Does every worker deserve a living wage?
The labor market is morally and economically more complicated than can be conveyed by a silly slogan.
For several decades (at least), some labor activists argue that every job deserves a living wage—a wage roughly defined at that sufficient to meet basic necessities and then a little extra. And often this moral and rhetorical demand is met with a further condition: if you cannot afford to hire someone at a living wage, you cannot afford to hire someone at all.
I find this thought puzzling for several reasons, not the least of which is why so many workers—who apparently deserve better—are willing to settle for less than they are morally entitled to. Put that aside. There are other reasons to doubt that very strong claim that all jobs should pay a living wage.
The first reason is that some workers are seeking part time jobs (side gigs) to bring in a little extra money without the responsibility and trappings of a full time job. I had a friend in graduate school who, while on the job market, wrote a book to improve his chances of landing an academic position. In the meantime, he worked part time as a bartender—a very flexible, part time gig—that allows him to make some money, but also have a flexible schedule to accommodate his academic aspirations. The fact that the work was flexible meant that he was paid less than if he had a fixed schedule, but he valued the flexibility more than the extra pay. He is not alone.
The second reason is that not every job is worth a living wage. The simple fact is that labor is a market that operates similarly to other kinds of markets, and not everyone’s labor is worth the cost of supporting them. Just as not every product and service offered for sale is worth what the seller is charging or thinks is fair. The fact of the matter is that the value of your labor, just like the market value of anything, is decided by what others are willing to pay for it. Simply insisting that every worker deserves a living wage—for whatever reason—fails to appreciate that labor markets, like other markets, are constrained by supply and demand. And if you doubt that labor is market, try demanding millions in compensation at your next interview. It won’t go well, unless you’re worth it.
The third reason is that even if one could intervene in the labor market, this would likely distort it. Perhaps that would be acceptable for a good enough moral reason—which is highly debatable in this case—but the fact remains the messing with labor markets likely introduces inefficiencies into the market. And to the extent one cares about the fruits of efficient markets like getting people what they want and need, quicker and cheaper, there is good reason against distorting the labor market, or any other market. Not only that, but without the requisite knowledge of how to better manage the labor market, one takes a serious risk of making the lives of workers worse overall and not better. As the Nobel prize winning economist—back when such prizes meant something—F. A. Hayek explained,
Even two hundred years after Adam Smith’s Wealth of Nations, it is not yet fully understood that it is the great achievement of the market to have made a far-ranging division of labor possible, that it brings about a continuous adaptation of economic effect to millions of particular facts or events which in their totality are not known and cannot be known to anybody.
I think the point of “every job worker deserves a living wage” is that every person deserves to exist and survive at a reasonable level in their society. In American society we use “the labor market” to provide this. The interpretation being that if someone does any type of labor for 40 hours a week they should be able to reasonably survive without having to work in excess of 40 hours a week, residing with roommates as an adult over a certain age, etc. I understand the argument being made here is that the labor market does not exist to and has no responsibility to maintain individuals at a certain level- and that may be correct- but in a modern society it is inexcusable to not have SOMETHING to insure the well being of each and every person who exists.
The mistake the author makes here is he assumes that the economy is an external factor to our civilization. It's not. The economy is just part of a larger political economy, which is itself embedded within a larger culture. Thus the "market" which does operate according to supply and demand, operates within a political and cultural framework. For example, today the companies making up the S&P500 choose to deploy more than 98% of their retained earnings for stock buybacks. Half a century ago these funds would be invested into the real economy, creating more demand for labor than happens today.
Why is this so? Well stock buybacks juice higher share prices, and higher share prices mean higher executive compensation from their stock options. The purpose of stock option compensation is to incent executives to focus on creating shareholder value, and it works. This focus on shareholder value as the objective of business is what I call shareholder primacy economic culture. It means less demand for workers for a given economic environment.
50 years ago, stock buybacks were not permitted, executive compensation was effectively capped by higher marginal rates at the top, and financial returns were lower than returns on equity, even though ROE was lower than now. As a result of executives invested in real capital rather than financial capital (shares), demand for labor was higher for a given economic environment, and wages were higher as well. The same laws of supply and demand applied then as now, but the politically and culturally set parameters were different, yielding a living wage more often.