October 17, 2014
By Oren M. Levin-Waldman
The standard minimum wage model that predicts that increases in the minimum wage will result in lower employment rests on the assumption that workers are nothing more than factors of production. As factors of production, they are simply inanimate objects that are easily interchangeable, either with other similar inanimate objects or more technologically advanced ones.
So even if an increase in the minimum wage were to result in a substitution of machinery for labor, it is still a substitution of one type of inanimate object for another.
That low wages may result in workers living in poverty cannot be a consideration because the value-free assumptions underpinning the model cannot see workers as people who really may have needs. But aside from the obvious subsistence needs that we all have, there is the issue of wages sufficient to develop capabilities. A minimum wage that enables workers to live above poverty is one that enables them to develop their capabilities.
Economist and philosopher Amartya Sen has argued that poverty deprives individuals of their capabilities. Poverty, he argues, should be viewed as a deprivation of basic capabilities rather than merely low income. When Sen talks about a capability, he means the alternative combinations of functioning that are feasible for a person. A capability, then, is a kind of freedom. Therefore, individual advantage needs to be addressed in terms of the capability that a person has, which he defines as the substantive freedom, i.e. the ability to make choices with regards to the type of life that person seeks to live.
A minimum wage that better enables workers to be autonomous also enables them to better develop their capabilities. But this would of course imply that workers are people with feelings rather than inanimate objects. For employers to view their workers as people with real needs rather than factors of production might just put a drag on efficiency, as that might bring emotion back into consideration.
It is much easier to terminate workers when they are simply inanimate objects and no consideration has to be given to their needs as human beings. It is also easier to be concerned with the profit motive when employers similarly don’t have to reflect that it comes at a cost to others. On the contrary, profits are the result of investments made, which in the case of labor are investments into the factors of production.
One can only wonder why we persist in viewing our workforce in these terms. On the one hand, it is no doubt easier when employers can be dispassionate as they marshal the factors of production necessary to achieve profits. On the other hand, however, it may be that employers really have no interest in policies that would enable workers to develop their capabilities because that would simply destroy the status quo in which they enjoy power and privilege.
By maintaining a wage structure that prevents workers from developing their capabilities, employers are also able to maintain the current power structure whereby employers have human agency and freedom and workers do not. In other words, low-wage workers who are unable to develop their capabilities have to know their place. And their place in the new global economy would appear to be the “new” industrial reserve army of labor.
Karl Marx referred to the requisite number of workers who had to be unemployed as the industrial reserve army of labor. Because they were unemployed they would serve to discipline those who were employed. The employed would behave out of fear that they would become members of the industrial reserve army if they did not. But the low-wage labor market might as well be viewed as the “new” industrial reserve army of labor because it serves the same function.
In all fairness to the standard model there is a version of the efficiency wage theory that holds employers will pay their workers a hire wage to reduce the workers’ likelihood of shirking. Because they are receiving a higher wage they are less likely to shirk for fear that they will be fired and then have to accept another job at a lower wage. Now that workers are less likely to shirk, their employers can save money on monitoring and surveillance. Follow the logic of this version of efficiency wage theory, the new industrial reserve army of labor is essential.
One company that pays its workers an efficiency wage because it believes its workers will be happier, healthier, and more productive is Costco. And yet, a recent Bloomberg editorial suggested that such an approach at Wal-Mart and other low-wage retailers would be a bad idea because efficiency in the long-term would only decline. That is, if everybody adopted the benefits of paying a higher wage, the benefits of paying more would disappear and the quality of customer care in places like Costco would similarly decline.
Still, this is a myopic way of looking at it. If the quality of customer care, which is generally low, were to rise to higher minimum standard, that would be an improvement for us all. Moreover, it wouldn’t preclude others from paying an even higher efficiency wage for even greater productivity. And in the process steps would be taken to further the development of workers’ capabilities.
The development of individual capabilities is not about being altruistic, but about enabling individuals to be autonomous, which itself is a prerequisite for the survival of democracy. When workers are deprived of their capabilities because they are effectively impoverished from low pay, democratic society ceases to become democratic, as exemplified by the types of policies that favor the interests of the very wealthy over the middle class and the poor.
In the end, we as a society have a choice to make. Do we want to be one where individuals have fully developed capabilities? Or do we want to be one where increasingly more find themselves among the ranks of the “new” industrial reserve army of labor?