Reflections on a Just Wage

A week ago Monday, in the United States and Canada, we celebrated Labor Day, a holiday established to remind us of “the strength and esprit de corps of the trade and labor organizations.” Before we are too far past the holiday, I wanted to respond to a post last month by the blogger Morning’s Minion at the Vox Nova blog on the living wage, or just wage, and its role in Catholic social teaching. My point is not so much to dispute his conclusions but to complement them with some further reflections on the just wage.

In his post, Morning Minion’s primary concern is to argue that providing a living wage is the moral obligation of the employer. This conclusion leads him to reject the idea that government-provided social benefits or an earned income tax credit could be considered contributions to a living wage. Drawing on the teaching of Pope Pius XI and contemporary writers Thomas Storck and John Medaille, Morning’s Minion claims that the employer’s obligation of paying a living wage is a matter of both commutative and distributive justice.

But in my reading, this seems to get the reasoning process in the documents of Catholic social teaching backward. Going back to Pope Leo XIII’s 1891 encyclical Rerum Novarum, we find the obligation to pay a just wage grounded in a person’s “natural right to procure what is required to live,” an articulation of what would later be called the universal destination of goods, the principle that all have the right to have their basic needs met from the shared bounty of the earth. But Leo concludes that the obligation to pay a just wage arises from the fact that “the poor can procure that [i.e., what is required to live] in no other way than by what they can earn through their work” (#44). In other words, Pope Leo’s insistence that the employer owes the worker a just wage is based on the historically contingent observation that the employer is the only plausible source for the worker’s livelihood. When Rerum Novarum was written, real government-provided social benefits were decades away; even in Bismarck’s early welfare state in Germany, social insurance schemes were mandated by the government but paid for by employers. Therefore Leo’s intention is not to exclude other sources of livelihood because the obligation to provide it belongs to the employer, but rather to insist that the employer has this obligation because there is no other source for providing it.

It is also worth pointing out Pope John Paul II’s important concept of the “indirect employer” in his 1981 encyclical Laborem Exercens. Whereas the “direct employer” is the employer as normally understood, the “indirect employer” refers to “many different factors, other than the direct employer, that exercise a determining influence on the shaping both of the work contract and, consequently, of just or unjust relationships in the field of human labor” (#16). John Paul further elaborates that “the concept of indirect employer includes both persons and institutions of various kinds, and also collective labor contracts and the principles of conduct which are laid down by these persons and institutions and which determine the whole socioeconomic system or are its result,” including the state (#17). John Paul’s point is that the government and other social institutions have a responsibility for creating economic conditions conducive to full employment and a legal and cultural framework in which the dignity of work is respected.

Morning’s Minion says much the same thing. But given that John Paul speaks of these institutions as in a sense an “employer” with responsibilities toward the worker (without denying the specific responsibilities of the “direct employer”), it is at least worth considering whether those responsibilities include contributing to the worker’s wage. John Paul certainly doesn’t draw this conclusion, but it seems like a potentially plausible development of the teaching. At the very least, it could help resolve one of the primary criticisms of the idea of a living wage as articulated in Catholic teaching: since the living wage is defined as sufficient remuneration to support the worker’s family, this means that an employer would be responsible for paying a married worker with four children substantially more than a single worker, which seems both unfair and also potentially risky for the worker with children, who must compete for employment with the much cheaper single worker. Instead, the employer could be responsible for paying a basic wage which is supplemented by government-provided family allowances to help provide for children.

Before going further, however, it is worth pointing out that there are other reasons within Catholic social teaching why the government should not be a substantial contributor to workers’ wages. In his 1931 encyclical Quadragesimo Anno, Pope Pius XI insists that contracts in which workers are allowed to participate in the ownership and management of the firm are superior to mere wage contracts (#65). Later social teaching would develop this notion even further, infusing with personalist values Pius’s emphasis on participation. From this perspective, the government provision of the equivalent of wages does not really overcome the proletarianization of the worker.

Pius’s proposal here illustrates how Catholic teaching insists that workers must be part of a true community of work, a belief that has further relevance for the issue of a just wage. As Morning’s Minion points out, the primary argument against a minimum wage is that mainstream economic theory suggests that a minimum wage will contribute to unemployment; increasing the cost of labor will lead employers to hire fewer workers, leading to fewer employment opportunities for low-skilled workers. The problem is that there is very little clear empirical evidence to back this up. One of the most interesting explanations of why theory does not match reality is that the theory presupposes an economy in which all actors have access to needed information, whereas in reality potential low-wage workers face significant costs in obtaining the information needed to maximize the market value of their labor, giving a significant advantage to employers. Therefore wages do not represent a market equilibrium, but rather a market failure to the advantage of the employer. A minimum wage could in fact potentially push wages up to their true market value.

This hypothesis is quite similar to a point raised by Pope Leo in Rerum Novarum. He criticizes the liberal doctrine that all that is required for a wage to be just is the free consent of the employer and the employee, noting that “If through necessity or fear of a worse evil the workman accept harder conditions because an employer or contractor will afford him no better, he is made the victim of force and injustice.” Here Leo notes the large discrepancy in power between employer and worker, making the transaction hardly fair. Although Leo does propose that the state can step in to ensure an adequate wage for workers, he suggests that the superior solution is for the wage to be negotiated by a labor union or other form of associational body (#45). Here Leo shrewdly recognizes that the power of numbers will give workers a more equal position in wage negotiations, leading to a more just outcome. Therefore the formation of a true community of work leads to both greater ownership of the firm and a more just wage.

The same point is raised in Quadragesimo Anno. Morning’s Minion rightly notes that Pius XI recognizes that an employer does not pay workers in a vacuum, and that economic conditions can make it impossible to pay a just wage. Pius insists that “social justice demands that changes be introduced as soon as possible whereby such a wage will be assured to every adult workingman” (#71). This statement, however, needs to be read in the context of the entire encyclical. Pius’s purpose in Quadragesimo Anno is to propose the “reconstruction of the social order,” and a cornerstone of his proposed social order is the creation of “corporations,” that is, associations composed of independent syndicates of workers and employers representing each field of industry. In his vision, it is these bodies that would set the wages for workers. Although Pius’s vision is a bit fanciful for today’s world, again we see the idea that the conditions for a just wage are a more communal, participatory workplace.

The minimum wage, defined as a government mandated rate of payment, is a liberal solution to a liberal problem; the government serves as a referee between two autonomous individuals, the employer and the worker. Catholic social teaching has always put a stronger emphasis on the role of associations, such as the family and labor unions, providing a real alternative to the ideologies of liberalism and state socialism, and Catholic teaching on the just wage provides an example of this.

As a Europhile, Morning’s Minion could appreciate that while nations such as France put in place minimum wages as part of their post-World War II economic settlement, countries as different as Catholic-influenced Germany and Italy and the more socialist-influenced Scandinavian nations do not even have legally mandated minimum wages. For the large majority of workers in these countries, minimum wages are established through negotiations between labor unions and industry representatives. The relative success of these policies demonstrates the value in Catholic teaching. In Germany, however, there has recently been a push for the implementation of a minimum wage law, but this is precisely because fewer workers than before are represented in these union agreements because they are entering the less-unionized service sectors and as a result of liberal labor market reforms in the last fifteen years or so.

Therefore, as our annual celebration of labor fades in the distance, we should consider efforts to link the legally-mandated minimum wage to a wage sufficient to meet basic human needs, but Catholic teaching suggests that we also need to pursue models of employment that provide meaningful participation in the management and ownership of businesses, both for its own sake and as a means of establishing a more just wage for workers.