Controversy is arising around the world on how to deal with the widespread problem of the bitterly low wages being paid to the unskilled workforce. This is compounded by the sky-high pay being awarded to those at the top and the increasingly large differential between those at the top and the bottom; by the mounting replacement of workers with robots; and by the ideological opposition of corporations and neo-classical economists to any state interference in determining pay.
When The Economist dares to write that “weak wages dent Britain’s economy,” you know that there’s trouble. Indeed this staunchly pro-capitalist weekly admits that “productivity gains no longer translate into broad increases in pay.”1 Cleaners, mechanics, bar and hotel staff and most others in the service sector have done particularly poorly in this recession. One has not heard much empathy for their plight from political leaders. Contrast this with the outspoken pronouncement by President Franklin D. Roosevelt 80 years ago: “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.”2 The world sorely misses such outspoken leadership today.
Although exactly what constitutes a “living wage” continued to remains unspecified, both Britain and the United States have taken painfully small and slow steps to rectify the problem. In October the National Minimum Wage rose by 12 pence to £6.31 ($10) per hour in the UK. A fifth of Britain’s 25 million workers are paid less than the £7.65 ($ 12.50) proposed by the Labour Party leader, Ed Miliband. For the close to a million workers who earn just £6.31 per hour this would represent an increase for the low-paid of £2,500 ($4,000) per year. In the United States President Obama has proposed increasing the minimum wage from $7.25 to $9 and then indexing this to inflation, but Republican opposition to this has been powerful.
In theory what happens when wages go up should be simple, but some studies have found that higher minimum wages increase unemployment. On the other hand different studies show that companies might save money from a rise in pay because there is less employee turnover as a consequence. The direct results of minimum wage legislation are clearly mixed. New studies have found that companies tend to raise their prices in response: for example, fast food restaurants pass along their extra cost to customers. And then there is also the “ripple effect” in which all those enjoying higher wages will also have their rates of pay increased. I find the balance of the arguments between those who tend to favor minimum wage laws and those opposing to be astonishingly close.
Even those in favor say “it encourages efficiency and automation” (and thus lowers employment!) and “increases technological development” (increasing the numbers of those already earning higher wages!). Those who argue against it contend that it can result in the exclusion of certain ethnic and gender groups from the labor force, that it hurts small businesses more than big business, results in jobs moving to other areas or “overseas,” and makes it harder for young workers entering the market to be recruited. Those against also argue that such rises in minimum wages are more damaging to business than other alternatives.
Most of the big corporations now have the choice of whether to employ people or invest in machines. Most large employers prefer to buy an automated answering system to hiring receptionists. As a result many of the low skilled jobs that used to be the first rung on the employment ladder are being priced out by higher wages.
A number of economists and political commentators propose that alternatives like a basic income or a guaranteed minimum income are superior ways of addressing the issue of poverty because these would not reduce employment, would distribute the costs more widely, and would benefit a broader population of wage earners. A basic income would provide each citizen with sufficient money or credits to sustain them.3 Such proposals usually stipulate a willingness to seek work or to perform community services.
The extraordinary excesses of pay to those at the top also has produced social and political concern. The Swiss have just rejected a referendum which would have restricted the pay of top earners to 12 times the wages of the lowest workers. In Spain the Social Democrat opposition have also adopted the 12:1 ratio as part of their economic platform. And in France, the increasingly unpopular Francois Holland is pushing for a cap on pay at state owned firms to 20:l.
Capitalism, as it has developed over the past two centuries, has never been based on differentials or on fairness. It has been based on profit. This has worked in so far as to provide work to billions of people and in getting masses out of a feudal agricultural base. Now, however, this economic system is being increasingly challenged by the political system in which it operates. Workers competing with machines and robots are losing out to capital. The low pay and lack of job prospects are now being taken more seriously by the popularly elected representatives. When one percent at the top in the United States earn more than two thirds of those on the bottom, serious confrontations seem inevitable. Consequently a “Living Wage” for all is going to be a prime issue in deciding our future direction.
As a member of the human race, I find it offensive that top executives feel free to oppose minimal increases to the pay of the lowest earners of the population but refuse to confront the inequality of the ever larger payments they give to themselves. A more balanced approach to this glaring economic differential is essential. When any small group in society, whether it be oligarchs, bankers, or robber barons, accumulates excessive wealth at the expense of the majority, the time is historically ripe for a correction. That time is now approaching.
1“Labour pains,” The Economist, November 2, 2013, p.73
2June 16, 1933. FDR went on to explain that “By business I mean the whole of commerce as well as the whole of industry, by workers I mean all workers — the white collar class as well as the men in overalls, and by living wages I mean more than a mere subsistence level — I mean the wages of decent living.” It took five years and a hard battle through the US Supreme Court to get a constitutionally accepted minimum wage law enacted. The Fair Labor Standards Act set 25 cents an hour as the national minimum wage!
3Seeee: Yorick Blumenfeld, “The Brave New World of Credits” in Dollars or Democracy, (2004) pp.139-151