A Measure of Fairness

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Robert Pollin, Mark Brenner, Jeannette Wicks-Lim, and Stephanie Luce. A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States. Ithaca: Cornell University Press, 2008.

Having looked at a book about the history of the living wage, I turn now to the modern economic debate over efforts to raise wages. Most of this book reports research on the costs and benefits of state and municipal wage legislation. In general, the authors find these laws effective in modestly raising incomes for the low-wage workers they are intended to benefit. They also impose some costs, but those are generally small and widely diffused among many people, such as consumers who have to pay slightly more in prices.

The most common argument against legislated wage increases is that they may hurt the very workers they are trying to help, since some employers may employ fewer workers, relocate their businesses, or spend less money on other things that benefit workers. I will discuss the authors’ research on such issues in a later post.

First, however, I’d like to address a more philosophical issue on which advocates and opponents of living-wage laws often disagree. The argument over wages is not just an economic argument in the narrow sense; it is also a moral debate. The title of Chapter 2, “The Economic Logic and Moral Imperative of Living Wages,” makes that clear. So does this passage from the UN’s Universal Declaration of Human Rights (expressed in the gendered language of the 1940s): “Everyone who works has the right to a just and favorable remuneration ensuring for himself or his family an existence worthy of human dignity and supplemented, if necessary, by other means of social protection.” In discussing Glickman’s history of the living-wage movement in the previous post, I quoted his statement that “religious reformers were the first group outside of the labor movement to call for a living wage, beginning with Pope Leo XIII’s encyclical of 1891.”

Some of the opposition to living-wage proposals is based on resistance to the idea that moral considerations can be brought to bear on economic behavior. Chapter 3 includes a reprint of Paul Krugman’s critique of an earlier book by Robert Pollin and Stephanie Luce, The Living Wage: Building a Fair Economy. For Krugman, the very fact that Pollin and Luce have a moral preference for higher wages over government handouts makes their entire argument suspect.

The problem for Krugman is that markets are “absolutely and relentlessly amoral. Labor, in a market system, is just another commodity; the wage a man or woman can command has nothing to do with how much he or she needs to make to support a family or to feel part of the broader society.” Krugman sees three possible responses to this amorality of markets: (1) a pro-market conservative response that fails to see any moral problem here, since whatever the market does is just, (2) an anti-market “socialist” response that tries to “do away with the market’s determination of incomes,” in favor of some more just alternative, or (3) “after-market intervention: Let the markets rip, but then use progressive taxes and redistributive transfers to make the end result fairer.”

Krugman supports choice #3 as the “standard economist’s solution, which is also the main way the U.S. welfare state operates.” It accepts the amorality of the market and confines moral responses to the political sphere. The living-wage movement, on the other hand, is a form of choice #2, which can’t work because it tries to bring morality into an inherently amoral sphere of behavior. So he concludes:

In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price–determined by supply and demand–the same as the price of apples or coal. And it is for that reason, rather than the practical details, that the broader political movement of which the demand for a living wage is the leading edge is ultimately doomed to failure: For the amorality of the market economy is part of its essence, and cannot be legislated away.

In his response to Krugman, Pollin is troubled by the implications of such a sweeping argument. If living-wage legislation is “doomed to failure” because it tries to counter market forces, then wouldn’t the same objection apply to any effort to regulate wages and working conditions, even laws against child labor and slave labor? If markets are absolutely amoral, then how can “letting the markets rip” always be good social policy?

In essence, Krugman’s position seems to me to come down to three propositions:

  1. Powerful market forces determine wages
  2. Efforts to counteract those forces as they are operating are doomed to failure
  3. Only after-market policy measures can be effective

I wonder if scientists working in any other discipline besides economics would accept this logic. If we were talking about forces of nature, such as the weather or harmful bacteria, would we agree not to counteract such forces as they are operating? Well, we don’t have much control over the weather, so we do often resort to “after-weather” measures to undo whatever damage is done. We “let it snow, let it snow, let it snow” (the meteorological equivalent of letting the market rip), and then clean up the mess afterwards, just as Krugman wants to do with incomes through progressive taxation). But where we have gained a measure of control over natural forces, such as diseases, we do try to counteract harmful forces as they are operating, with timely treatment and even preventive measures like vaccination.

Isn’t this true in the economy as well? Supply and demand considerations may lead a pharmaceutical company to market an unsafe drug, but the FDA tries to intervene before the damage is done. The market may reward a company for dumping toxic waste, but society can act to prevent that damage rather than accepting the cost of “after-market” cleanup. And regarding wages, if widespread prejudice has lowered the price of female and minority labor, civil rights legislation can work against that by mandating equal pay for equal work. Economists can study the effects of legislation, but they should not declare entire categories of law a waste of time just because they promote some moral good like health or justice.

Why treat market forces as uniquely powerful and unstoppable, even more powerful than forces of nature? After all, the capitalist economy from which those forces emanate is a modern human creation. Market forces are really aggregations of human decisions that are subject to moral and legal influences. Society allows economic actors to pursue their self-interest up to a point, but also makes some rules to keep selfish behavior from getting out of hand. As a financial advisor, I was subject to a whole set of legal and ethical rules involving matters like respecting client confidentiality, disclosing conflicts of interest, and recommending only investments in the client’s best interest. Economic behavior is not, by definition, amoral behavior.

Of course, some people in powerful economic positions would like to be free to pursue profit without regard to ethical or legal constraints. That’s not a surprise, but what is more puzzling is why economists would want to encourage such an attitude. One reason may be that exaggerating the power of amoral market forces serves to place the field of economics itself in a uniquely powerful and privileged position in society. Other authorities such as political or religious leaders may try to tell us what we should do, but economists are the only ones who can tell us what we must do. Only they understand the amoral forces that rule our lives, and resistance is futile.

Economists have a lot to tell us about the probable consequences of economic actions and policies. If raising the minimum wage is likely to increase unemployment, as Krugman and many other economists believe, the advocates of higher wages need to address that concern (and this book does). But I think economists go too far when they try to settle policy debates by invoking a doctrine of moral fatalism, encouraging people to feel morally impotent in the face of economic forces.

Continued

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