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The Living Wage: Lessons from the History of Economic Thought

Author(s):Stabile, Donald R.
Reviewer(s):Carden, Art

Published by EH.NET (July 2009)

Donald R. Stabile, The Living Wage: Lessons from the History of Economic Thought. Cheltenham, UK: Edward Elgar, 2008. viii + 163 pp. $100 (hardcover), ISBN: 978-1-84844-197-2.

Reviewed for EH.NET by Art Carden, Department of Economics and Business, Rhodes College.

Donald R. Stabile introduces his interesting and accessible treatment of the concept of the living wage in the history of economic thought by motivating it with an anecdote that will probably be familiar to many readers: students at his institution (St. Mary’s College) staged a protest advocating a “living wage? for college employees in the name of social justice. Nonetheless, he attempts to ?move the debate over the living wage away from a debate over the definition of ?social justice? towards a consideration of the economic issues involved in the debate? (p. vii). He explicitly lays aside questions of justice and explores why some of the great minds in the history of economic thought might (or might not) think that paying a living wage would be a good decision.

According to Stabile, many eighteenth and nineteenth century economists were among the social reformers who supported the idea of a living wage because they were, like Adam Smith, Plato, and Thomas Aquinas, ?partly motivated by an ideal of a moral economy? (p. 8) in which workers were paid a ?subsistence wage? or, in modern parlance, a living wage. Stabile argues throughout that the subsistence wage considered by the classical economists was not merely a wage sufficient to prevent death; ?decency? was an important part of the moral economy, as well.

Stabile leads us through self-contained discussions of how economists like Smith, Bentham, Mill, Marx, Marshall, Clark, Veblen, Ely, Schumpeter, Mises, Hayek, Seligman, and others addressed the social costs of low wages. He focuses his discussion of the case for government intervention on possible market failure. Three issues have lent credence to the idea of a living wage in the history of economic thought: ?the sustainability and capability of the labour force and the externality effect of not ensuring that sustainability and capability? (pp. 3-4).

As I read the ?sustainability? argument, an incomplete contracting environment and bargaining strength on the part of employers implies that workers can be exploited, overworked, and/or underpaid. What is privately optimal is not socially optimal, which suggests either a plausible case for intervention or an appeal to the employer?s virtue.

The ?capability? approach is more suspect: it concerns the worker?s ability to be a meaningful and active participant in the society in which he lives, which suggests that needs are relative and social obligations are moving targets. I defer to Paul Heyne and ask what this is but ?the sanctification of envy.? The knowledge problem and various public choice issues are also relevant. How do we know the standard? What are the costs of implementation? Stabile defines the capability approach in terms of an anthropomorphized ?Society? which ?has a number of objectives in mind for its human workers? who should be ?given something more than sufficient nutrition to survive? (p. 5). Given what? And by whom?

The third argument is that insufficient wages generate externalities. The externality argument is imprecise in some respects because the problem (for example) of a public health infrastructure burdened by underpaid workers is a result not of a market failure as classically defined but of the existence of redistributive institutions themselves (p. 7).

Some of these quibbles are secondary in light of Stabile?s larger goal, which is to ask questions about a living wage in terms of economics rather than social justice. From the very outset, Stabile sets an admirable goal for the text: ?In drawing out those lessons I want to avoid any suggestions that we should follow those lessons in the spirit of asking, ?What would Jesus do??? Ultimately, this is precisely what the idea of a ?living wage? demands: someone, somewhere must be blessed with sufficient knowledge, insight (and, I presume, sufficient communion with the Holy Spirit) to be able to divine the correct wage for a particular kind and class of labor and substitute his or her judgment for the impersonal result of the market process. This is discussed to some extent in pages on Mises (pp. 44-47) and Hayek (pp. 48-50), and he states eloquently that ?Mises would not have given [living wage advocates] any privileged standing as having the wisdom to supersede whatever results human choice created in the marketplace.? This is a point that deserves to be stressed in greater detail but that might have been outside the scope of the purely historical inquiry. These issues are alluded to, but a chapter in which they are spelled out and addressed completely would have been a very useful addition.

Too often, debates on living wages or minimum wage policy devolve into exchanges (or shouting matches) between economists on one side and enthusiasts for ?social justice? who are openly hostile to the economic way of thinking on the other. Stabile does us a valuable service by laying aside nebulous questions about justice and focusing on specific economic issues. In the process, he offers a compact, well-organized tour of the idea of a living wage in the history of economic thought. It is a book that deserves the attention of economists and scholars working on the history of ideas, as well as anyone contributing to debates over wage policy.

Art Carden is the author (with Charles Courtemanche and Jeremy Meiners) of a series of papers on Wal-Mart and an essay on Southern economic history for the Oxford Handbook of Southern Politics (in progress).

Subject(s):Labor and Employment History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII