On the absurdity of non-living wages

This US Labour day brings a powerful reminder of the necessity to relentlessly call out the unfairness and absurdity of our work-centred societies. This time, it comes from the UK. September 4th 2017 is the day of the McStrike, the first ever workers’ strike at McDonald’s UK. If you’re wondering what this is about, this Guardian article by Aditya Chakrabortty will help you get a grasp of the extent of the human tragedy that lies behind the catchy hashtag. It reveals a blunt and depressing reality: in today’s Britain, you can be toiling all day behind a grill for less than what you need to afford rent, or several meals a day. Just let it sink in. This is not news, but sadly it’s not getting old.

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The strikers are concentrating on three demands: a 10£ per hour minimum wage, guaranteed-hours contracts (which McDonald’s already promised in the past but failed to deliver), as well as formal trade-union recognition by the company. Although limited in size, this protest is important: it helps rehabilitating workers’ collective action as a legitimate and efficient means of political participation, in a country where the Thatcherite steamroller discredited trade unionism and stripped it of its power. That it is once again plausible for employees in the UK to pull their strength together and demand better treatment is cause to rejoice (if you feel elated, there are ways you can support the strikers).

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Yet, there is also something utterly depressing in the elementary nature of the demands; this is a story about people simply asking that the sacrifice of one of their most finite resource, i.e. their personal time, be compensated at a level which allows them to do more than barely survive. That this is still to be fought for in 2017 is shocking in itself. How could a society that magnifies work as the only gateway to respectability accept at the same time that taking a job does not guarantee access to decent living standards? Who, in their right mind, could defend as acceptable, let alone desirable, minimum wage rates that are below living wage rates, i.e. the amount of money needed to cover necessities and lift oneself above the relative poverty line? Surely asking of an employee that she sells her time for less than the cost of her living cannot be seen as a reasonable proposition?

The pseudo-rationality of working for less than what it costs to live

Crazily enough, it can. Reason, in the form of economic theory, is in fact largely invoked when it comes to maintaining inadequate minimum wages. According to some scholars, economic theory predicts that increases in the minimum wage will lead low-productivity individuals to be priced out of the labour market, leaving them unemployed. This idea can be traced back to the late 1960s and Milton Friedman: some low-skill individuals, he argued, are “capable of earning only low wage-rates“. Artificially raising the rewards of their work through generous minimum wage laws, beyond what their productivity is worth to their employer, would lead the latter to renounce employing them at all. For those who “lack the capacity to earn a decent living”, concurred James Tobin, another economist, raising the minimum wage would actually destroy their chance of earning a living at all. Following this line of thought, and based on the logic that a low wage is better than no wage, it was argued that supporting low-earners actually entailed scrapping the minimum wage, or maintaining it at a low-enough level to ensure that low-skilled individuals remained employable. Calls for increases in minimum wage rates to benefit low-income workers were on the contrary described as “a monument to superficial thinking”.

Beyond the arguably outdated reference to Friedman, the idea that a high (read: decent) minimum wage would create unemployment, and thus must absolutely be avoided, was central to the economic policy paradigm that dominated much of the 1990s. Institutions like the OECD repeatedly warned of the dangers of a high minimum wage; many countries implemented mechanisms preventing statutory rates from rising too much (see for example the role of the Low Pay Commission set up by New Labour in the UK). The idea remained influential throughout much of the 2000s, although the increasing recognition of the existence of a working poor phenomenon led the OECD to advocate for government financed wage top-ups to complement low wages. To this date, the potential threat to employment of a high minimum wage is a recurring theme of public debate.

This prolonged influence is all the more impressive that the academic consensus on the issue has been largely shaken by a growing body of empirical research putting the theory to the test. The first study to shed doubts on the largely accepted common economic wisdom that the minimum wage was detrimental to low-skilled employment is the 1994 American Economic Review study by David Card and Alan Krueger, which found no negative impact on employment in the fast-food sector. Since that seminal study, many more have been produced, with mixed results, and overall no clear empirical evidence supporting the theory.

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Source: OECD, 2015

This academic controversy has been revived more recently as two studies on the effect of minimum wage hikes in the city of Seattle have found diverging results. All in all, the policy doxa according to which raising the minimum wage to the level of the living wage is bound to create unemployment at the bottom of the skills distribution is not grounded in solid empirical evidence. Interestingly though, when it comes to the fast-food industry, the available evidence shows that raising the minimum wage has no detrimental effect on employment. So in the case at hand, the McStrike demand for £10 an hour, which would bring down the hourly wage ratio between McDonald’s boss Steve Easterbrook and the employee serving the fries to “only” 568, cannot simply be dismissed as “superficial thinking” after all.

Whose “superficial thinking”? Shortcomings of the economic case against a living wage

The economic argument against a decent minimum wage needs to be put in its place, as a poorly substantiated, largely contradicted theory. But this is not enough: independently of whether the predicted effect materializes or not, two blatant shortcomings of this argument, and of the policy prescription following from it, must also be called out. Namely, the idea that low and inadequate wage levels should be maintained to preserve employment is socially narrow-minded and logically flawed.

#1- It ignores the fact that the minimum wage is a moral underpinning of society

By defining a legal minimum wage, a society attributes a minimum value to an hour of human time. It draws the line between a fair wage, and exploitation. The notion of hourly productivity is irrelevant there: this is a moral statement about human worth. It is about dignity, and respect. It is not about pricing, it is about valuing, independently of where the demand and supply curves intersect. Contending that the minimum wage should be left to vary according to the law of the market completely misses the profoundly symbolic statement that human time cannot be exchanged as any other commodity, because we, as a society, value it above and beyond its market worth.

The economic case against a decent minimum wage is thus a clear example of an economic tunnel-vision, which completely neglects the social nature of an economic policy, and fails to take into account the variety of objectives and significations that it carries. As it fails to do so, it becomes morally problematic: it implies that the value of human time should be decided upon by a market mechanism. It accepts that a line be drawn between “them”, and “us”, those who “cannot earn a decent living”, and those who can. It accepts that some people’s time is worth less than what it costs them to live. It denies the symbolic importance of the minimum wage as the expression of society’s belief in human worth.

#2- It mixes up the means (employment) with the end (decent standards of living for all)

Let’s accept for the sake of the argument that increases in the minimum wage did in fact lead to unemployment. Following the logic presented above, the policy response should be to maintain the minimum below the living wage, to ensure that no jobs are destroyed. The unemployment rate will not go up. All will be well. The worst that could happen would be for people not to have a job – whether that job allows them to put a roof over their head is irrelevant.

This is a clear case of a flawed reasoning which confuses the means (employment for all) with the end, while losing sight of the original objective (that everyone gets a decent income). If the point is simply for everyone to have a job, a good solution might be to get people to work for free. No doubt unemployment rates would look great. The obvious question – what’s the point of selling your time if this does not allow you to live a decent life? – is never asked.

What’s at the heart of this reasoning is the attachment to a particular worldview, according to which the labour market is the only conceivable channel for income distribution. In truth, Friedman’s truism – that low wage is better than no wage – is based on a false alternative: well-conceived unemployment insurance or universal income systems precisely allow for another choice, between a decent wage and a decent out-of-work income. Of course such state-financed systems are inherently antagonistic to libertarians; but another reason for their omission in the latter’s reasoning might be that such institutions offer a means of resisting the push to accept exploitative work that is not worth the human time spent on it. What the apparently rational argument against the minimum wage is really saying is that in-work poverty is better than decent standards of living out-of-work. Behind the shaky theory is a political project to defend work at all (low) cost.

Faced with the growing numbers of poor workers in the 2000s, many governments introduced systems of wage top-ups, in the form of tax cuts or in-work benefits. In effect, this amounted to a partial decoupling of income and work. Ironically, while this was in effect giving a larger role to collective solidarity in securing a decent income for low-skilled individuals, this was labelled the “make work pay” strategy. Inherent self-contradiction was a trifle: work had to officially remain the one and only way for people to secure an income – although it blatantly failed to do so.

The new frontier for the Labour movement

Who, I wonder, might be gaining from a situation in which the low pay or no pay alternative remains dominant? Going back to the McStrikers might give a hint of an answer. Let’s imagine that the fast-food worker’s basic needs – food, a home, and clothing – were covered through a collectively financed universal income system. Let’s imagine that work behind the grill was only a way for them to get supplementary income. Would McDonalds still be able to pay them at the current rate – 1196 times less than the CEO when they’re under 18? Wouldn’t these workers be suddenly worth a lot more to them, when there is no reserve army of low-skilled workers condemned to accept whatever the market will grant them as a wage?

Here is something to think about as the US celebrates the achievements of its Labour movement: beyond helping McDonald’s employees to secure a wage increase (which is important, and which they need), can we imagine a system decoupling income and employment, that would durably prevent the company to degrade human time by buying it so cheap in the first place?

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