A Measure of Fairness (part 2)

February 26, 2015

Previous | Next

In A Measure of Fairness, Pollin, Brenner, Wicks-Lim and Luce report their research on two kinds of wage laws: state minimum wage laws, and municipal laws that set a living wage higher than the federal and state minimums.

In 2007, Congress mandated that the federal minimum wage rise to $7.25 an hour by 2009. Twenty-nine states and the District of Columbia have raised their minimum wages higher than that; seven states and D.C. have a minimum of at least $9.00 (see map and data)

Municipal laws that set a wage higher than both the federal and state minimums are usually narrow in scope, applying only to businesses with municipal contracts. San Francisco and Santa Fe are two cities with broader living-wage laws.

The authors identify two different ways of defining a reasonable living wage, one focusing more on benefits and the other on costs:

First, what is a wage rate that is minimally adequate in various communities, in the sense that it enables workers earning that minimum wage and the family members depending on the income produced by this worker to lead lives that are at least minimally secure in a material sense? What wage rate, correspondingly, can allow for a minimally decent level of dignity for such workers and their families?
The second, equally legitimate, question…asks, How high can a minimum wage threshold be set before it creates excessive cost burdens for businesses, such that the “law of unintended consequences” becomes operative?

High on the list of unintended consequences would be job losses if businesses chose to lay off workers or leave a city or state rather than accept higher wage costs.

The authors also identify two ways of studying these issues: prospective research that tries to anticipate the consequences of proposed laws, and retrospective research assessing the actual consequences of existing laws. Except for the last section, the findings described below are from prospective studies.

Benefits to workers and families

Who benefits from wage laws? The answer might seem to be obvious, but some critics have questioned the need for such laws on the grounds that the lowest-wage workers are rarely major breadwinners, but are often younger workers whose wages will probably go up before long anyway. The authors find that the laws primarily benefit the people they are intended to benefit: low-income workers who are “well into their long-term employment trajectories,” with a high proportion of primary breadwinners and other major contributors to family income. In addition, the laws have important ripple effects, tending to raise the wages of workers who are already a little above the legal minimum. For example, the authors estimated that 20% of the people of Arizona would receive some income benefit from a proposed minimum-wage increase, including workers and members of their families.

Several of the research reports are from studies of a proposed city-wide minimum of $10.75 for Santa Monica. It was passed by the city council in 2001 but repealed by the voters in 2002. In order to evaluate its probable effect on incomes, the authors gave careful consideration to poverty thresholds and basic economic needs. First, they drew on research by the National Research Council on more realistic poverty thresholds than those established by the federal government. “The commission’s report…presented eight separate studies using different methodologies for coming up with alternative poverty measures. If we simply calculate the average of these eight alternative poverty lines, this average is 42 percent above the official poverty line.” Considering that the cost of living in the Los Angeles area is about 25% above the national average, they decided to use 160% of the federal poverty line as the poverty threshold for their research.

By that standard, a family consisting of one adult and two children would need an income over $21,475 to escape poverty, which corresponds to a full-time hourly wage of $10.32. A family with two adults and two children would need an income of $27,030, corresponding to a full-time hourly wage of $13.00 with only one adult employed. (All figures were in 1999 dollars, so would have to be somewhat higher today.)

The authors also drew on research by the California Budget Project, which constructed a “basic needs” budget for Los Angeles and other California regions. The CBP described this as “more than a ‘bare bones’ existence, yet covers only basic expenses, allowing little room for ‘extras’ such as college savings or vacations.” By that standard, a family with one adult and two children would need an income of $37,589, or a wage of $18.07 an hour. A family with two adults and two children would need a little less, $31,298, or a wage of $15.05, if one adult stayed home and provided child care. With both adults employed full-time, however, they would need $45,683 because of child care and other costs, but each job would only have to pay $10.98 an hour to generate that income.

To assess the impact of the proposed $10.75 hourly wage, the authors construct two very specific “prototypical family types.” The first is a three-person family whose primary breadwinner earns $8.00 an hour and contributes 70% of the family income. A raise to $10.75 increases the family income from $19,430 to $24,105, an increase of 24.1%. This takes the family from 10% below the adjusted Los Angeles poverty line to 12% above it. It also takes the family from 48% below the CBP “basic needs” budget to only 36% below it.

The second prototypical family is a four-person family with a low-wage worker earning $8.30 an hour and contributing 50% of the family income. A raise to $10.75 increases the family income from $29,880 to $34,290, an increase of 14.8%. (The other adult earner is not assumed to have an hourly rate low enough to be covered by the minimum-wage increase.) This takes the family from 12% above the adjusted Los Angeles poverty line to 29% above it. It also takes the family from 35% below the CBP “basic needs” budget to only 25% below it.

However, some of the increased income from higher wages would be offset by higher taxes and lost tax credits. (It wouldn’t be offset by loss of food stamps or medical benefits, since neither prototypical family was poor enough to qualify for those in the first place.) The authors calculate that the offsets amount to 40% of the income gains for the first family and 27% of the income gains for the second family.

Costs to business

Most legally mandated wage increases are not dramatic, and their impact is limited by the number of workers whose wages are already at or near the new minimum. Typical of the research reported here is the authors’ finding that a Santa Fe living-wage ordinance would increase average costs relative to business revenue by about 1%. The impact is often two or three times greater for businesses with more low-wage workers, especially in the food service and hotel industries.

Affected businesses can handle the added labor cost in many different ways. Perhaps the most obvious is to raise prices. Although that poses some risk of lost business, the damage is limited if the price increases are small, competitors are also raising their prices, consumers are interested in quality more than price, and possibly that consumers prefer to patronize businesses that treat their employees well, as some research indicates. In addition, some businesses, especially retail businesses operating in poor neighborhoods, may gain business because better-paid workers have more money to spend.

Another way that businesses absorb higher labor costs is through increased productivity. Higher wages tend to reduce turnover, which reduces the costs incurred in recruiting, selecting, hiring and training new workers. Based on their research in Santa Fe, the authors suggest that 40% of the cost of higher wages can be recovered in higher productivity.

Businesses can also absorb higher labor costs by redistributing income within the firm. This can be done in a rather subtle fashion, simply by letting low-wage workers have a larger share of productivity gains, while holding higher incomes steadier. Perhaps that is only fair, considering that the country has been doing the opposite for some time: “The fact that the minimum wage has been falling in inflation-adjusted collars while productivity has been rising means that profit opportunities have soared while low-wage workers have gotten nothing from the country’s productivity bounty.” If paying a higher wage forces a business to accept slightly lower profits, the damage to its competitive position is limited by the fact that its competitors may be facing the same problem.

Two more drastic responses to increased costs are to lay off workers or relocate to another city or state. The businesses most likely to relocate are those with a customer base that is not tied to a specific location, and with a substantial increase in labor costs. But many of the businesses that rely on low-income labor also have strong ties to a particular place, such as many restaurants and hotels.

The authors’ summary of their New Orleans research is typical of their conclusions:

Our results suggest that the New Orleans firms should be able to absorb most, if not all, of the increased costs of the proposed minimum wage ordinance through some combination of price and productivity increases or redistribution within the firm. This result flows most basically from the main finding of our survey research–that minimum wage cost increases will amount to about 0.9 percent of operating budgets for average firms in New Orleans and no more than 2.2 percent of operating budgets for the city’s restaurant industry, which is the industry with the highest cost increase.  This also suggests that the incentive for covered firms to lay off low-wage employees or relocate outside the New Orleans city limits should be correspondingly weak.

 Retrospective studies

In a few cases, the researchers were able to evaluate the effects of wage increases that had already been in effect for some time. Mark Brenner and Stephanie Luce studied the effects of wage ordinances in Boston, Hartford and New Haven covering businesses with city contracts. Critics had predicted that fewer companies would bid on city contracts, and the reduction in competition would result in higher costs for the city. In fact, there wasn’t much difference: The number of bidders went down in New Haven, but went up in Hartford and stayed the same in Boston. Businesses did not lay off workers, but adjusted to the higher wages mainly by accepting lower profit margins.

Brenner, Wicks-Lim and Pollin did a study comparing states with and without minimum-wage laws higher than the federal minimum. They found no adverse effects of higher minimum wages on employment.

Wicks-Lim and Pollin studied the effects of Santa Fe’s citywide minimum wage on job opportunities for low-wage workers. Aaron Yelowitz had reported that unemployment rose once other factors were statistically controlled. Wicks-Lim and Pollin found that employment actually held steady, but that the rate of unemployment was higher than expected only because more people came into the labor market looking for work. They came “precisely because there were more jobs and better jobs in Santa Fe than elsewhere.” Pollin also reminds us that the United States used to have a higher minimum wage (in inflation-adjusted dollars) in the 1960s than it has today, with no apparent damage to employment or productivity.

In general, this book supports the conclusion that raising wages for low-income workers brings at least modest benefits to workers, while imposing modest costs on employers and consumers. For workers, the benefits are partly offset by higher taxes and reduced benefits for the poor. For employers, the costs are partly offset by price increases, higher productivity, and redistribution of compensation among different levels of workers. Living-wage initiatives are one effective way of addressing extreme income inequality and poverty. They are not a cure-all, however, and other measures like progressive taxation and direct public assistance remain important as well.

Leave a Comment » | Uncategorized | Tagged: , , , | Permalink
Posted by Ed Steffes

A Measure of Fairness

February 25, 2015

Previous | Next

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

Leave a Comment » | Uncategorized | Tagged: , | Permalink
Posted by Ed Steffes

A Living Wage (Glickman, part 2)

February 11, 2015

Previous | Next

The previous post discussed how Lawrence Glickman links the demand for a living wage to the historical transformation of the US economy. As independently owned and managed farms and businesses became less common, American workers had to rethink their hostility to working for wages. Increasingly they pinned their hopes for freedom and independence on better wages instead of on control over their own labor. The labor movement called for a high American standard of consumption supported by a living wage, at least for white males.

An idea whose time had come

By the end of the nineteenth century, this idea was gaining support beyond the labor movement itself. “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.” The Pope declared it a “dictate of nature more imperious and more ancient than any bargain between man and man.” In 1906, the Catholic priest and social activist John Ryan, published A Living Wage, which also made a distinction between prevailing market wages and ethical wages based on natural moral law. Prevailing wages were partly determined by the relative power of capital and labor, so were unlikely to reflect the true value of workers or their work. [On a personal note, my father told me that when he studied economics at a Catholic college in the 1930s, his ethics professor argued for the moral responsibility of employers to pay a living wage.]

States began passing minimum-wage laws in 1912, and the platform of the Democratic Party began calling for a federal minimum wage in 1916. From organized labor’s point of view, the minimum wage was exactly that, only the lowest point on the “spectrum of conceivable living wages,” but it was a start.

Opposition to higher wages was still intense in the early 1900s. The opposing arguments were partly economic, based on the idea that the wage set by the market represented the real value of labor. But this easily became a moral argument: since the worker’s labor was only worth what the market said it was worth, any demand for more was an immoral attempt to get something for nothing. Another argument was that any interference with the labor market violated the principle of freedom of contracts. A market wage represented an agreement between two free parties, but a legally mandated minimum deprived employers of their right to bargain freely with workers. It was this last argument that most impressed the Supreme Court when it declared minimum-wage laws unconstitutional in 1923. [It probably didn’t occur to justices to worry about whether the individual worker really had much freedom to bargain with a powerful employer.]

By the 1930s, support for a living wage became stronger, as economists, politicians and the general public came to associate low wages with economic depression. President Roosevelt stated it bluntly in 1938: “We suffer primarily from a failure of consumer demand because of lack of buying power.” With the productive capacity of the nation expanding, not to raise wages made it impossible for workers to buy enough goods to keep the factories humming and the labor force employed.

I don’t recall Glickman telling this part of the story, but the Supreme Court reversed itself in 1937 and upheld a state minimum-wage law. Interestingly, this happened because a certain Justice named Roberts departed from his usual practice of voting with the four most conservatives justices (perhaps setting a precedent for the Affordable Care Act!). This decision marked the end of an era in which the Court had generally resisted government efforts to regulate industry.

In 1938, Congress passed the Fair Labor Standards Act, which set a national minimum wage and a standard work week of forty hours beyond which overtime must be paid. Perhaps just as important, although not discussed by Glickman, the National Labor Relations Act of 1935 gave workers the right to organize and bargain collectively. A combination of union organizing and government support helped millions of workers achieve a higher standard of living and move into the middle class.

An idea whose time has gone?

Because Glickman is concerned primarily with the rise of the living wage as an idea, he ends his story in the early twentieth century with its partial implementation. He does not address the question of why the struggle for higher wages became so much harder in the latter part of the century, or why the very term “living wage” went out of fashion. I’ll just mention a few of the many developments that impeded or even reversed the progress that workers had been making:

  1. Runaway inflation not only eroded the buying power of wages, but it also reduced popular support for wage increases, since high wages could be blamed for inflation.
  2. Globalization undermined the argument for a distinctly “American standard” of wages. Employers could justify low wages in order to keep their companies globally competitive, or replace well-paid US workers with lower-paid foreign workers.
  3. New technologies reduced the demand for unskilled labor and the market price of that labor.
  4. Globalization and automation led to job losses in the highly unionized manufacturing sector, while employment in the less unionized service sector expanded. The decline of unions reduced the workers’ political clout too, since the labor-friendly Democratic Party had relied heavily on unions for its grass-roots organizing.
  5. The decline of the patriarchal, male-breadwinner family undermined the argument for a “family wage.” In theory, wages could be lower if families were accustomed to relying on multiple earners, but households with only one earner lost ground.
  6. The struggle for higher wages focused increasingly on racial minorities and women, who had been largely excluded from high wages in the past. Many white males felt threatened, however, and became more interested in holding on to what they had than advancing the cause of labor in general. They abandoned their traditional Democratic allegiance and voted Republican in large numbers, especially in the South, helping insure that public policy would tilt toward business and away from labor. The labor movement eventually paid a price for once thinking of the living wage as only a white man’s wage.

A new interest?

The recent attention focused on economic inequality suggests that the issue of just wages may once again move center stage. At the low end of the income scale, increases in the minimum wage have failed to keep up with inflation. In today’s dollars, the original minimum of about $4 an hour increased to over $10 in the 1960s before falling back to $7.25 since then. Meanwhile, incomes in the middle have largely stagnated while incomes at the top have increased dramatically (especially after-tax incomes because of large tax cuts for the wealthy).

Thomas Piketty observes that in the US recently, “income from labor is about as unequally distributed as has ever been observed anywhere,” with the top tenth of workers receiving 35% of the total and bottom half of workers only 25%. Income from investments is even more uneven, since the share of wealth controlled by the richest tenth has risen to over 70% in recent decades. The distribution of total income is a combination of the distributions of both labor income and investment income. The share of total income going to the top tenth fluctuated in the range of 30-35% between 1950 and 1980, but has gone up to 45-50% since 2000. So 15% of the national income has been transferred to the top tenth from everybody else. (See my discussion of Piketty’s Capital in the Twenty-First Century, especially part 3.)

In our new Gilded Age, with the rich living in increasing luxury while so many others can barely scrape by at all, the stage may be set for a new national discussion of a living wage.

Leave a Comment » | Uncategorized | Tagged: , , , | Permalink
Posted by Ed Steffes

A Living Wage (Glickman)

February 9, 2015

Previous | Next

Lawrence B. Glickman. A Living Wage: American Workers and the Making of Consumer Society. Ithaca: Cornell University Press, 1997.

This week, I turn to an older book than I usually discuss because I want to provide some background on the current debate over just wages. The struggle for higher wages goes back a long way, of course. Labor leaders started talking about the “living wage” in the 1870s, and the concept was widely discussed during the Progressive Era. The country’s first minimum wage law was passed in Massachusetts in 1912.

Lawrence Glickman links the concept of the living wage to the great economic transformation of the United States, involving both the ascendancy of industrial wage labor and the acceptance of mass consumption as an economic counterpart of industrial production. Both of these developments forced Americans to confront the question of the adequacy of wages.

“Wage slavery”

Before the Civil War, the very idea of wage labor was a contested notion. Children worked for wages, and so did young adults unless and until they acquired enough property to have their own trade, shop or farm. But the ideal American was generally thought to be an independent producer of some kind. Even as wage labor was becoming more common by the mid-1800s, “nineteenth-century workers deemed it acceptable only as a temporary step on the way to self-employment.”

The popular concepts of liberty and self-government were commonly applied to individuals as well as the nation as a whole, and they included the idea of being in control of one’s own labor. Selling one’s labor to an employer meant losing one’s liberty and being reduced to a mere commodity. “Some workers considered wage slavery more dehumanizing than chattel slavery because employers, unlike slaveholders, did not have to provide even basic subsistence.”

Critics of “wage slavery” often compared it to prostitution, blurring the distinction between the “wages of sin” and the “sin of wages.” On one level this was a powerful metaphor, comparing two activities that involved selling one’s body. But it could also be a powerful narrative, the story of how low wages drove women into the most immoral of economic transactions. The living wage could refer to either of two solutions: a female wage high enough to remove any need for prostitution, or a male wage high enough to support an entire family and so eliminate any need for a women to make money.

These two views of prostitution–as a metaphor for all wage labor or a narrative about low wages–correspond to two different views of the wage labor problem. The more radical critique was that wage labor by its very nature robs the workers of their freedom as well as of some portion of the value of their labor. The more moderate critique was that wage labor was acceptable if wages were high enough to support families. As industrialization proceeded and the US became predominantly a nation of wage-earners, the second view came to prevail. The term “wage slave” faded into the background, and the term “living wage” came to the forefront. A newer conception of liberty, the freedom to live well through consumption, superseded the older notion of freedom through independent production.

Conceptions of the living wage

In 1898, American Federation of Labor president Samuel Gompers defined the living wage as “sufficient to maintain an average-sized family in a manner consistent with whatever the contemporary local civilization recognizes as indispensable to physical and mental health, or as required by the rational self-respect of human beings.”

From the beginning, the living wage was a vague and controversial idea. Many economists maintained that wages were determined by impersonal economic forces in accordance with scientific laws. They regarded assertions that wages should be higher than they already were as at best irrelevant and at worst a threat to the natural order of things. Others acknowledged that wages had a moral dimension, but supported only a “fair wage” based exclusively on the value of what workers produced, not on what they needed to consume.

Even advocates of living wages had trouble agreeing on what standard of consumption to apply. Was it enough to meet the subsistence needs of the worker, or should it allow for support of a family? Was it a fixed standard based on unchanging needs, or should it expand along with the nation’s productive capacity?

Most labor leaders came to define the living wage rather broadly to include family needs and gradually rising living standards. “Fundamental to the concept of the living wage for most proponents was the belief that needs were ever expanding, that wages should grow correspondingly, and that the limitless capacity of production made continual growth possible.” Labor theorist Ira Steward developed a concept of “productive consumption” that linked rising consumption with the general well-being of society. He opposed the old producerist morality that saw frugality as a virtue and spending as a vice, regarding it as an excuse to underpay workers. While he condemned spending on certain “human follies and vices” like drinking and gambling, he regarded more “civilized” forms of spending as good for families, good for the economy, and good for society.

The idea of the living wage became closely associated with an “American standard” of consumption. As one advocate put it, “The American laborer should not be expected to live like the Irish tenant farmer or the Russian serf. His earning ought to be sufficient to enable him to live as a respectable American citizen.” By insisting on good wages, American workers could claim their fair share of rising productivity, support families, and sustain the growing economy through their buying power.

The living wage and the “American standard” became entangled with issues of race, nationality and gender. To put it simply, it was often seen as the proper wage for a white man. Such a good wage might be wasted on Chinese or African-American workers, whose lower standards were said to make them both more accepting of lower wages and unable to use more money constructively. Instead of making common cause with the most disadvantaged classes of workers, white workers tried to set themselves above and apart from them. “The ‘caucasions’, Samuel Gompers bluntly wrote in 1905, ‘are not going to let their standard of living be destroyed by negroes, Chinamen, Japs, or any others.'”

The living wage was also entangled with a patriarchal conception of family in which the man was the sole breadwinner. His wage was the one that needed to be high enough to support a spouse and children. Should a woman need to support herself, she only needed the bare minimum to survive and avoid prostitution. That meant that the modern conception of freedom and independence based on well-paid labor was primarily for male breadwinners. Only the most radical elements of the labor movement questioned women’s continued dependence on men.

Glickman summarizes, “In adjusting to the wage labor economy, organized workers used the idea of the American standard of living not only to reclaim economic and political rights that they feared they were losing in the new economy but also to exclude other groups from its benefits.”

After emerging in the labor movement of the nineteenth century, the idea of the living wage gained much broader support in the twentieth, although not without continued opposition as well. That will be the subject of my next post.

Continued

 

Leave a Comment » | Uncategorized | Tagged: , , | Permalink
Posted by Ed Steffes

Environmental Debt (part 2)

January 23, 2015

Previous | Next

Amy Larkin argues that by failing to factor in the future environmental costs of present economic activity, businesses are incurring debts that will have to be paid by someone. Externalizing such costs from business to society at large, and even future generations, boosts profits and makes environmentally damaging practices seem more economical than they really are. Since environmentally friendly practices are often less profitable in the short run, how can a free-market economy embrace them?

Private initiatives

One hopeful sign is that some corporations and their accounting firms are beginning to see the need for more “integrated” accounting, which includes environmental costs in financial calculations. “In November 2011, Puma became the first multinational corporation to create an integrated report that converted environmental information and data into monetary terms. The company’s 2010 Environmental Profit & Loss statement (EP&L) quantifies and monetizes environmental impact and integrates it into the operational P&L.” The results were startling: Puma found that its earnings would have been 75 percent lower if it had been charged the full cost of its operations.

Integrated accounting is challenging. Ideally it would include the cost of a product from “cradle to grave,” including the cost of disposing of it safely. Puma only got as far as “cradle to gate” accounting, the costs incurred in getting products to market. The more costs are considered, the more production and consumption practices may need to change to reduce them.

Larkin provides many examples of companies that are looking beyond short-term profits and trying to develop more sustainable ways of operating. Tiffany’s has taken initiative to reform mining practices, where “irresponsible mines, large and small, caused serious problems with water pollution, dislocation of local people, cyanide and heavy metal pollution and human rights abuses.” One incentive for Tiffany’s was to disassociate such practices from the image of their jewelry, which is supposed to be about “celebration and pleasure and memorializing love.”

Walmart shocked the retail world in 2006 by launching its sustainability initiative, vowing to “be supplied 100 percent by renewable energy; to create zero waste; and to sell products that sustain people and the environment.” This has been controversial with the company’s own shareholders, some of whom accused the leadership of socialism. (What socialist idea will they come up with next–decent wages?)

Unilever is the world’s largest ice cream company and a leader in methods of refrigeration. They decided to phase out hydrofluorocarbons (HFCs, a major contributor to climate change) from their coolers because they anticipated future regulations. They didn’t want to “get caught in costly and difficult supply problems reacting to a new regulatory framework imposed upon us,” in the words of their Vice President of Sustainability. They also went a step further, setting up an advocacy office to push for new industry standards and stricter regulation.

This brings up the point that social problems require social solutions. If only one company incurs the short-term costs of change, it may put itself at a competitive disadvantage and be punished by the market. The goal has to be for environmentally friendly innovations to be adopted throughout an industry, either through cooperative agreements or new regulations, or both. Larkin herself was a keynote speaker at the Sustainable Refrigeration Summit of the Consumer Goods Forum, an organization representing 400 retailers and manufacturers. Shortly after, the CGF board approved a recommendation to phase out HFCs.

Public initiatives

Larkin also praises far-sighted government initiatives when they have occurred. She cites the substantial health and financial benefits that have come from the Clean Air Act of 1963. More recently, however, “government is actually proving less reliable than business these days when it comes to environmental protection.” She doesn’t get into the politics of it, but clearly one of our major political parties has become steadfast in its opposition to new environmental legislation. The White House solar panels are a clue: Jimmy Carter had them put in, and Ronald Reagan had them taken out.

One area in which Larkin sees a role for government is in building a new energy infrastructure, with a smart grid and new storage capacity technology. Because renewable energy will be less centralized, it is “more complicated to ramp up than building a new Hoover Dam or a big nuclear power plant. Decentralized energy means that many players, many financiers and many regulations must align before taking action.” Larkin says that building the new energy infrastructure will cost about as much as going to war with Iraq. (One wonders why it’s so much easier to get support for war than for a safer and more sustainable energy system.)

One state that has moved ahead on its own is California. The California Solar Initiative (CSI) provides free solar installations for building owners who will make a ten-year commitment to buying solar power. With an annual budget of $3 billion, CSI provides more energy than Duke Energy gets from a new coal plant with similar up-front cost. But the environmental cost is much greater for dirty coal than for clean solar. The refusal to make such social investments will cost society more in the long run.

The challenge

At the end of her book, Larkin describes our current dilemma very bluntly. “If coal and oil cost their true prices based on new financial rules, how will that melt down the economy? If coal and oil continue to be underpriced, how will that melt down the environment?”

Opposition to making businesses accountable for environmental costs is understandable, since doing so seems very threatening to our present economy. Consumer prices would go up; some businesses would fail; some workers would lose their jobs. But carrying on business-as-usual will cost us more in the long run. The solution is a transition to business practices that can succeed without imposing such heavy environmental costs. If we are willing to share the start-up costs, new industries can flourish. The solar and wind energy industries each employ more workers than the coal industry already.

[M]any phenomenal technologies and systems are just coming to market or in development for water and energy efficiency. They will be deployed rapidly and at full scale only when their competitors no longer receive a financial advantage by overusing and polluting these same natural resources with no financial penalty. That means that we, the public, might have to spend more in the short term to provide these first movers a strong market advantage.

Change is hard, and no doubt there will be winners and losers. But if we can make the transition, we should see a net gain in the health and prosperity of the nation.

Leave a Comment » | Uncategorized | Tagged: , | Permalink
Posted by Ed Steffes

« Previous Entries
Next Entries »