Why businesses should reject subsidies and embrace the living wage campaign

Marx* has a what we might now describe as a very cynical analysis of the wages for labour. In Capital: A Critique of Political Economy, Vol. 1, Part 1, Chapter 6, The Buying and Selling of Labour Power (link goes to the Liberty Fund library), he writes:

Therefore the labour-time requisite for the production of labour-power reduces itself to that necessary for the production of those means of subsistence; in other words, the value of labour-power is the value of the means of subsistence necessary for the maintenance of the labourer.

If the owner of labour-power works to-day, to-morrow he must again be able to repeat the same process in the same conditions as regards health and strength. His means of subsistence must therefore be sufficient to maintain him in his normal state as a labouring individual. His natural wants, such as food, clothing, fuel, and housing, vary according to the climatic and other physical conditions of his country.

The minimum limit of the value of labour-power is determined by the value of the commodities, without the daily supply of which the labourer cannot renew his vital energy, consequently by the value of those means of subsistence that are physically indispensable.

Simply, the minimum amount that ought to be paid to workers, is the minimum amount they need to survival. Businesses need to pay this amount, because otherwise, the worker will not be able to come back the next day and work again. She or he won’t come back, because they simply won’t have the physical strength to do so.

Think about this in the context of New Zealand. The minimum wage here is $13.50 an hour. However, the minimum wage that a worker needs in order to be able to live has been identified: it’s $18.40 an hour. That’s the amount that a worker needs to be paid in order to be able to function.

And businesses here just don’t pay it.

So how on earth do they manage to get workers to turn up for work again the next day?

They stick their hands out, and ask for a subsidy. The government pays the subsidy, through tax credits to workers, such as the Working for Families tax credits. That’s what turns a minimum wage job, paid at $13.50 an hour, into a subsistence level job. The current government might like to say that Working for Families is assistance for the low paid, but in reality, it’s a subsidy for employers. It enables businesses to pay low wages, to pay less than the cost of labour.

Businesses and other employers who aren’t prepared to pay a living wage need to recognise that what they are doing instead is accepting a subsidy from government to prop up their enterprises.

Think about that next time we hear the party of business wailing about all those wretched beneficiaries.

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For the record, I support paying benefits and tax credits, because I think that a good society works to ensure that everyone has a chance, that everyone has the resources to participate in the society. At a most basic level, I want to see children fed, and I am not interested in engaging in esoteric debates about responsible and irresponsible parents. That’s a good debate to have, but for goodness sake, feed the children first.

However, businesses ought to recognise that what they are doing when they pay a minimum wage is accepting a subsidy from government.

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When I lectured in political theory, I introduced my students to Marx. And to Locke and Hobbes and Mill and Adam Smith and Machiavelli and Wollstonecraft. Marx is part of the canon. But because so many people are scared of Marx (“The universities are full of Marxists!), I used to introduce him with a parable about a statue. Think of a statue in a darkened room. You have a torch, and you can shine a light on it from one angle, and then from another, and then another again. But you can never see the whole thing at once. Each beam of light reveals a different thing about the statue, and sometimes by shining a light from a new angle, you can see something completely different. Adopting a Marxist perspective can highlight particular issues, just as adopting a libertarian perspective can, or using a feminist perspective. You can make use of the framework, without necessarily buying into it.

For the record, I am a social democrat, not a Marxist, and whenever I do one of those political compass tests, I tend to come out as economically left, but a social libertarian. My latest scores were:
Economic Left/Right: -5.00
Social Libertarian/Authoritarian: -6.10
The negative number indicates a skew to the first descriptor in each pair.

13 thoughts on “Why businesses should reject subsidies and embrace the living wage campaign

  1. Giovanni

    “So how on earth do they manage to get workers to turn up for work again the next day?

    They stick their hands out, and ask for a subsidy. The government pays the subsidy, through tax credits to workers, such as the Working for Families tax credits. That’s what turns a minimum wage job, paid at $13.50 an hour, into a subsistence level job.”

    So, how on earth did they manage to get workers to turn up again for work the next day before the introduction of working for families? It’s not like the minimum wage was a living wage before 2004.

    Reply
    1. Deborah Post author

      Working for Families didn’t spring full grown from the brow of Zeus. There were various tax credits and social welfare transfers in place already.

  2. Giovanni

    “However, the minimum wage that a worker needs in order to be able to live has been identified: it’s $18.40 an hour. That’s the amount that a worker needs to be paid in order to be able to function.”

    That’s not quite right, at least not in Marxian terms. The living wage isn’t a subsistence wage, it’s “income level that enables people to live modestly while still contributing to society, rather than simply surviving” (from the article you cite). Besides, if you were right it would beg the question of how employers managed to get workers to turn up for work again the next day before the introduction of working for families, since the minimum wage wasn’t in line with the living wage before 2004.

    This is not to say that WFF isn’t a subsidy to employers – of course it is. But I think we need to be clear on what we mean by living wage.

    “Think about that next time we hear the party of business wailing about all those wretched beneficiaries.”

    That’s quite a separate issue, seeing as WFF recipients – much like superannuitants – are not regarded as beneficiaries.

    Reply
    1. Deborah Post author

      We also need to bear in mind, when talking about wages etc, that if we go down the ‘enough for subsistence’ route alone, then we end up with people getting paid more for doing exactly the same work because they happen to have children, or something like that. Some people do want to run that sort of line, but I don’t.

      What I prefer to do is realise that there are several determinants of wages, of which the need for workers to eat is one. Another is the market demand for workers: all other things being equal, if there are 20 applicants for an unskilled job, then the wage rate for that unskilled job will go down, and if there are 20 jobs for every skilled worker, then the wage rate for that job will go up – basic supply and demand. I think that in setting wages and minimum rates and the like, we need to recognise the influence of the market, but ameliorate by the need for a living wage.

      And in this particular case, what I want is employers to recognise that if they are not paying their employee enough for that employee to live on, then they are relying on government to top up those wages to a living level. And that is a subsidy to the business. The business might say that it can’t afford to pay higher wages, but that just suggests that the business is in fact, not viable.

  3. giovanni

    (Sorry, WordPress ate my first reply and then when I came back in to rewrite it I expanded it but lo! – when I managed to successfully log-in it also reinstated the original one. Feel free to delete it.)

    Reply
    1. giovanni

      Oh, ok, you since replied, so nevermind.

      “Working for Families didn’t spring full grown from the brow of Zeus. There were various tax credits and social welfare transfers in place already.”

      I had children in 2004 and can’t think of tax credits remotely equivalent to WFF back then. What were they?

    2. Deborah Post author

      Low income earners rebate. Rental assistance. The relevant transfers (for this post) are the ones which take a family from minimum wage to living wage, but a lot of the W4F transfers go to people who are above the living wage already.

  4. giovanni

    So are you saying that for people in that band (between minimum wage and living wage) WFF made no substantial difference? That would be quite an interesting piece of data.

    Reply
    1. Deborah Post author

      I don’t know off hand, and I’d need to go dig up the different rates and rebates and taxes etc. I think it may have made a difference but I don’t know. One of the key motivators behind the In Work tax credit (part of the W4F package) was to ensure that people in work had a higher household income than people on benefit. So a priori, W4F ought to have made a difference at low income levels. But I don’t have the data to hand…

  5. Malcolm

    But Giovanni – didn’t unemployment decrease after 2004? I think we got down to 3.8% unemployment rate following working for families, the in work payment and various other initiatives. That would tend to support the argument. Also, I don’t think the search for correct definitions of terms is helpful – that depends on the language consensus, which will always vary depending on who you talk to. Matters of fact! That’s what matters. Speaking of which …

    E L/R -1.12
    S L/A -6.41

    Based on my own views, I observe crowd around here are clearly raving lefties and also slightly authoritarian. :-)

    Reply

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