Who Protects the Worker?
In the comments to my post last week on the minimum wage, reader Matt Talbot posed to me the following question:
Blackadder, I’m expecting your answer to be characteristically parsed and lawyerly, but I’ll ask anyway: Do you think there is any imbalance in power between Walmart (say) and a door greeter or stocker that works there? If so, in your libertarian utopia who or what would protect the workers from abuse by management?
It’s a good question. As I’ve made clear on multiple occasions, I don’t think minimum wage legislation is a good way of helping poor workers. Partly this reflects the fact that many minimum wage workers are not actually poor, but are either students, retirees, or others who aren’t relying on those wages as their chief means of support. Partly this reflects my belief that the minimum wage is really always zero, and that if a worker is only worth a certain amount to a business, telling that business that they can only hire him if they pay him more than this amount will lead not to his gaining higher wages, but to his being unemployed.
Okay, fine. But if there’s no minimum wage, what’s to stop businesses from only paying everyone $2 an hour? For that matter, given that the minimum wage is currently less than $7, what’s to stop businesses from paying everyone $7 an hour now? Clearly, we observe that around 95% of workers make more than the minimum wage. So there must be something aside from the law that forces business to pay more. Presumably it’s not that businesses are just altruistic. And only around 10% of workers are unionized, so whatever one thinks of labor unions generally, they aren’t what is keeping wages up for the vast majority of workers.
If I had to sum up what is protecting workers from abuse by employers (not only in a hypothetical libertarian utopia but also in the real world) my main answer would be: competition among employers. If I am worth a certain amount to an employer but am being paid less, then it will be to the advantage of that employers competitors to offer me more in order to capture the additional value that my work can deliver. So to keep me from leaving, my employer will have to pay me a wage close to the marginal productive value that I can provide to him as an employee.
Does this work perfectly in practice? No. But it does work surprisingly well, at least insofar as there is a free labor market. Here, for example, is a comparison of increases in productivity vs. compensation for the last 20 years or so:
Still, even we accept everything that I’ve said so far, the fact remains that there are still a lot of people in this country who don’t make a decent wage. Even if it’s true that their wages reflect their productivity or whatever, still, they are human beings, made in the image and likeness of God, and if competition among employers is not sufficient to secure low productivity workers a Living Wage, then it is not sufficient to protect those workers.
That, at any rate, is more or less the reaction that would expect Matt and others like him to have to what I have said so far. And you know what? I don’t disagree. Contrary to what has often been said or assumed about me on this blog, I am not doctrinaire in my support of libertarian policies. I am quite willing to have the government step in to correct the deficiencies of the market if I think that it would, on balance, actually do some good. If I tend to come down on the libertarian side of most questions it is not because I object on principle to government intervention in the economy, but that I insist that, before I support such an intervention, it be shown that the intervention actually will do good. Not sound good. Not intend good. Do good. And I think, for the reasons outlined above, that minimum wage legislation does not meet that standard.
Now happily, in the case under discussion I do think that government can do to help solve the problem, namely through a negative income tax (as a good individualist, I will ignore for the moment the possibility that the problem could be adequately addressed through some institution other than the State). In fact, the merits of a negative income tax vs. a minimum wage law from a Catholic point of view seem so compelling to me that it is hard for me to understand sometimes why there isn’t more interest in the idea. Perhaps it’s because by the time it comes up in my line of reasoning, people have already tuned me out. Perhaps the negative income tax just doesn’t have the sexiness (what I in another context called the conspicuous compassion value) of the minimum wage. Or perhaps there are compelling arguments against such an idea. All I can say is that if you ask me how in my libertarian utopia I would deal with the fact that the free market alone is not sufficient to guarantee decent wages to all people, then my answer is the negative income tax.
Comments are closed.
If competition were in a vacuum, then, yes, I’d say you’re right. Just like Adam Smith postulated that invisible hand. But as any informed critic of free market economics knows, a balance of competitors and even the presence of multiple competitors is rarely a concrete reality in a given locale. Simply put, the goal is not to compete in a market, but to dominate a market and trim the choices that consumers have.
Really, what I read in this post strikes me as utopian–the same error made by communism (i.e., just get the framework right and everyone benefits!). I think a more realistic and not purely theoretical analysis reveals that a strong juridical framework with imposed labor laws and wage regulation is necessary given the sinful condition of humanity (John Paul II mentions this in Centisimus Annus). Capitalism, in the end, makes the same error as communism: It dupes itself into thinking that humans are naturally good willed and will care for one another given the ideal environment.
Really, what I read in this post strikes me as utopian–the same error made by communism (i.e., just get the framework right and everyone benefits!). I think a more realistic and not purely theoretical analysis reveals that a strong juridical framework with imposed labor laws and wage regulation is necessary given the sinful condition of humanity (John Paul II mentions this in Centisimus Annus).
This response is basically a non sequitur. While certainly pure capitalism (unregulated private property) is deeply flawed, this post proposes no such thing. Instead, it provides economic data (not just “theoretical analysis”) suggesting that markets in any case do redound to the benefit of workers, and proposes a negative income tax (itself a departure from pure capitalism) as a means of addressing situations in which people are not adequately provided for by market mechanisms.
There is a reason that around 80% of economists support a negative income tax rather than the current economic arrangements: there are good reasons to think this approach would be better. I think Poli’s objection is far more ‘theoretical’ than anything in the post.
If “any informed critic of free market economics knows” that in most areas there is not more than one employer, than the knowledge of “any informed critic of free market economics” is to knowledge that anti-matter is to matter.
Not only are there multiple competing employers in most locales, but the advocates of “free market economics” are specifically advocating making it _easier_ for there to be more competing employers — whereas regulation advocates often end up helping to crowd out small employers in favor of large ones who have the legal staff to deal with regulatory obstacles.
Also, you have the evidence to explain away. If employment is usually a monopoly with no relation to skill and demand, why do productivity and real compensation correlate so closely?
as a good individualist, I will ignore for the moment the possibility that the problem could be adequately addressed through some institution other than the State
BA’s individualism and my belief in intermediary associations is a substantial difference, but I’ll respect his request to set that aside for moment.
With that, let me say that there is merit in much of what he says and wisdom he can offer to those of us who believe in the social market.
His weak point is an assumption that jobs are rigid and static in their nature, formation and structure, i.e.– Job “X” has a certain worth to therefore the employer must offer job “X” a wage equal to the job’s worth. This leaves aside questions of the organization of work. Maybe job “X” is only worth so much to an employer, but why should work not be organized in a better way, into true jobs (a means of living).
John Paul II, much more than in the social encyclicals of those before him, writes of the spirituality of work. How Man finds fulfillment and self-sufficiency in work; how in work Man cooperates with God as creator. The worker should find these things in work and the industrialist should organize work so it leads to these things.
Having a large portion of the workforce in drudgery, part time, sporadic, low pay, low security, jobs in unsafe workplaces and that crush the soul is not the vision of John Paul. Work that precludes solidarity, fraternity and pride in the craft.
Work can be organized in different ways. And industrialists must be given incentives to organize work in the proper way.
BA’s individualism and my belief in intermediary associations is a substantial difference, but I’ll respect his request to set that aside for moment.
To be clear, the line about being an individualist was a joke. If you follow the link, you’ll find a post by me arguing that while free market types are often accused of being radical individualists, it’s those advocating state action who often seem to forget the role intermediary institutions can play in dealing with social ills.
You’re right that there are wrinkles to what I’ve said that I didn’t go into in the post. Unfortunately time and space is limited, so I can’t cover everything as much as I would like. If I did, the post would be so long no one would read it (as it is it’s already too long, I think).
I would assume that under the competitive pressures Blackadder describes that employers would also be under pressure to change the nature of jobs as necessary in order to win the workers who would likely do the best work for them. It strikes me that in addressing the inherent dignity of work, John Paul II was discussing an instinct writ deep enough in the human person that most people desire it, and thus there is pressure in a competitive environment to provide it.
The problem with this analysis is that it has an “Econ 101″ flavor that many modern labor economist would find (to put it as politely as possible) un-nuanced. Much of the modern approach to wage formation sees wages related to bargaining power, which- ironically- is exactly how Leo XIII and Pius XI saw it.
Secnod, from a macroeocomic perspective, the “free labor market” does not guarantee full employment during periods of aggregate demand deficiency (eh, like now).
Third, the relevant metric is not so much average but median compensation (Bill Gates walks into a bar and average income goes through the roof, but nobody is better off). I’ll repeat something I wrote last year on this (which also takes Feldstein’s point into account that compensation includes a non-trivial amount of non-wage costs):
If you look the standard BLS measure of productivity of the non-farm business sector, you will discover that it rose by 80 percent between 1973-06. But, as pointed out by Dean Baker (2007), this tends to overstate the story for a number of reasons. What we need is a measure of “usable” productivity, or productivity that can be translated into higher wages and living standards. That means we must: (i) adjust for the fact that the non-farm business sector is not the whole economy, (ii) net out the portion of output that goes simply to depreciation, and (iii) adjust for the faster rise in consumer goods than investment goods. Doing all this, we arrive at a smaller increase of 47.9 percent. But even that overstates the amount available for wage increases as non-wage costs (largely rising payroll taxes and especially health care costs) rose rapidly. About 36 percent is left for wage increases.
In fact, real median household income (adjusted for inflation) rose by 16 percent over this period. That’s not much (less than half a percent a year), but that too is overstated. Much of the increase reflects the entry of women into the labor force, or from part-time to full-time employment. If you look just at the data for men, their real earnings in 2005 were slightly lower than in 1973. Think about that– the median male worker saw no improvement in his living standards in over 30 years. This of course has profound implications for the “living wage” in Catholic social teaching. And the news gets worse. The number for men is biased upwards by the fact that the workforce is older in 2005 than it was in 1973. If we look at earnings for men between 35-44, you will see something quite staggering: their predecessors in 1973 were 12 percent better off than they are today.
Middle class wage stagnation is very real.
From the Compendium:
“The relationship between labour and capital often shows traits of antagonism that take on new forms with the changing of social and economic contexts. In the past, the origin of the conflict between capital and labour was found above all “in the fact that the workers put their powers at the disposal of the entrepreneurs, and these, following the principle of maximum profit, tried to establish the lowest possible wages for the work done by the employees”. In our present day, this conflict shows aspects that are new and perhaps more disquieting: scientific and technological progress and the globalization of markets, of themselves a source of development and progress, expose workers to the risk of being exploited by the mechanisms of the economy and by the unrestrained quest for productivity.”
the relevant metric is not so much average but median compensation
If one wants to compare increases in median compensation to increases in median productivity, then one can do so. You, however, seem to want to compare median compensation to average productivity. Do that, and one shouldn’t be surprised if you find the two diverging, since nothing in the “Econ 101″ analysis you deride says otherwise.
In fact, real median household income (adjusted for inflation) rose by 16 percent over this period. That’s not much
On this point, let me quote Thomas Sowell:
The quote is from a review of Sowell’s book Economic Facts and Fallacies by the famed “radical economist” Herbert Gintis. Gintis says that people who give the household figure while ignoring the individual one are “slimebags.” Obviously I don’t think that term applies to MM, but the figure is highly misleading.
The other statistics MM cites on stagnation are misleading as well for various reasons. To cite just one, the percentage of foreign born individuals (mostly men) in the United States has roughly doubled since 1973, and a lot of those recent immigrants are in the lower half of the income distribution. That is going to tend to keep median wages low, not because it makes anyone worse off, but because you’re now counting a bunch of additional people at the bottom who aren’t being balanced by additional people at the top.
The problem with this analysis is that it has an “Econ 101″ flavor that many modern labor economist would find (to put it as politely as possible) un-nuanced.
Just as anyone who knows anything about “Calvinism” would find your many attempted references to the same.
Think about that– the median male worker saw no improvement in his living standards in over 30 years. This of course has profound implications for the “living wage” in Catholic social teaching.
Right, except you don’t seem willing to think about what those implications are. A “living wage” by definition assumes that the recipient is a father who is providing for his entire family. But if most women are working, there’s absolutely no reason to expect that every individual’s wage (both women and men) will support a family by itself. The more plausible outcome is that each individual’s wage would be HALF of a “living wage,” and hence the man’s and woman’s income put together would support a family. Otherwise you’d be assuming that families should generally earn twice as much money as would support a family, which is a very odd thing to put forth as a moral requirement.
Middle class wage stagnation is very real.
I don’t think anyone is disputing this. What does this have to do with the post? The argument of the post, as I understand it, is that a negative income tax is a better way to deal with low wages than minimum wage legislation. The middle class is well within the 95% of people who make above minimum wage….so, sure, real wages for the middle class have been stagnant or declining for 30 years; but that doesn’t mean that a negative income tax isn’t a better idea than minimum wage legislation.
So basically, you can agree that women belong in the workforce, or you can pine for a traditionalist society in which a “living wage” was possible, but you can’t do both.
Perhaps this is slinging too much mud at a modern sacred cow, but reading MM’s point I can’t help at least asking the question: Is it necessarily the case that Catholic Social Teaching requires that everyone’s real wages always be on the rise?
As I see it, the idea is basically that since the wealthiest and most productive members of society are making more than ever (to a great extent as a result of producing more than ever) that therefore it is only just that those in the middle and bottom of the income spectrum see the same percentage increases.
From an American point of view, that is certainly a very attractive idea because it’s so egalitarian. But I’m wondering if it’s necessarily so from the Catholic point of view. If we could, by some mechanism, assure that everyone had a basic living wage (perhaps via BA’s suggestion of a reverse income tax) would it matter at that point how much others were making?
Are justice and equality synonymous when it comes to wages?
Yes, to anyone who reads the New Testament, it seems very dubious to suggest that Christianity demands that everyone get richer and richer in perpetuity. We’re already all unimaginably rich compared to first-century peasants. At what point will none of us be able to enter the kingdom of heaven?
Yeah, well, obviously all of us like to get better off. I don’t think anyone like the idea of being “left behind” when others are making more. And so to the extent that I enjoy the fact that I make more than my father made, and so on back through the generations I want to see other people enjoy the same.
But at the same time, I want to be clear on whether we’re trying to make a claim that CST asserts that there _must_ be growth in individual income at all levels of society, or simply that we must assure living wages.
If it asserts the former, it’s contrary to everything in the New Testament. If it asserts the latter, it is an anachronism, unless you’re willing to bite the bullet and say that women shouldn’t work. It makes no sense to say that every family should have a two-family income (because each individual got a “living wage”), any more than it makes sense to say that Catholic morality demands that all children be above the median in school test scores. Not possible.
If you follow the link, you’ll find a post by me arguing that while free market types are often accused of being radical individualists, it’s those advocating state action who often seem to forget the role intermediary institutions can play in dealing with social ills.
BA —
Can you elaborate? After herself and the family, the Church’s CST seems to talk mostly of labor unions as the preeminent intermediary association. The President’s renewal of the Faith Based Initiative of the previous two administrations seems to affirm the role of the church. Conservatives seem to favor banks over credit unions and periodically issue denunciations of the PTA, AARP, Tenant Unions and community organizers who suggest that that if you are removing asbestos from the building manager’s office, it should be removed from the residential units as well. I just don’t see where this superior support for intermediary associations from the Right is coming from.
DarwinCatholic Says:
I would assume that under the competitive pressures Blackadder describes that employers would also be under pressure to change the nature of jobs as necessary in order to win the workers who would likely do the best work for them. It strikes me that in addressing the inherent dignity of work, John Paul II was discussing an instinct writ deep enough in the human person that most people desire it, and thus there is pressure in a competitive environment to provide it.
I think most who believe in the social market or Christian Democracy or American liberalism would be quick to admit that much of the goal achieved here happens because of a combination of personal morality and self-interest on the part of entrepreneurs. That is why even under some of our wildest plans, they are left the most significant role. The criticism is should they have the only role. Should not employees, consumers and the public also have a voice and a role, even if it be a lesser one?
You can argue that industrialist have no self-interest in exploiting workers, running a sweatshop, maintaining an unsafe workplace or chasing his secretary around the desk because, if so, his employees would go elsewhere.
Yet how do you explain that these things happen?
Just as anyone who knows anything about “Calvinism” would find your many attempted references to the same.
I assume you say the same about Cardinal George and Cardinal Laghi, both on record criticizing the Calvinist trends in American culture.
Sure, absolutely.
If one wants to compare increases in median compensation to increases in median productivity, then one can do so.
How do you calculate median productivity? From the national accounts, productivity is real output divided by number of workers OR real output divided by number of hours worked (the latter is better). You can disaggregate by sector etc but I’ve never seen this done for individuals. We can get a feel for it by “going micro” and doing it for different groups. But even this doesn’t really show much: even the groups that benefitted most skill-biased technical change such as engineers and computers scientist did not see their wages increase as much as might be expected by the big productivity shifts in the mid-1990s.
I defer to an excellent paper from a few years back by Robert Gordon and Ian Dew-Becker (http://ideas.repec.org/p/nbr/nberwo/11842.html). Bottom line:
“We show that over the entire period 1966-2001, as well as over 1997-2001, only the top 10 percent of the income distribution enjoyed a growth rate of real wage and salary income equal to or above the average rate of economy-wide productivity growth. Growth in median real wage and salary income barely grew at all while average wage and salary income kept pace with productivity growth, because half of the income gains went to the top 10 percent of the income distribution, leaving little left over for the bottom 90 percent.”
MM,
If you can’t calculate median productivity then you can’t calculate median productivity. This still won’t justify comparing an average of one thing (productivity) to a median of another (compensation) and acting as if this proves wages aren’t governed by productivity.
Blackadder; as I expected, you have not answered my question.
Let me restate it: Walmart workers (in my example) are, as a group, extremely vulnerable to exploitation by Walmart management, because there is a large imbalance of power between workers and management.
Negative income tax addresses income deficits and (indirectly) inequality, and the ability of workers to walk away from their job if they don’t like it addresses their power as individuals, but it does not address the imbalance of power collectively.
In a world of pure, Platonic forms, what you say makes some sense; in the real, actual world where anyone who cares to look will notice that workers (and others) are ruthlessly exploited by the powerful, you offer nothing to shore up the exploited against the exploiters.
Economic Royalists love a regime of libertarian market fundamentalism because it means no institution (whether it be unions or progressive, pro-labor goverment programs) will be strong enough to counter their aggrandizement of more and more wealth and power into their hands.
Nothing you have said here in any way addresses that imbalance of power. You seem to be avoiding that particular question entirely, in fact.
Matt,
If I failed to answer your question then I apologize. In my defense, I can only say that I may not have understood what you question was. In fact, I’m pretty sure that I still don’t understand it. In particular, I’m not sure I understand what you are getting at with your distinction between the balance of power individually between a worker and Wal-Mart and the imbalance of power collectively between all such workers and Wal-Mart.
Suppose we were to implement a negative income tax scheme as I have outlined above. This, you suggest, would lessen or eliminate the imbalance of power between each individual worker and Wal-Mart. Yet you also seem to think that this increase in the power of each Wal-Mart worker wouldn’t do anything to increase the power of Wal-Mart workers collectively. Why the increase in one wouldn’t mean an increase in the other, though, is something of a mystery to me. Perhaps you could elaborate?
Unless I’m missing something, it seems to me that if there was a negative income tax which (taking things to an extreme) guaranteed every person over 18 an income of 25k per year, then very few people would choose to work for less than $12.5/hr unless by doing so they either achieved significant personal fulfillment or gained experience that would allow them to benefit greatly in the future.
That would mean Wal-Mart would have to either pay their workers a lot more, or else provide them with a lot of job satisfaction, since otherwise the workers could just leave.
How would that not make them far more powerful in relation to Wal-Mart than they are now?