It’s officially announced: a growing number of full time workers in America can’t live on their wages. President Obama is making it a key piece of his legislation. Protests are being held nationwide by service workers. Voices on all sides agree that the condition of the working class is bad and getting worse. They also know what to do about it: raise the minimum wage. A public debate gets going about how much or how little this should be. What will be the effects? Ideologies from the expected quarters square off: conservative opponents say that raising the minimum wage will hinder the economy and that workers need more chances for business to make profits so that jobs will be created and this will raise wages. Liberals and unions say that raising the minimum wage will not harm the economy, but give it a much-needed boost. The left looks to Seattle’s enactment of a $15 minimum wage as an inspiring example for others to follow. But if the discussion only focuses on the amount, this ignores what the minimum wage is and what its purpose is. What does this tell us about working for wages? And what kind of an economy is this?
The economic law of the wage
A minimum wage is a public policy intervention in the labor market. A few extremists still say it’s a mistake, but there’s nothing new in the current debate. Its been part of capitalism for 100 years in most countries; in the US for at least 70. It has never ended poverty. In fact, poverty has increased.
The reason for the minimum wage is quite simple: if the labor market is left to determine the price of labor, the working class can’t survive. People work because they need money to live, but it turns out they can’t even live from work. Obviously, wages are not calculated according to what workers need.
Wages are paid by business; its interest is making a profit, and profit consists in the difference it can achieve between its costs and its prices. The wage is the decisive means for this. In two ways: a business wants to get as much work as possible for the money it pays and it wants to pay as little as possible. That means longer working hours, more work-loads, faster paces, and – especially today – “flexibility,” meaning that workers are basically available 24/7 to a company, whether they are at work or not, and their free time is a variable of the company’s needs.
For the companies, the money that it pays to workers – the livelihoods of working people – is an annoying cost of doing business. The less they have to pay in wages to get its services, the better it is for them. That’s why companies always pushes the wage down further and further whenever possible. It can’t be low enough as a component of their costs.
Since the employer buys the use of labor for only a certain period of time, it is the employee’s problem whether he or she can afford health care or education or keel over from overwork. The employer is completely free to ignore whether the employee can survive on the sum of money he pays. His only concern is that there is a sufficient supply on the labor market. This might sound like an exaggeration, but the whole debate about a “living wage” is based on the fact – and this is openly proclaimed by politicians – that tens of millions of people in the US are employed in low wage jobs which don’t support them or their families.
That’s why a minimum wage has to be guaranteed: the working class has to survive. The wage level is always questioned, but in the last instance it is regulated by the existence of the working class. The ideal for business might be to pay workers nothing at all, but the working class must be able to survive if it’s going to continue to work.
The Democrats, who have successfully been reducing the wage level for years, notice that a large part of the working class can’t support itself. They now seek a raise in the minimum wage. They say to business: “You are employing these people and they are still a burden on society, so you will have to pay more than the free market determines.” This is how the state puts some of the burden back on those who use labor, establishing a minimum wage that has to be paid for the use of the national labor force. It establishes both a floor on income and on the profitable use of labor.
The first reason for this policy is to maintain the working class. But the second reason is to ensure that the capitalist system can continue to make use of a functional working class. Nevertheless, the capitalist class itself is always divided about these policies. While many oppose it, some call for a raise in the minimum wage as a tool in their competition against others who can’t afford to pay for the increase by raising their prices. They calculate that if they take a small hit, someone else will take a bigger hit. But these are not the points of view taken by the state in managing the capitalist economy. The state has to take the national picture into account and sometimes goes against the wishes of its own capitalists to maintain the system.
The cynicism of public policy
Is the minimum wage a job killer or a boost to growth? In truth, nobody knows what the effect of raising the minimum wage will be on the overall economy. It may be good or it may not. Certainly, the economy will grow or it will shrink, but nobody will ever know whether it was because of a raise in the minimum wage or not. Statistics might point out an occasional association between a higher this or a lower that, but the tendency is in all directions. Statistical associations are always straw men for ideological arguments. Economists would rather play the role of forecasters than ask a simple question like: what kind of a relation is working for wages?
Liberals see the poverty of the poor as a national scandal and a burden on the state budget, so they say to the capitalist class: pay them so they can live. Some liberal policy makers prefer other methods for achieving the same thing, suggesting an increase in the earned income tax credit or government subsidies of wages in some sectors so that part of the wage is paid by the state so as not to put the burden on individual capitalists but on capital in general, as is done in parts of Europe. They come up with all these different ideas to show their good intentions and that they recognize the untenability of poverty, but there’s no thought of getting rid of poverty. Instead they ask: how do we make poverty functional?
What about the Republicans and small businesses who oppose raising the minimum wage? Their starting points and truths can’t be denied. It isn’t true that when a capitalist gives a dollar more to a worker he is richer for it. But Republicans take it one step further. They say: if capitalists suffer bad profits, then this is bad for the economy, then this is bad for the nation, and ultimately this is bad for the working class. Their lie is that the enrichment of the wealthy is really just a service to the workers.
In general, the wage has two contradictory sides and the different public policies take either one side or the other: raising the wage hurts those who use workers and it raises the standard of living of those who receive it. These are the two partial truths about the wage. It the livelihood of those who earn it and the tool of making a profit for those who pay it. The concern of policy makers is what’s best for the nation and its economy in its competition with other nations?
Their common concern is that if the economy is not flourishing, then nothing else matters. Its a condition of wage labor that capital has to have a use for it, and it is only useful for capital when it is profitable at a certain level. The question of working people and their poverty – whether they can get health care, educate and care for their kids, etc. etc – is always funneled into: is it better or worse for the nation?
Public policy always argues for the nation – not for a good life for the people who live in it. That’s why their question always ends with: how will we pay for this measure? Their concern is the impact on the state budget and, second, its effect on economic growth, the End All and Be All of this society. For workers, who are merely onlookers to this debate, it is noticeable how many interests have to be satisfied before they get a few more dollars. Evidently, securing a subsistence level for them is a potential threat to the growth of the wealth of the nation.
What’s so good about $15 hour?
Support for raising the minimum wage is still support for a minimum wage. Its cynical for anyone with a comfortable income to say: I would like to live in a society where people are making $15 an hour. Would they like to live on $15 an hour? It’s not a nice life. Certainly, a $15 an hour minimum wage is better in comparison to the present one. For that matter, a penny more is better if only because it’s more. This takes places within the limits of what the wage is. Asking what’s so good about working for the wealth of others is off the table.
Everybody knows the minimum wage can’t be $40 hour. That would be “unrealistic.” So why is it that only a shitty wage is on the table? The answer is clear: the poverty of the wage laborers is a necessary condition for the service they perform for profit. That’s also why there is no such thing as a maximum feasible profit. Nobody says that a 20% raise in profit will hurt the economy.
The cause of the poverty of the working class is not that the minimum wage is not high enough. Raising the minimum wage doesn’t aim to solve the real problem of working people, but the problem that the state budget and its managers have with the costs of maintaining poor people in their poverty. Its time to reframe the debate. Instead of asking whether the economy can afford them, its time to ask: can we afford this economic system?
Geoffrey McDonald edits Ruthless Criticism.