Jobs and the Minimum Wage

The argument that a statutory minimum wage destroys jobs or at least hinders job creation certainly sounds plausible. Currently one of the Republican presidential contenders, Representative Michele Bachmann, even seems to be toying with the idea of lowering the minimum wage in an effort to create more jobs. For (so the argument goes) if an employer, or would-be employer, believes that an employee's contribution to the firm's revenue does not sufficiently cover his wages and other expenses, he will not create that job or keep that person employed. Paul Samuelson quotes Gary Becker, "Hike the minimum wage, and you put people out of work."[note]Microeconomics (17th ed., 2001), 79.[/note] Could anything be more clear? Of course employers want to protect their profits, and of course they will likely hire more employees the more cheaply they can do this. This is just an example of the logic of the free-market: self-interest rules, a concept understood by all Americans.Although this argument might seem appealing at first sight, and its logic is simple, in fact it is not simple, but simplistic, and deficient both economically and ethically. Let us consider several criticisms that can be made of it.In the first place this argument presupposes, even if it does not explicitly affirm, that it is possible to calculate the marginal value, the economic worth, of an employee to a firm or business. Of course sometimes this is possible. If you employ two men digging a ditch, and you will earn $10,000 on completion of the ditch, then you can be roughly sure that, after you've subtracted your own salary for managing the task, the rest can be attributed to the two workers, probably more or less equally. But this is a simple example. How do you estimate the value contributed by all the various workers in a medical office, for example? Perhaps only one or two, physicians or certified nurse practitioners, actually receive income from patients. One can calculate the gross income attributable to these, of course, but does that mean that nothing is due to the others, to the receptionist, for example, or the billing specialist? Their contribution is impossible to calculate. Yet without them the physician might not receive much income at all. And we can easily see that this is the case for many kinds of work. Sometimes one employee is so key that without him the concern would produce nothing at all, the operator of a crucial machine, for example. Does that mean all the revenue should be attributed to that one person?If someone is opening a fast food restaurant, how is the total revenue to be divided among the employer and employees? It might seem that the person who merely sweeps the floor and cleans up the bathrooms doesn't contribute much. But if the restaurant is dirty and bug-ridden it might attract no customers at all. Thus in a sense all its income depends upon the cleaning crew. But equally upon the cooks and upon the bookkeeper or the manager. But does that mean that the entire gross income should be variously attributed to several different employees or groups of employees at the same time?The total income of a firm is attributable, as far as labor inputs are concerned, to the entire workforce. Not only is it not possible, but in most cases it doesn't even make any sense to try to ascertain each employee's marginal value. As we saw in the examples above, the concept has no application in probably the majority of cases. Depending on how we look at the activity, the income could be attributed to one of several employees alone, to the cook without whom there is no food, to the cleaning crew without whom there are no return customers, and so on. Thus if a firm lays off workers because of a rise in the minimum wage, it is pronouncing upon something which it does not know, namely, their marginal value to the business.But let us consider a second argument. Since July 2009 the federal minimum wage in the United States has been set at $7.25 an hour. That adds up to $15,080 a year if someone works continually 40 hours a week, all year-long. This amounts to $1257 per month. Note that this is gross income, for an employee would have social security and other payroll taxes subtracted, and perhaps state and local income tax as well. The U.S. Department of Agriculture monthly thrifty food budget (June 2011) for a family of two adults and two children varies from a low of $533 to a high of $612 depending on the age of the children, and the low-cost budget goes from $768 to $796. (See www.cnpp.USDA.gov/USDAFoodCost-Home.html, and click on appropriate month.) Thus a family with one minimum wage earner and two children would need to spend from about 40% to well over 50% of its income for even the thrifty or the low-cost food budget. Where I live, in central Ohio, rent of a two-bedroom house is at least $600 a month.It is true that such a family would probably receive something via the Earned Income Tax Credit (for tax year 2010 the maximum for a family with two children was $5,036) and also food stamps. Both these programs would help raise income toward the frugal comfort that Leo XIII laid down as the minimum befitting human beings, but with the 2011 poverty level for a family of four at $22,350, even with food stamps, such a family would be at or near the poverty level.Note also what reliance upon the EITC and food stamps does. It socializes part of the employer's costs, so that his employees are in part paid by taxpayers, but of course, profits accrue simply to himself.With the minimum wage at $1257 a month, what does that say about our initial question, whether a statutory minimum wage destroys jobs or hinders job creation? I suggest it says this: that the initial question was not the correct question to ask, a red herring in fact. Why is this? Because it is premised on the notion that any job is better than none, regardless of whether a worker and his family can decently live on his wages in frugal comfort.[note]I am speaking only of adult workers here. I am not addressing the question of wages for teenagers living at home with their parents.[/note] Thus if a minimum wage destroys jobs, those jobs were not jobs that could actually support human beings in a manner that corresponds to their human dignity. It is true that I might desire to hire around my home a gardner, a cook, a butler and perhaps some other servants and pay them each $3.00 a hour. If unemployment is sufficiently high, I might be able to find some people who will work at those wages. Of course, no one could live at those wages. But as an employer, why should I care? If they die of starvation after a few weeks, there will be others to take their places. But only someone whose notion of society was that of a class of exploiters living off the labor and sweat of everyone else could approve of such a situation. Yet that is exactly what Representative Bachmann appears to be thinking about. $1257 isn't enough for a family to live on now. So lower it. If those working at this new minimum can't have children or can't marry or can't afford even a rented home, why should the employer care? Why should society care? Why should anyone care? The arrangement is altogether voluntary, isn't it? No one forced the employee to take a job that now pays $1000 or $800 a month. But why should there be any floor on wages at all? By this line of argument the only sensible thing is to abolish the minimum wage entirely, and let workers compete with each other for whatever crumbs employers will offer. When they or their children die, so what? There are plenty to take their places.Note also that the idea that lowering or abolishing the minimum wage will affect only new jobs is nonsense. What it will mean is a general lowering of all wages, since workers can now compete against each other with no wage floor to set a minimum. The revival of legal slavery that Belloc and Chesterton foresaw would be merciful in comparison, for the slaveowner at least usually provides his slaves with enough to eat and a place to sleep.Lastly I advance another economic criticism of the Becker/Bachmann line of argument. It is this: We know that generally any adult worker can produce enough economic goods to support not only himself but several other persons. Of course he needs tools and so forth. If this were not the case, mankind could never have advanced to higher levels of material civilization. There could never have been a class of warriors or priests or scribes or rulers, or even stonemasons or other builders, not to mention young children, because no one could have been spared from the task of obtaining food. For while all these kinds of people are necessary for the welfare of society, their contribution to the economic process is not as producers of primary economic goods. The farmer may need the soldier to protect him from enemy raiders while he is planting and harvesting, but the soldier will need to eat the food grown by the farmer.What does this have to do with the minimum wage? If every normal adult can produce enough primary economic goods to provide for more than one person, then when a job is designed that (rightly or wrongly) is considered not to be worth more than a minimum wage that is substandard, something is wrong. But the worker is not at fault, rather the job is, for the job has been structured badly. Someone has designed a job which does not take full advantage of the worker's potential. That is not the worker's fault. If I had two workers and gave each the same tools and seed and assigned one to cultivate a fertile plot and the other to cultivate a desert waste, I could hardly blame the latter if his harvest was scanty or non-existent. And in a society as complex as that of the 21st century, we do not usually think of the direct connection between the worker's effort and input and his direct output. Things are much too complex for that. But when we advert to the fact that a worker can produce enough to support himself and his family in frugal comfort, than it behooves us—meaning society as a whole—to see that our economy and its jobs are so structured that they can allow each worker to produce enough of economic value to procure a decent living. This does not mean that everyone must be a producer of primary economic goods, food or fiber or fuel. No, there is plenty of room for complexity in society, so long as we recognize the fact that if a worker seems to be contributing less than the value of a living wage, that is not his fault. Given the right circumstances there would be no doubt that his economic contribution would be sufficient for a living of at least frugal comfort.This third argument moreover shows the superiority of Distributism as a way of organizing an economy. Under Distributism, although not everyone need be a primary producer or an individual owner, a greater number will be than under either capitalism or socialism. Therefore it will be easier to see the direct connection between one's work and one's work product, to see that the normal adult who is willing to work can more than provide for his welfare and that of his family. If he is restricted by the design of his job to producing less than that, that is not his fault. It means that not enough capital was invested in providing him with the tools or other goods he needs, perhaps because his employer is attempting to take advantage of his work effort and hire someone on the cheap.The case against the minimum wage is plausible only if we look at things through the blinders created and fastened upon us by capitalism, a system in which there is always pressure to lower wages and which regards employees as so many unfortunate burdens upon the company. If all employees could be replaced by robots, so much the better. Of course, how the majority of mankind could then procure food and shelter or who could afford to buy the robot-produced products is not something that is considered in this sort of thinking. This conception of society so utterly lacks any sense of solidarity, any idea of the common good, any regard even for our fellow men toiling along with us toward Heaven or Hell, that it is a wonder any Christian can hold it. Catholic Christians especially have even less excuse, since the Church's social doctrine is clear that the economic order must be judged according to ethical criteria. Without those ethical criteria, we are not a human society, but merely a bag of cats tearing each other apart.I must add by way of appendix, that I am addressing one question only here: Does a statutory minimum wage destroy jobs or hinder job creation? I am not arguing that a minimum wage set by law is the only conceivable way of achieving wage justice. In the United States today a minimum wage is absolutely necessary, as it is the only possible means of putting a floor under wages. But where there were strong unions or a robust system of occupational groups (guilds) through which most economic regulation was conducted, it might not be necessary to have a legal minimum wage. Or in a highly distributist economy in which almost everyone was an owner of productive property, likewise a minimum wage law might be redundant. But in America today it is necessary, indeed it should be raised considerably above what it is now.