a just wage, which remains the key issue to be addressed. Employees cannot support themselves or a family on the minimum wage. The new minimum in the UK — £6.50 (US$10.45) an hour for workers aged 21 and over — is not being set against the minimum needed to support dependents.
Free-market die-hards object to the government dictating what employers pay their employees. There is also the fear that this type of intervention could actually result in loss of jobs, starting with those on minimum wage. Milton Friedman called minimum wages a form of discrimination against the low-skilled, and he favoured public subsidies instead.
But the free-market viewpoint seems to be losing ground in the face of a wealth gap that has seen the incomes of the top 1 percent of American earners rise by 275 percent since the late 1970s compared with an 18 percent rise among the bottom 20 percent.
Britain’s workers do not fare any better. The United Nations Human Development Report has stated that the poorest 40 per cent of Britons share a lower proportion of the national wealth — 14.6 per cent — than in any other Western country. This effect is intensified by the cost of living in a metropolis like London, where the differential has risen by 14 percent between the richest 10 percent and poorest 10 percent of earners.
A 2011 OECD report “Divided We Stand: Why Inequality Keeps Rising” found that:
In the three decades prior to the recent economic downturn, wage gaps widened and household income inequality increased in a large majority of OECD countries. This occurred even when countries were going through a period of sustained economic and employment growth.
In light of this trend, even The Economist has come out cautiously in favour of a wage floor that it says is “logical” in present circumstances — so long as it is kept “pretty low” (50 percent of the median wage) and is set by “technocrats” rather than politicians.
This, in fact, is the case in the UK where the matter is reviewed annually by the Low Pay Commission. “In America, the federal floor is set by politicians and adjusted irregularly in huge increments,” The Economist notes. “That does no favours to American workers or their employers.”
Wages with the family in view
But it’s not favours that minimum wage advocates are asking for; it is something nearer a living wage, a return for work that would make family life more possible. In an open letter to the US Congress Labor and Workforce committees last month, a group of 70 US mayors backed Obama’s call for a minimum wage raise to $10.10, saying:
Families should not be relegated to the ranks of the poor when putting in a full week’s work, and parents working full-time should not be forced to raise their children in poverty. Parents must work more than three full-time minimum-wage jobs to keep a family of four above the poverty line. A $10.10 minimum wage would have pushed more than half – 58 percent – of the nation’s working poor out of poverty in 2011, according to a study by the Restaurant Opportunities Centers United.
Contemporary economics tends to see the individual as the first economic unit. Minimum wages are designed for people as individuals based more on age, rather than for people supporting a family or who wish to marry and raise a family. The living wage attempts to ensure workers and their families do not live below the level of subsistence.
In the UK this principle is being promoted by groups such as the Living Wage Foundation, which reports that among employers in London who have embraced the concept, “more than 80% … believe that the Living Wage had enhanced the quality of the work of their staff, while absenteeism had fallen by approximately 25%.”
There are now 900 employers registered with the scheme, including charities, banks, religious groups, schools and colleges, media firms, and service providers. Big names include Barclays Bank, HSBC, J. P. Morgan, Goldman Sachs, and a range of smaller businesses and service providers.
The Living Wage scheme encourages employers in London and across the country to voluntarily sign-up, agreeing to pay £.8.80 per hour to its employees in London, and £7.65 outside of London. The scheme was launched in 2001 by parents living in East London who found that doing several low-paid jobs to make ends meet left little time for family. Calculating a living wage involves taking account of the fact that many workers have families with children to support, so that the living wage becomes a just family wage.
In different ways, capitalism and socialism and their variants can harm the family, which is the fundamental unit and building block of society. G. K. Chesterton wrote: “But if it is true that Socialism attacks the family in theory, it is far more certain that Capitalism attacks it in practice.”
You can rightly argue that Socialism attacks the family in practice too. The point is, as philosopher Phillip Blond has argued, we are now in a place where the same philosophy, libertarianism of personal autonomy and choice, is cutting across the left and right in economics and social mores, including when it comes to questions of labour and wage, and the relationship between employer and employee.
Government and industry serve many functions, one of which ought to be the service of the family. The family does not exist to serve the State and industry – or, at least, it can only serve those aspects of society by bring up the next generation in decent, secure homes.
No one is pretending that voting will be decided on minimum wage level promises, but it does seem that an increase in minimum wage is a step in the right direction, although it is not always a just wage. That has to change.
This article first appeared on MercatorNet in October 2014, and is reproduced with kind permission.