Basic compensation theory is that an employer must pay the wage necessary to get the staff needed to competently perform the work required. In other words, if you have a job and not enough qualified people are willing to take it, you’re not paying enough. Easy.
But there is another consideration having nothing to do with this theory. Are the wages sufficient for an employee to live? Most employers want their employees to be satisfied, if not happy, and to be able to enjoy at least the basic accoutrements of life. Whether happy employees are better or more productive is an open question.
It’s presumed they are, and studies suggest so even if there is significant doubt that the conclusions drawn are supported by the evidence, as opposed to other forces at work such as employers treating more productive employees better, thus making them happier about their jobs, which is misinterpreted as the cause of their productivity rather than the result. But I digress.
But what constitutes a living wage? As discussed when the push was on for a $15 minimum wage, this certainly beats a $7.25 minimum wage, but is it enough to live on? If not, what is? MIT economic geographer Amy Glasmeier created a calculator.
Her calculator generates a “living wage” based on the number of children and working adults in a household, as well as the cost of housing, child care, transportation, out-of-pocket health care costs, food and other typical expenses (such as cleaning products) representative of conditions in their communities. She told me recently that roughly 100,000 people visit her living wage calculator every month and that she receives regular questions from many employers large and small who use the tool to set wages.
She also receives dozens of frustrated emails each month from people across America saying they can’t afford to live on her estimate of a living wage. As Dr. Glasmeier readily acknowledges, her tool includes no provision for eating in a restaurant, buying gifts for loved ones, repaying school or credit card debt, saving for retirement or unexpected expenses or taking a vacation, however brief.
Obviously, there are significant individual variables that make it hard, if not impossible, to calculate any individual’s “living wage.” Some are obvious, such as how many kids and their ages, but then, should employers calculate their wages to address these objective variables? Should the employee with three kids be paid substantially more than an employee with no children for doing the same job?
And then there are the less obvious variable.
Dr. Glasmeier, to her credit, recently made some changes to her calculator. She added the cost of cellphone and broadband service, gathered more granular county data on child care costs and introduced a “civic engagement” category to support recreation, pets, museums, movies and reading material. Those may seem like minor tweaks, but they’re important progress, however partial.
Is it the employer’s responsibility to make sure every employee can not only get an iPhone (and what happens when the new iPhone comes out? Should they be limited to an old version so their friends make fun of them for being uncool?) but unlimited broadband? Or will 4 gigs be close enough for survival?
The progressive approach, going back to Teddy Roosevelt, is to consider paying a living wage a moral imperative. Of course, morality being as vague and malleable as it is, the needs Teddy spoke of and the demands of morality today are a bit different.
Around the same time, however, followers of a very different tradition were claiming that morality had no relevance to the question of wages. In 1926, one scholar called a “just” wage “a contradiction in terms.” By the 1980s, many economists had fully embraced this view, and a philosopher claimed the competitive market was a “morally free zone.”
But to exclude moral considerations from markets is itself a moral choice, even if the calculus is not always simple. Some employers with razor-thin margins might be unable to pay a living wage, and even Ryan argued that such businesses should not be obligated to do so during a rough patch. In the long run, however, Ryan held that part of being a successful business was paying a living wage. Those that did not should eventually go out of business.
In other words, if you want to start and maintain a business, the cost is not only the start-up expenses for the normal things like rent, utilities, cost of goods sold, but the cost of providing employees a living wage. Even if you can get oodles of people applying for a job at whatever wage you can afford to pay, and they’re fully qualified and competent, it’s not good enough. If it’s not a wage upon which they can “survive,” providing survival includes broadband, date night and a movie once a month, it’s morally inadequate. Either make it happen or your business deserves to fail. What employee doesn’t benefit from his employer closing the doors?
And while it is a common refrain that a living wage would force employers to hire fewer workers and thus destroy jobs, there are persuasive empirical and philosophical responses to this objection. The stagnation of real wages for American workers does not reflect their low productivity so much as the increasing concentration of wealth within companies. In 1965, the average top chief executive made 21 times as much as a typical worker in America. In 2020, the ratio was 351 to 1.
The optics of CEOs making millions is certainly unseemly, and arguably completely unnecessary as it’s not as if they can get a gig playing for the NBA if that CEO thing doesn’t work out. But does the guy who owns the corner hardware store bring home millions? Most businesses in America are small, and most business owners don’t make millions. And is the comparison between the earnings of business owners and employees valid in any event, as the former took the risks to make a business happen while the latter shows up, does a job and gets a guaranteed paycheck. If the business fails to turn a profit, it’s the owner who takes the hit.
It’s one thing to argue that businesses shouldn’t take advantage of starving workers and exploit their lack of options. But even a decent and moral business owner needs to figure out what the “right” wages should be to take care of his employees. What is the “right” amount to constitute “living”? What does it take in this society to treat an employee fairly?