The Just Wage

Wages are surely one of the perennial economic contrivances of mankind, and, as in all human institutions and relations, questions of justice frequently arise with regard to wages. Wages exist because the relation of employer and employee exists. Although Distributists, in harmony with the command of Pope Leo XIII in Rerum Novarum, no. 46,that, "The law, therefore, should favor ownership, and its policy should be to induce as many people as possible to become owners," desire to minimize the extent of the employer/employee relationship by making workers owners and owners workers, in any social order, however ideal, some aspects of the wage relationship will continue to exist, and thus the question of wage justice will likewise exist. And although since at least Leo XIII the popes have again and again reiterated the teaching that "the wage paid to the workingman should be sufficient for the support of himself and of his family" (Pius XI, Quadragesimo Anno, no. 71), many, even among those who consider themselves to be obedient and faithful Catholics, are not entirely comfortable with this repeated teaching, despite the fact that probably it can by now be said to be an infallible teaching by virtue of the ordinary magisterium. To a great extent I think that this discomfort can be attributed to the understanding of economics widespread in this country and throughout the Anglo-American cultural sphere, an understanding that by now has become widely accepted as the one, true and only version of economics in many parts of the world. This version of economics sees the economy as basically a self-regulating machine, and therefore to interject ethical constraints into this mechanism, contrary to the mechanical interplay of economic forces, endangers the successful working of the entire economy. According to this understanding of economics, wages are determined more or less automatically by the interaction of certain variables.Those who think in this manner will argue that in the case of certain jobs, e.g., a worker in a fast food restaurant or a janitor or a farm worker, the variables of labor supply and demand determine a wage which is below a living family wage. In order to see this, let us look at part of the discussion of income distribution given by Paul Samuelson. The very title of Samuelson's chapter, "How Markets Determine Incomes," indicates clearly the mechanical approach to income distribution, which is simply

a special case of the theory of prices. Wages are really only the price of labor; rents are similarly the price for using land. Moreover, the prices of factors of production are primarily set by the interaction between supply and demand for different factors - just as the prices of goods are largely determined by the supply and demand for goods.

Thus the different incomes of different kinds of workers can be explained by means of a typical demand curve. Since "the supply of surgeons is severely limited [and] [d]emand for surgery is growing rapidly...surgeons earn $270,000 a year on average." On the other hand, "fast-food...jobs have no skill or educational requirements and are open to virtually everyone. The supply is highly elastic.... Wages are close to the minimum wage because of the ease of entry into this market, and the average full-time employee makes $12,000 a year." To many people this type of reasoning seems so obvious that one can understand their difficulties with the papal teaching on wage justice cited earlier. Within the framework of neoclassical economics it does indeed seem obvious.There are many things one can say against such an understanding of how economies work. Here, however, I want to raise an argument for the just wage as the "economically correct wage," a concept elaborated by Heinrich Pesch. Pesch's argument ultimately rests upon a different understanding of both economics and economies, and the contrast in his approach with the approach of neoclassical and related economic schools can help one to see that the latter is not the only reasonable way of understanding economic phenomena, and in fact that Pesch's approach is consonant with the Catholic understanding of man, society and the state, as well as actual economic facts.First though, who was Heinrich Pesch? Pesch was a German Jesuit priest who lived from 1854 to 1926, studied economics at the University of Berlin, and wrote several scholarly, multi-volume works on economics and economic philosophy. His most famous work is the Lehrbuch der Nationalökonomie, which appeared in five volumes in German between 1905 and 1923, and which comprises ten volumes in its English translation. Pesch was more than an economist and a commentator on papal teaching, for in a sense he helped shape the direction of papal social doctrine itself, since his thought provided the background for Pius XI and his advisors when they drafted the 1931 encyclical Quadragesimo Anno. Furthermore his influence is very evident in the social thought of John Paul II. Pesch, in fact, coined the term solidarism or solidarity so extensively used by this pontiff.Fr. Pesch called his economic system and program Solidarism, and although he was not a Distributist, he advocated many policies and programs akin to those of Distributists. Here however I will examine only his teaching on wage justice as seen within the context of his overall approach to economics.Pesch's discussion of the just wage is largely contained in the second part of volume V of his Lehrbuch, and is one of his most original and interesting contributions to economic and moral theory, for he treats of the just wage as "the economically correct wage."As is usual for Pesch, he first grounds his economic thought in a philosophic understanding of man and human life, and he begins his discussion of wages in this way. "The capacity to work is a natural good of man, which is destined and therefore also empowered by nature, or by the Author of nature, to provide the worker with his necessary sustenance" (p. 86). This might seem like an obvious observation, but if we unpack it a little we will find plenty of meaning in it.If we believe that even after man's fall into sin the providence and goodness of God continue to rule his creation, then we recognize a definite harmony still existing in the world. The fact that God has given mankind the capacity and means to work indicates that he intends work as the means of supplying our necessities. But one man has only so many hours, so much physical or mental strength, to apply to work. Moreover, there is more to human life than mere survival, including marriage and the family, and the creation, preservation and enjoyment of the human cultural patrimony. Thus it is not reasonable to expect someone to work eighteen hours a day, for if most people did that, the human race itself would perish or descend into a semi-human barbarism.However, in fact it is rarely necessary for people to work eighteen hours in order to survive. Man's labor does not "have only the natural destiny to acquire for the worker his subsistence.... It also has the natural capacity to do so" (p. 90), Pesch continues. In other words a normal adult person, working a reasonable number of hours a day, will generally be able to produce enough of economic value to provide not only for himself but for a family as well, provided of course that he has the tools, raw material and other necessities for whatever kind of work he does, as well as the personal habits and training required.Distributists recognize this natural relation between a man's labor and his ability to provide for his family, a relationship which is exhibited most clearly in an economy consisting as much as is reasonably possible of owner-workers. But even in an economy characterized by the separation of ownership and work, an economy in which the wage is the usual means of personal and familial sustenance, this natural relation should hold good. If it does not hold good, then something is wrong. Either someone is exploiting the worker by taking some of the economic value due to him, or the worker does not have enough capital (tools, land, machines) for his work to produce its naturally intended effect. This latter could even happen with a worker-owner if he did not have adequate tools or machines or if he possessed substandard or insufficient land.If this is the case, let us look further at Fr. Pesch's approach and how he undercuts the presuppositions of the neoclassical understanding of wage determination. "The human ability to work retains the natural capacity to provide a livelihood even when it does not succeed in doing so actually," he begins. And he goes on to look at some examples of this type of situation which might arise in a capitalist economy.

The employer who, by his own ineptitude, uses labor in such a way that it does not come up to doing what it is capable of doing, would nevertheless be required to pay the kind of wage which labor is intended to provide. However, if labor is utilized properly in accordance with its natural purpose, and the employer pays a wage which does not provide for labor's livelihood, then he violates commutative justice. Finally, an industry which, even under normal circumstances is not in a position to pay wages corresponding to what wages are supposed to accomplish, is lacking in economic justification. This means that the requisite consumer demand is lacking, and such an industry no longer has a place in the pattern of satisfying normal human wants. (p. 90)

Let us look at this more carefully to see its significance. Pesch considers three separate cases here. In the first place, suppose someone employed a perfectly healthy worker but from neglect gave him only inferior tools, faulty material, broken machinery to work with, and then complained that he could not produce enough each day to pay him an adequate wage. This is the "employer who, by his own ineptitude, uses labor in such a way that it does not come up to doing what it is capable of doing." Such an employer, however, is nevertheless "required to pay the kind of wage which labor is intended to provide," for it is the employer's fault that the worker cannot create the economic value which his work is destined for and which he is perfectly capable of producing.Secondly, we have the case where "labor is utilized properly in accordance with its natural purpose, [but] the employer pays a wage which does not provide for labor's livelihood," which is a clear case of the violation of commutative justice.Finally, we have the most interesting case of all, "an industry which, even under normal circumstances is not in a position to pay wages corresponding to what wages are supposed to accomplish...." This industry is therefore "lacking in economic justification," which "means that the requisite consumer demand is lacking, and such an industry no longer has a place in the pattern of satisfying normal human wants." This latter is probably the situation of many discount chains and big-box stores, and similar businesses.In this third scenario, we have the case in which the only way in which an employer can afford to sell his product is to make his prices so low that he cannot afford to pay his workers a living wage.Clearly then his product lacks sufficient consumer demand. It is as if he had to bribe the public to buy his products by charging less than their genuine production cost. The products are desired only because they are cheap. Today we are inundated with cheap goods produced abroad, sometimes in conditions little better than slavery. This is a distortion of the economic process as well as a violation of justice. If the good is worth buying, it is worth paying a price that fully compensates all who are involved in its production. If someone revived legal slavery today and boasted that he could undersell his competitors because his labor costs were so low, who would doubt but that his entire enterprise was an economic as well as a moral evil, no matter how cheaply he could produce and sell his product? Or if a certain chain store sold only stolen goods and thus could largely eliminate its wholesale buying expenses, would not this constitute a violation of both justice and sound economics? The same logic must be applied to any enterprise which cannot afford to pay its workers a just wage. In all these cases employers are cheating, are seeking to avoid their full production costs. This has no place in a normal economy in which labor fulfills its intrinsic purpose of providing for human life and in which work, production, buying and selling, all cooperate toward a situation in which human persons live and work together in justice and prosperity.If I am willing to buy certain goods only if they are produced with the advantage of low-wage labor then I effectively proclaim that such goods do not belong within a normal economic system. If I am willing to patronize certain stores or restaurants only because their labor costs are so low, what does that say about my real demand for such food? I want it only if its price is below what is necessary for the cycle of exchange to be effective. For if everyone were paid substandard wages, or if the goods of honest suppliers were regularly stolen and sold at discounts, there would eventually be no buying and selling. An economy can function only so long as there is a market for the goods and services produced, which occurs only when labor receives a share of the national income sufficient to pay for those goods and services. Now we have the situation where in fact the exchange economy is subsidized by workers in industries who themselves do not earn enough to be genuine participants in real, human economic exchange. We have an economy that depends, and thinks it must depend, on what amounts to quasi-slave labor or substandard wage labor, labor that is not reimbursed sufficiently so that it can take its own part in the cycle of buying and selling.Since about 1980 wages in the United States have been largely stagnant or have even declined as fewer firms fulfill their responsibility of providing wages that meet the inherent purposes of human work. The share of aggregate income received by the economically lowest 20% of households declined from 4.1% in 1970 to 3.4% in 2009, while the share of income received by the top 5% went from 16.6% to 21.7% in the same period. One way that families have been able to survive economically during this time is by having both parents work. Yet what does this create? Children raised without proper supervision, increased family and marital stress, even an increased demand for cheap food outside the home because of a lack of time to make good food at home. One moral and economic evil spawns many others, as is always the case in human affairs. We cannot expect to exploit labor and have a healthy, well-functioning society.To recapitulate, if we look at the working capacity of a normal human being, we see both its inherent tendency and its real ability to provide an adequate living for himself and his family, provided that he has sufficient capital goods to work with. In a simple owner-worker operation, this is evident. An economy consisting of such owner-workers would be characterized by a cycle of exchange in which producers received economic equivalents for the goods they produced by means of their work and which they exchanged for goods produced and sold likewise by their neighbors. The cycle of exchange would allow each producer to obtain "sufficient for the support of himself and of his family."With capitalism, that is, the separation of ownership and work, complexities arise. But even in a capitalist relationship this tendency and capacity of human work to provide for human needs continues. Heinrich Pesch presents three possibilities of failure on the part of capitalists to pay a just wage. In the third case we have an example of an entire industry or subset of an industry which does not fit into the cycle of exchange which characterizes a normal and healthy economy. Heinrich Pesch shows that if we look at the purpose of human work and of the economy we see that they obviously must provide a living for those who participate in economic activity. The understanding of economics typified by Paul Samuelson signally fails to do this, while Heinrich Pesch provides an alternative way of looking at an economy consistent both with Catholic teaching and with a correct understanding of the purpose of human work.