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Ethical Considerations of Government Provision of a Living Wage

by on June 27, 2013

This is a cross post from Mike Wright and it leads into a piece on minimum wage that I am currently working on for next week.

“The concept of a living wage is described by Adam Smith in the seminal economics text “The Wealth of Nations”1. References can also be found from the European Middle Ages, in the form of a “fair and decent wage”2, and it may find its ethical origins and relation to the State as early as 430 BCE, in the works of Mo Di, an ancient Chinese philosopher, and creator of “Mohism”2. More recently, it has found allusion in the “Humanist Manifesto I”2. Regardless of its historical origins, the living wage has been a hotly debated topic throughout the Modern Era, and much has been written on the social, economic, and ethical implications and imperatives which it entails.

The term “living wage,” conceptually speaking, refers to a standard of living, rather than a financial income, per se. A survey of literature on the subject3 suggests that a reasonable consensus definition would include either the provision of, or the means and access to acquire the basic necessities of modest living conditions4. Provision of basic “public goods”- such as national security/military protection, police and fire protection, hospitals, and basic infrastructure are assumed and external to our conception of a living wage. Some perspectives also include the capacity to accumulate savings at a modest rate, for the purposes of emergency preparedness and upward social mobility.

The common essence among virtually all perspectives on the matter seems to be that the living wage (or its equivalent standard of living) exists in the margin between poverty and luxury, touching neither. Viewed in this manner, it is not a stretch to infer that the living wage constitutes what might be commonly characterized as a (lower-) middle-class existence.

Some might call this “comfortable.” Leaving the particulars of an exact definition aside, the broad view suggests that the living wage represents a standard of living in which there is no economic struggle to survive, and in which the possibility exists for gradual improvement through frugality and wise decision-making.

Instead of struggling much to derive a specific set of quantitative criteria for the living wage, a more useful approach may be to consider the implied and explicit ethical standards set forth in the founding documents of the United States5, intersected by the powers provided in such documents for the satisfaction of those ethical standards, as well as a consideration of the reasons that some oppose it. Thus, both the matters of whether the Federal Government should provide a living wage, and whether it is constitutionally empowered- or even obligated- to do so, may be simultaneously considered, and contrasted with the ethical evaluations of its opposition.

The United States Declaration of Independence can be reasonably viewed as a mission statement, of sorts, for the nation (as well as a listing of grievances with the English Crown). Its Preamble states that “…all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” This clause lays out a particular national ethic, which, among other things, states that all men (in modernity, all people) are entitled to the right to life. While the Declaration establishes such a national ethic, it codifies nothing; it is merely a statement of principles, and no legal authorities or obligations derive from it.

The Fifth Amendment to the Constitution states that “No person shall be…deprived of life…without due process of law…” (sec. 3). This restriction on the Federal Government implies both a prohibition and an obligation. It represents a prohibition in that it forbids the government from actively killing Americans6 (absent proper court proceedings), and an obligation by compelling the government to prevent American deaths- that is, it cannot choose to let Americans die, even if by abstention from action.

In other words, the government cannot willingly allow Americans to die, and must take constitutionally legal actions to prevent such deaths.

While insufficiently robust to meet even the abstract standards of a living wage, this obligation serves as a foundation on which to construct the argument that the Federal Government should and must provide or ensure some basic standard of living to all Americans, at least enough that they do not die of starvation, lack of access to medical care, or exposure to the elements.

Beyond ensuring the survival of all Americans, the Constitution contains another clause which suggest the government may go further. Known as the “taxing and spending” clause, it reads as follows: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States” (Art. I, sec. 8). This clause empowers the Federal Government to tax and spend for the purpose (among other things) of “[providing] for the…general Welfare,” and thus grants permission- but does not impose an obligation- for the government to undertake such endeavors.

The Declaration’s mention of “the pursuit of Happiness” can be interpreted quite broadly. Even a rather minimalist or conservative interpretation would have to admit that living in conditions of squalor or poverty certainly impedes one’s ability to pursue happiness.

Happiness is not easily achieved when one cannot feed oneself, have shelter, treat illness or injury, or is lacking any of the other features commonly associated with a standard of living commensurate with a living wage.

The Declaration recognizes “the pursuit of Happiness” as an “unalienable right,” placing it firmly within the Founders’ conception of the national ethic.

While scrutiny of the text of both the Declaration of Independence and the Constitution yields no particular legal obligation on the Federal Government to provide or ensure a living wage (or something like it), evidence is present in those documents of an intended national ethic which does ethically oblige the government to do exactly that.

In the United States, nearly all of the social spending undertaken by the Federal Government relates implicitly to the notion and goal of a living wage. A few exceptions can be traced to a desire to create incentives for certain activities at all income levels (such as home ownership via the home mortgage interest tax deduction), but the vast majority is focused on providing access to “necessities” for those who exist on the margins of society- the poor, unemployed, infirm or disabled, young children, and the elderly. While rarely explicitly described as such, these programs are all attempts to bring marginalized Americans closer to a standard of living commensurate with a living wage.

Opponents of such social spending are essentially opponents of living wage policy. Their arguments find their origins in individualist philosophy, which holds that personal sovereignty is the fundamental basis for all ethical evaluations7. Any external interference- termed coercion- violates personal sovereignty, and is therefore categorically unethical7. To the individualist, then, all government action constitutes some sort of coercion, and therefore government itself is unethical7. This perspective acts as a sort of methodological naturalism, in that it exalts the presumed ethical purity of the “natural” state of a society and economy in which individuals operate exclusively for their own self-interest, without coercion. Individualism is flawed, however, as it lacks any ethical consideration of the outcomes produced by such a “natural” state. In this way, individualism constitutes a deontological philosophy, as opposed to a consequentialist perspective, which values outcomes.

According to individualist libertarian philosophy, taxation is inherently unethical, as it is enforced through the coercive use of the threat of violence (men with guns take you to prison if you don’t pay your taxes)7. The evaluation ends there; it makes no difference what was the purpose of the tax. To the individualist, there is no room for any trade-off between ethical cost and ethical benefit; if there is any ethical cost of the action at all, the action is prohibited, regardless of even the ethical cost of inaction. Thus, the individualist’s opposition to government social spending is rooted in the notion that such spending is funded by unethical and illegitimate taxation.

The superiority of consequentialist over deontological ethical analysis is found in the fact that consequentialism essentially includes deontology as a subset, in that it considers the outcomes (consequences) of both the ethical goal and the means used to achieve it, while deontology considers only the means, and therefore produces incomplete ethical evaluations. Deontology, by excluding considerations of outcomes, implicitly values the ethical implications of the means- that is, the “costs”- over those of the outcomes- the “benefits.” A proper assessment of any proposal or action requires a complete analysis of both cost and benefit, and deontology methodologically excludes half of such analysis, rendering itself rather useless when evaluating the “real,” or material effects of a proposed course of action, in favor of more abstract and sometimes absolutist concerns of personal sovereignty and “rational self-interest.”

In understanding the options available to government, Modern Money Theory, or “MMT”- a heterodox school of economics in the Keynesian tradition- paves the way. It combines a fundamental and universal accounting principle- double-entry bookkeeping (for every credit there is an equal debit)- and the basic observation that sovereign governments issue their own money, and from them constructs a robust theoretical framework which shows that unemployment is the result of a shortage of money in circulation, and that money-issuing governments can remedy the situation by deficit spending in an appropriate manner, all the way up to full employment8. Recognizing that sovereign governments issue money, MMT shows that, for those sovereign governments (in the US, the Federal Government exclusively), tax revenues do not fund expenditures8. In fact, government spending must logically occur before taxes are collected, in order that there is something there to be taxed in the first place8. This means that “monetarily sovereign” governments are not subject to any physical budget constraint, that their taxes do not fund their spending, and that unemployment is therefore ultimately a choice of public policy8.

Given that unemployment is a policy choice, allowing it to persist is unethical. Monetarily sovereign governments like the US Federal Government are morally obligated to ensure that their people have ready access to a living wage, and a government lacking a budget constraint is fully empowered to do just that. Further, since MMT shows that sovereign government spending is not (or need not be) funded by taxation, individualists may rest easy knowing that their illegitimately levied tax payments have nothing to do with social spending (even if their Congressperson insists that they do).

So, what policy options are available to a monetarily sovereign government seeking to ensure access to a living wage for all? MMT has advanced two policy proposals for this purpose: a Basic Income Guarantee (BIG), and a Job Guarantee (JG) program9. The BIG is very simple- the Federal Government pays every American a salary, in essence, commensurate with a living wage9. This certainly solves the problem of some people lacking access to a living wage, but it potentially produces problems with incentives, namely the possibility that far fewer people would willingly work and produce goods and services if their survival didn’t depend on it9. The current capitalist model features a built-in incentive to produce: work for wages. Wages without work sever this connection, and, applied universally, may result in gross underproduction and shortages of most or all goods and services. Such a system may in fact prove counterproductive, in that respect. An improvement upon the BIG would restore the link between work and income, and thus incorporate (or leave intact) that crucial incentive to produce.

The JG is precisely that improvement. The proposed program requires the Federal Government to offer a public service job to anyone and everyone in the country who is willing, able, and legally permitted to work, at a uniform (and regionally adjusted) base wage9. It would be a permanent program, growing in size during economic downturns, as workers are laid off from private employment and join the JG, and shrinking automatically during expansions, as people in the program find offers for higher wages in the growing private sector9. The JG wage would become the de facto minimum wage, as few workers would accept private offers lower than the guaranteed government wage, and it would also replace the current unemployment insurance program, converting government unemployment offices into employment offices9. By guaranteeing a job to anyone who wants one, the JG eliminates involuntary unemployment, and by setting a base wage with no limit on the size of the workforce, it also serves as a wage floor for virtually the entire private economy9. As long as the JG wage is set at a level commensurate with a living wage, nearly every facet of the private economy will adjust to provide living wages to all (or else risk losing their workforce to the JG)9. Presumably (and hopefully), the existing social programs which support those who are unable to work for noneconomic reasons (age, disability, etc) would see their budgets increased as necessary to effectively match the level of income provided under the JG.

How can the individualist object to implementation of the JG on ethical grounds, given that their tax dollars do not fund such expenditures? Arguments against setting the minimum wage commensurate with a living wage, which are based on the premise that doing so creates unemployment, become moot, as unemployment is eliminated by the guarantee of JG employment. Arguments against social spending based on the premise that taxation is unethical are equally moot, as taxation is not required to fund the JG. In fact, most proponents of the JG argue for macroeconomic reasons that it should be left entirely to “float on the deficit,” meaning that no taxes would be levied in connection with it anyway (which would only serve to perpetuate a myth, in the first place). What other objections might the individualist pose? The right to life is satisfied. No coercion is involved. The pursuit of happiness becomes possible for everyone and much easier for many. All the criteria for a universal living wage are satisfied, as long as the program wage is commensurate to it. Nobody’s hard-earned income is taxed to pay for it. No person goes hungry, or without shelter, or access to basic medical care. The JG would be an immensely effective tool for eliminating poverty, unemployment, and sub-living wage conditions for every American, and would do so without violating individualist ethical sensibilities.

Notes

1. Smith (N. pag.; Book 5, Chapter 2). Smith writes: “By necessaries I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without…Under necessaries therefore, I comprehend, not only those things which nature, but those things which the established rules of decency have rendered necessary to the lowest rank of people.”

2. Bragg; Fraser; Shelburne.

3. Anker; Brenner; “Living Wage Laws…”; “What is a Living Wage?”

4. Typically, the means and access to acquire housing, food, clothing, basic utilities (electricity; heating/air conditioning; clean, running water; indoor plumbing; and waste disposal), basic health care (emergency services, catastrophic care, preventative care, and general checkups), basic education (grade school or better), and transportation to the extent that it pertains to the other items. [see Note 3 for citations]

5. The constitutional analyses and interpretations presented are largely inspired by Joseph Story’s Commentaries on the Constitution of the United States (various chapters, 1833).

6. Here, the Constitutional clauses are assumed to pertain specifically to (all, as applicable) Americans, rather than to (all) people, which would include populations of other nations. For simplicity and to avoid a tangent into legal definitions, citizenship is not specifically addressed or differentiated from non-citizenship in the present analysis.

7. Mises 48; Rothbard 183. Mises writes: “The distinctive principle of Western social philosophy is individualism. It aims at the creation of a sphere in which the individual is free to think, to choose, and to act without being restrained by the interference of the social apparatus of coercion and oppression, the State” (48).

8. Wray; ibid; ibid (both books and the book excerpt cited in their entirety).

9. Cowling, et al; Watts.

Works Cited

Anker, Richard. “Estimating a Living Wage: a Methodological Review.” International La bour Office. International Labour Organization, 2011. Web. 20 June 2013.

Bragg, Raymond. “Humanist Manifesto I.” 1933. American Humanist Association, 2013. Web. 17 June 2013.

Brenner, Mark. “Defining and Measuring a Global Living Wage: Theoretical and Conceptual Issues.” Political Economy Research Institute. University of Massachusetts, Apr. 2002. Web. 18 June 2013.

Cowling, Sally, William Mitchell, and Martin Watts. “The Right to Work Versus the Right to Income.” Centre of Full Employment and Equity. University of Newcastle, July 2003. Web. 18 June 2013.

Fraser, Chris. “Mohism.” The Stanford Encyclopedia of Philosophy. Ed. Edward N. Zalta. Fall 2012 ed. Web. 21 June 2013.

Living Wage Laws: Answers to Frequently Asked Questions. AFL-CIO Department of Public Policy, 2000. Print.

Mises, Ludwig von. “Liberty & Property.” 1956. Ludwig von Mises Institute, 2009. Web. 17 June 2013.

Rothbard, Murray N. The Ethics of Liberty. 1982. New York: NY University Press, 1998. Ludwig von Mises Institute. Web. 22 June 2013.

Shelburne, Robert C. “The History and Theory of the Living Wage Concept.” Division of Foreign Economic Research. U.S. Department of Labor, Apr. 1999. Web. 17 June 2013.

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. 1776. Wikisource.org. Web. 20 June 2013.

Story, Joseph. Commentaries on the Constitution of the United States. 1833. Web. 18 June 2013.

U.S. Constitution.

U.S. Declaration of Independence.

Watts, Martin. “A System of Basic Income Versus the Job Guarantee: A Critical Assessment.” Centre of Full Employment and Equity. University of Newcastle, July 2001. Web. 18 June 2013.

“What is a Living Wage?” Living Wage NYC. Living Wage NYC, 2013. Web. 20 June 2013.

Wray, L. Randall. “Functional Finance and US Government Budget Surpluses in the New Millennium.” Reinventing Functional Finance: Transformational Growth And Full Em ployment. Ed. Edward J. Nell and Mathew Forstater. Northampton: Edward Elgar, 2005. 141-59. Print.

—. Modern Money Theory. New York: Palgrave Macmillan, 2012. Print.

—. Understanding Modern Money: The Key to Full Employment and Price Stability. Northampton: Edward Elgar, 1998. Print.

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