Thursday, December 2, 2010

A Living Wage

Another bone of contention between libertarians and welfare liberals is the idea that all workers "ought to" be paid a "living wage." What might that entail?

Beginning with Plato but mostly with Aristotle, philosophers have acknowledged two different kinds of principles: formal principles and material principles. Untangling confusion between these two different kinds of principles accounts for about 2500 years of the history of philosophy. Aristotle distinguished between the formal principle of justice ("Treat equals equally and unequals unequally") and the various material principles of justice (merit, need, equality, social utility). Everyone agrees that the formal principle captures the essence of what we mean when we say "X is fair" or "X is unfair." The formal principle captures the "idea" of justice. The material principles of justice are basically the principles that human beings living in the "material world" employ to decide how the formal principle applies to the distribution of social goods. Thus, when we say "X is fair" we "really" mean that it's fair based on one (or more) of the material principles. So, if you own a corporation and want to pay your workers "fairly," you will have to specify a material principle.

Suppose you decide that you decide that you want to pay your workers a "fair wage," how would you proceed? Well, the formal principle says that morality requires adhering to the formal principle and at least one specific material principle. Aristotle thought social goods "ought to be" distributed based on "merit." In a fair society, "the best get the most," regardless of need, equality, or utility. Egalitarians would pay everyone the same salary, regardless of merit, need, or utility. Welfare liberals would base salaries on need, and would ignore merit, equality, and utility. So suppose we decided that every corporation in the United States must pay their employees based on "need," or what welfare liberals might call a "living wage," what might that entail?

Well generally, a living wage entails paying your workers enough to meet their basic needs, which requires a material distinction between needs and wants. Needs are often associated with "a positive right to life," which implies a duty to provide a wages sufficient to cover things like: food, clothing, and shelter. In the United States today we'd probably include a right to health care, retirement, disability insurance, and unemployment insurance. But let's forget all that for now, and just focus on food, clothing, shelter, and maybe transportation. Let's tackle a hypothetical case study.

White Widget Inc. employs 10 workers. Ron want's to provide all of them at least a "living wage." He just now hired George, who has sole custody of five children. How would Ron set that initial pay scale. Well, he'd be morally required to provide enough wages to feed his family. How would Ron calculate how much George needs to feed his family? Should he go to Kroger and figure out how much it would cost to provide meals a week? Let's assume, that Ron wants George's family to be healthy so he decides to pay him enough for him to buy a daily portion of chicken or fish, fruits, vegetables, and whole grains. Let's say it costs $3 per meal x 3, or $9 per day per family member, or $54 a week per family member, x 6 family members or $324 a week.
For the sake of argument, let's assume that George's family already has enough clothes. What about shelter? If Ron want's to pay enough for shelter, how much would that entail? Should Ron pay enough to rent a house or buy a house? Should every member have their own room? Let's say Ron is generous and pays enough for George to rent a six bedroom house for $250 a week. Now, unfortunately that house is 10 miles from the widget factory, so George will need transportation. Let's say that the house is on the bus route and the ride costs $2 a day x 5 or $10 a week. So right now that living wage stands at $584 a week or about $14 an hour. But wait...three of George's kids are under 5 years old and need day-care. But George lucked out and found a neighbor that would watch his this kids for $40 a week, a real bargain. So Ron decides to pay George $13 an hour to sweep the floors at White Widget Inc.

Now George goes to Kroger and spends $500 on frozen pizza, ice cream, Coca Cola, chips, Hostess Twinkies. Then he goes out and buys a new Toyota Camry for $25,000 so he doesn't have to ride the bus, and decides to send his two older children to a private school for $10, 000 a year each. And of course, George also starts buying $100 worth of lottery tickets a week. Now George can't pay his rent.

So if Ron wants to pay George a "living wage," how much a week should Ron pay George? Mary, a much more productive worker, also gets paid a "living wage" but lives within her means. Should Ron pay George more, less, or the same wages as Mary?


me said...

All this subjectivity is irrelevant. Supply and demand determines market wages. An employer may wish to pay more to hire more productive workers, but paying more just for the sake of paying more is not prudent. If Ron’s Company pays $10 an hour for labor, and Charles’ Company pays $1 and hour and both companies are able to attract a sufficient supply of workers, Ron’s company will be short lived.

Michelle Cates said...

Minimum wage was originally designed so we are not working for a $1 a day like in some third-world countries. A livable wage would be much more difficult. Then lifestyle would be a larger part of the equation. For example I buy groceries for 6 people per week and only spend approx. $120 for three meals per day.