A living wage is a wage that is high enough for full-time workers to provide a decent life for themselves and their families. As such, calls for a living wage date back to at least Deuteronomy 24:14.
In the United States, about one fifth of full-time workers live in poverty. In other words, the free market sets their wage at a level that is less than a living wage. Therefore, only legislation can secure a living wage by compelling employers to pay workers more than the market deems them to be worth. For example, legislation could stipulate a minimum hourly wage just sufficient to enable a full-time worker to support a family of three (or four) at the national poverty line, plus mandated benefits and paid days off.
Critics of a living wage predict that compelling employers to pay wages in excess of what the market deems appropriate will generate one of three scenarios. In the first, firms substitute capital equipment for their “overpriced” workers, thereby having the unintended consequence of causing the unemployment of precisely the people the living-wage legislation was intended to help. The second scenario suggests that the higher wage costs cause a profit squeeze at the affected firms, bankrupting some firms and thus, again, causing unemployment. In the final scenario, the higher wage costs get passed on as higher prices, causing inflation.
Fortunately, some experiments with living-wage legislation at the municipal level, in Baltimore and Milwaukee in 1995 and Los Angeles in 1997, gave specific results instead of hypothesized scenarios. Using data from these experiments, social scientists assessed the effects of a living wage, finding the opposite of what the critics predicted. In these cases, imposing a living wage on firms unleashed a wave of increased labor productivity (i.e., the amount of output per unit of labor input) at the affected firms, making it possible for them not only to pay the living wage but also to increase profits at lower prices. The causes of this burst in labor productivity included reduced absenteeism and decreased labor turnover (i.e., the rate at which workers quit their jobs and firms then have to replace them), better quality work, better cooperation between labor and management, and thus more management flexibility in the operation of the business and, generally speaking, higher morale.
Moreover, far from causing unemployment, the increased spending by the workers receiving a living wage increased the overall demand for goods and services in their communities, with the virtuous ripple effect of creating more investment and employment opportunities for others.
- Glickman, Lawrence. 1997. A Living Wage: American Workers and the Making of Consumer Society. Ithaca, NY: Cornell University Press.
- Pollin, Robert and Stephanie Luce. 1998. The Living Wage: Building a Fair Economy. New York: New Press.
- Ryan, John R. 1906. A Living Wage: Its Ethical and Economic Aspects. New York: Macmillan.
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