From Rerum Novarum to Dr. King

Pope Leo XIII’s Rerum Novarum [1] is generally recognized as the first social encyclical. Indeed, Pius XI referred to it as the “Magna Charta” of Catholic social teaching. [2] This being true, it follows that the teaching contained in that encyclical is primary and indispensable for any understanding or application of the social doctrine of the Catholic Church.

Yet the actual contents of the encyclical seem to come as a surprise to some. This is understandable given the media depictions of the Church in light of issues important in this age of prurience. It is less understandable, however, when those claiming an allegiance to Catholicism and Catholic doctrine resist its admonitions with might and main, and even appear to claim that the teachings of the encyclical and its progeny can be excised from the body of Catholic social teaching without damage to the entire fabric.

But Rerum Novarum lives on in spite of its detractors, and its continued relevance is testified to in the encyclicals of Popes since Leo XIII. That means that what is nowadays referred to as the living wage remains, according to Catholic teaching, as an obligation of employers, as well as governments, which have the duty to enforce conditions of justice within their jurisdictions.

Note that the word justice is used here rather than charity. A living wage is what a worker is entitled to, not a creature of beneficence. The teaching is plain. A worker who is not paid sufficiently to support himself and his family, with some left over for savings, is the victim of an injustice.

This flies in the face of the dominant paradigm, of course. A living wage could easily be calculated at double the current federal minimum wage, and there will be voices to decry such a plan, saying that there is no way that American businesses, particularly small businesses, will be able to sustain such an added cost. It will also be insisted that while a living wage would benefit those receiving it, a rise in unemployment would be the inevitable result.

From a completely disinterested standpoint it would have to be strange to hear someone argue that there is anything reasonable or fair in allowing the social condition where people work yet not make enough money from that work to live on. It really defeats the whole purpose of working for a living if there are people working for less than a living. It would have to be stranger still to hear such an argument coming from the lips of those who object to the existence of a social safety net.

But cool distance from the issue should not be expected from most, class war being a habit of mind for so many. Still others will tout the position they perceive is being taken by their side in the political divide. The human issue, the particular, concrete reality of workers and their families will be difficult to consider by many who are not directly affected.

So we must argue the obvious. What, then, do we say to those who say that businesses will be unable to bear the added expense of a living wage?

It will not be difficult to find a counterexample for businesses generally. Costco is a company that compensates its employees well, yet thrives. [3] It is not difficult to see why that would be so. Well compensated employees are more likely to be happy at their jobs and feel more invested in the enterprise. More, they are less likely to leave, diminishing the problems of productivity that come with high turnover.

Another example is historic. Henry Ford the first, though he had personal faults, was able to see clearly that his automotive company would benefit if his workers were paid sufficiently to purchase the product they were making. [4] The continued existence of Ford Motor Company is testimony to his foresight in this regard.

The Ford example highlights the plain as the nose on your face fact that the opponents of the living wage fail or refuse to see. Capitalism requires a market, and there will be a healthier market where people have money to spend. The U.S. economy has been in the doldrums because so many are so poorly paid that they can’t afford to buy much, which means that businesses can’t sell much. Companies might for the short term be able to cheat up stock prices through layoffs. But thereby is created a house of cards that will surely collapse as the number of potential customers dwindles. An economy where the prevailing business model is to drive wages as low as possible is simply not sustainable. It is sawing off the branch on which it sits.

Still there are the small businesses to consider. While one can take comfort that any inconvenience of a living wage to Wal-Mart is likely to be overstated, the circumstances of the small shops and party stores have to be taken into account.

While a blithe disregard of the difficulties small businesses might encounter with a living wage is not to be recommended, the value of such concerns dotting the landscape with impoverished workers should not be overstated. Creating oppressed labor really should not be considered a public service. For this reason, exempting small businesses from the living wage requirement should not be considered a viable solution.

Small business does not present an insoluble conundrum, however. It is always true that employees that cannot be afforded will not be hired. But this does not place a limit on the number of partnerships that can be developed. Instead of employees, a small business owner can take on partners who will share in the profits. Even those without money to invest can become partners. Labor is the original source of property, and labor has value sufficient to be considered an investment. This would involve a paradigm shift to be sure, but it would require no major social upheaval. And no injustice would befall the small business owner. Partnership shares would not have to be equal, and due account could be taken of the monetary investment and risk taken by the initial owner. The only prohibition will be against exploiting labor, and that no one has a right to do.

None of this will cause a rise in unemployment as will most certainly be suggested. First of all, we already know from empirical research that a rise in the minimum wage doesn’t cause it. [5] Secondly, unemployment arises from a stagnant economy, and where the purchasing power of the populace is markedly enhanced the economy will not stagnate. Profits will increase with the added purchasing power, and that should result in more job openings, not less.

Now it would be folly to try and guarantee that prices wouldn’t rise if businesses were required to pay a living wage. They might do so. But there is no inexorable causality to it. Prices are determined by markets, not costs. It may well be that some goods and services would not be able to maintain their current price if the companies selling them had to pay a living wage, but that would mean that the current price is the result of exploited labor and, therefore, immoral. We should be conscientious enough not to seek such illegitimate benefits. For those who are concerned that price hikes resulting from a living wage would eat up the social benefit of paying it, it has been shown that even if the added wage cost was completely passed through to the price, something that is by no means inevitable, the added price is likely to be minimal in proportion to the benefit. [6]

There is a school of thought that says that the deficiencies in wages would be better handled through government transfer payments. People of this ilk will advocate for something like a guaranteed minimum income or a negative income tax. This would certainly avoid the pressure on small proprietors placed on them by the living wage requirement. It would also have the benefit of helping larger families who might still struggle after the adoption of a living wage, since transfer payments could take account of family size in the amount to be distributed.

But such a plan would permanently entrench the Welfare State with its attendant difficulties. While such a plan would not require the immense bureaucracy the current welfare system does, the fraud that plagues the current system would continue unabated, and government spending in this area would remain as inefficient as it is now. What’s more, it would disincentivize companies to pay its lower level employees better, since the difference would be made up by the government, and, without a massive inspection apparatus, it would be difficult to tell if employers were truly incapable of paying more or were using their taxpayer subsidies for backyard swimming pools. Finally, such a system would make lower level employees permanent partial government dependents, something that would not likely help their dignity and self esteem, and would subject them to the social obloquy that such a status would afford. The goal is to reduce the need of the social safety net, not to create for it permanent beneficiaries.

There are voices to be heard that would argue for elevating workers to the status of owners through such things as stock ownership plans, profit sharing, or even workers’ cooperatives. Pius XI recommended such an approach, and it is something that most certainly should be encouraged and endorsed. 

But it cannot be a substitute for a living wage. While employee ownership plans can be encouraged, they cannot be safely mandated. Employers dragged into such a system against their wills will be incentivized to conceal the value of their businesses so as to share less with their employees, perhaps even illegitimately remove assets from the company. The enforcement problems could become immense, especially if there were to be criminal penalties at stake. Prosecutions of violations would involve burdensome audits. Probable cause for necessary search warrants would be difficult to come by because violations would be hard to detect. As far as workers’ cooperatives go, those clearly can only be voluntary, unless Stalinist measures to force workers into them are contemplated.

In sum, worker ownership is a worthy social goal, and should be encouraged in any manner that is feasible. But it can only be incentivized through such things as added tax deductions and credits. Mandating it promises to be an unsuccessful endeavor, unlike a living wage, the enforcement of which would be a fairly straightforward affair. What’s more, exploited labor should not be consigned to awaiting the development of a true worker-as-owner society for the relief of its plight. 

Because the Affordable Care Act contains perverse incentives for employers to reduce employee hours, it will be of concern as to whether a living wage will have a similar effect. But the living wage doesn’t present a similar problem because, unlike the case of providing health insurance, an employer cannot rid itself of the cost by reducing employee hours. If the employer reduces the hours of one employee it will have to hire another employee, at the same living wage rate, to achieve the same production it previously accomplished with one employee. The employer gains nothing by reducing employee hours.

More to the point is whether employers will reduce its number of employees, and have the remaining employees work overtime at time and a half. It is easy to see how an employer could calculate an advantage in having one employee do the work of two at one and a half times the living wage, rather than having two employees, each of which would have to be paid at the living wage rate. The result would be overwork for one worker and unemployment for the other.

To compensate for this it would be appropriate to amend the law to require overtime pay if 8 hours in a day were exceeded, rather than merely 40 hours in a week. A further useful reform would be to prohibit the practice of having an employee work more than five days in a row. It would also be appropriate to increase overtime pay to double the hourly rate. The intention of such measures would not be punitive, but to encourage the hiring of as many people as possible, all of them receiving a living wage, with the overall benefit to the economy that has already been mentioned.

The United States has just finished celebrating the 50th anniversary of the March on Washington. Its principle speaker, Dr. Martin Luther King, Jr., died in the midst of supporting a sanitation workers’ strike in Memphis. There he told the workers that their work was dignified, and that they were people of dignity. [7] Let us now strive toward the recognition of that dignity. Let us now decide as a society that everyone who works will make enough from that work to live on.

Jack Quirk