The Moral & Economic Argument For A Living Minimum Wage
The Moral Justification
We have heard all the arguments for increasing the minimum wage to a certain level and all the arguments against increasing it any at all. There are even well-reasoned arguments for completely eliminating the minimum wage. But why should we even have a minimum wage?
Imagine for a moment one thousand people landing on an uninhabited island and then deciding that this is where they want to spend the rest of their lives. There is no government, no industry, just the land, and other natural resources.
How are they going to survive and organize their affairs? They have two options. Take a laissez-faire, every-man-for-himself approach — approach number 1; — or organize their society to give them the best standard of living without encroaching on the rights of each other — approach number 2.
Approach number 1 calls for each man growing his food for himself or his family, for being responsible for building a shelter for himself and his family, and taking care of his outcomes either by himself or seeking out others who are willing to help him.
This approach means he can at the very least provide for the basic needs of his family such as food, clothing and shelter through access to the natural resources of the land, which he naturally has a right to. His upside for a great living standard is not very high but at least he is able to provide for his basic necessities.
Approach number 2 calls for organization within the society, laws, governance. It leads to industry and specialization, rapid advancement. The upside for a higher living standard is extremely favorable.
However, from henceforth each person has given up the path of completely fending and providing for his own basic needs by accessing his own right to use of the natural resources for his rights as defined under the laws.
This is now the social compact, a social compact that promises a higher standard of living through proper governance, industry, and community.
For this compact to make sense to him economically and socially he must at the very least be able to provide for his basic needs as he was when there was no social compact.
The social compact was not formed so that he could be of service to it; the social compact was formed so that it could be of service to him, economically and socially.
This is the moral justification for a minimum wage, a minimum wage from which the individual is at the very least able to take care of his basic needs of food, shelter and clothing. That individual has completely bought into the notion that through a highly organized society he would be better off socially and economically than being in a society where although he would be able to provide for his basic needs by himself, his standard of living would be very low.
That is the promise of the social compact he is forced to enter in. The least this social compact should provide for him is what he has given up to enter into this compact.
Among his obligations under this social compact is the responsibility to equip himself properly to take advantage of the resources it provides to enhance his standard of living.
The social compact has created a market condition that now makes a job something that is subject to scarcity, something that now has to be competed for, rather than just something you choose to do unencumbered by competition from others.
Sure, one can still do so under the social compact, but that very social compact restricts rights to use of the natural resources to provide for oneself. No longer do we have free natural access to the land to cater to basic needs, we must now be prepared to give up resources, which we may or may not have, in exchange for that access.
A minimum wage that allows the individual to cater to his basic needs, therefore, cannot be about market forces as market forces had nothing to do with the decision to organize his society one way or another.
The decision was completely based on sociological considerations with prevailing market forces becoming a consequence of that decision, and in fact a beneficiary of that decision. One cannot then base the minimum wage on that beneficiary but on the rudiments of the social compact.
Any entity within this compact that benefits from having labor readily available to it is a primary beneficiary of the social compact. It is the social compact that has set up the requisite environment that has made labor readily available to it.
Free enterprise, therefore, is a substantial beneficiary with those benefits encapsulating the promise of a better life for everyone.
In exchange for this benefit, a free-enterprise entity at the very least has an obligation to provide to labor in exchange for his service a wage that allows him to have resources to provide for his basic needs — as he would have been most likely to do absent the social compact.
The social compact that promises a higher standard of living is morally obliged to offer a living wage to those who choose to offer their service in the form of labor to the marketplace that sustains it. To do any less is to make a mockery of the principles of the social compact and betray its promise.
The Economic Justification
An economic system is like a live organism; it breathes, it replicates itself, it depends on its own cells for its strength and energy; it has to be in balance to be at its optimum.
It is made up of cells composed of enterprise, human desires, human aspirations, inspiration, societal norms and morals. The strength and existence of these result in the strength of the overall economic system. A sense of fair-play in our society gives strength to our societal norms and morals.
Value and wealth generated by the economic system depend on the strength of its own cells. You cannot have strong value with weak desires. You cannot have strong desires with weak aspirations. You cannot have strong aspirations with weak inspirations. And you cannot have strong inspirations from weak societal norms and morals.
If your societal norms and morals don’t seem to ask much of you, you will be hardly inspired to give much.
The critical point at which tangible value is created within the society is where desires seek to be satisfied. Desires create demand and demand, in turn, provides momentum and opportunity for enterprise. The more demand is created the stronger the momentum and opportunity for enterprise and consequently, the stronger economic value will be.
When any of the cells that contribute to the economy is adversely affected the economy becomes weaker than it should be given its composition. The lack or diminishment of a sense of fair-play weakens the power of societal norms and morals.
When aspirations cannot be sufficiently addressed the economic system itself becomes weaker than it otherwise would be. Labor exchanged for tradable value in the form of wages has to be done within a system of fair-play. Fair-play cannot be determined solely by market forces as market forces is skewed by supply and demand and hardly takes into consideration the social compact above.
Adequate perception of fair-play cannot only be determined by the morals and values that we collectively embrace as a society, and even then as society changes that perception is also likely to change.
For example, slavery was not always seen as immoral, but an economic system that has a large part of its labor input built on slave labor is an economic system that is not only immoral but which performs at way below its optimal level.
There is, therefore, an economic price to pay for a lack of or diminished sense of fair-play in a society.
This is primarily because a whole slew of aspirations is being suppressed which in turn suppresses or even destroys demand which in turn slows the momentum and opportunity for enterprise.
Those that benefit from slave labor only benefit to the extent which that labor can reduce their costs. However, this is a cost to not only the individual who is not being compensated for his labor but a cost to society which cannot benefit from the aspirations and desires of that individual being fulfilled through the fair exchange of labor for tradable wages.
The demand that would have been created is not created and enterprise is curtailed because the opportunity to fulfill a demand is also curtailed or made non-existent.
Obviously, slavery is not only immoral but it also does harm to the economic system. So what would be a morally economic minimum wage? If you move a desirable minimum wage along a scale starting at a particular number, say $1.00 per hour, and ask yourself given the societal norms of fair play, is that amount fair, you will soon realize that your sense of fair play will provide an appropriate answer for you.
If it is not $1.00 then move it up by a factor of $1.00 until it fits with your sense of fair play and not necessarily with your understanding about market forces.
Every worker being paid minimum wage goes through this exercise of fair-play whether they know it or not. Their sense of fair play will determine to what extent they believe they are being remunerated properly. A widespread diminishment in a sense of fair-play is likely to lead to disenchantment and cannibalizing of aspirations.
Moreover, the difference between what is fair and what the actual remuneration is, in the short term represents a benefit to the employer in terms of reduced costs, but in the long term, it suppresses aspirations and all the economic consequences associated with that.
Of course, it would also be unfair to the employer to expect to pay more than what is a fair wage as this too would impact the ability of his business to function at its optimal level within the social compact it operates in.
A living minimum wage is not only morally fair, it is also an economic necessity if the economy is to function at its optimal level in order to deliver its share of the social compact that society expects of it.
The entity that benefits from paying what is less than a fair living wage, benefits not only at the expense from whom that fair wage is withheld but also at the expense of the health of the social compact that requires that aspirations are not deliberately curtailed.
Repeatedly failing to remunerate someone with what can be reasonably concluded to be a fair wage can only result in a dampening of aspirations and consequently desires and demand which result in some level of adverse economic activity.
There can be no question that a living minimum wage is as important to the health of the economic system as it is important to the health of the social compact. The only question that should arise is to what extent this minimum wage would differ across geographic regions that may have different economic realities.
