Minimum Wages and the Human Commodity

Writing in the midst of war and in the aftermath of the greatest economic crisis of the Twentieth Century, the historian Karl Polanyi commented provocatively that capitalism's most enduring consequence was to turn land and labor into commodities. Preindustrial societies had relied on markets for specific, limited purposes. Western Europe and the United States were becoming full-fledged "market societies." They surrendered the major contours of social life to the imperatives of supply and demand. Just how complete that surrender has become was inadvertently demonstrated when my home state of Maine recently increased its hourly minimum wage from $5.75 to $6.25. Dick Grotton, head of the Maine Restaurant Association, commented that "labor is a commodity" and that, as with all commodities, markets alone should set its price. With conservatives ascendant in Washington, many states must confront the issue of whether labor is more than just a commodity and if so how state governments can serve workers' needs.

Fortunately, Polanyi's lament was premature. The Depression itself and the Cold War checked for a time the seemingly providential march of unfettered capitalism. To limit the appeal of an authoritarian left, Western democracies pursued ameliorative strategies to tame markets. They enacted various forms of progressive taxation of income and inheritances, labor union protections, old-age pensions, unemployment compensation, vocational and higher education programs, and minimum wage standards.

No western democracy achieved the final marriage of equity and efficiency. In the US, divisions over race and gender, an overweening faith in markets, and a constitutional structure that worked against broad social policy left the US welfare state weaker than its European counterparts. Nonetheless, by the fifties, even the US had enacted broad social democratic programs that most Republicans dared not challenge. Remarkable gains were made not only in income but also in the quality of life. Free time and wage rates rose together. Economic growth in the 1945-1970 era outpaced the rates of the more staunchly market-oriented eras that preceded and succeeded it.

Locked into their new common sense market logic, conservatives paradoxically disregard not only US history but a plethora of empirical and cross-cultural evidence as well. Though some studies suggest job losses from minimum wage gains, other equally credible work argues that both net job levels can be retained even as low-wage workers increase their pay. When we remember that the minimum wage in 1968 was $8,50 in today's dollars with unemployment near all-time lows, it seems hard to argue that a wage floor necessarily destroys jobs.

There are good reasons--not merely moral but economic--to suggest that labor is more than just a commodity. Hiring a worker is not like buying a nail. Pay is not merely compensation to an input. It signals an attitude that itself can be easily replicated. Wages upon which one cannot even subsist bespeak a lack of respect all too easily matched by an absence of enthusiasm, initiative, and commitment.

Just as importantly, workers' incomes are not merely a cost to the business but a source of future consumption. Minimum wage increases can sometimes drive up costs, but any wage increase also can occasion greater demand for products from workers with more money to spend.

Free market devotees respond with a familiar line: Profit-oriented businesses will naturally increase wages if this course yields compensatory gains in worker productivity. Yet business today is inordinately fixated on short-term results. Markets are often as good at spreading rumors and fads as widely tested norms and practices. The benefits from adequate workplace compensation are realized over years. The costs are upfront. Laws that encourage a longer time horizon and limit the forms that competition can take, like child labor laws, help ensure the future of markets.

A more generous Federal minimum would enhance state efforts, but in states like Maine, where many minimum wage businesses are service sector and can't easily flee, state initiatives can work well. Nonetheless, conservatives are right about one thing: Poverty cannot be eliminated simply by large yearly boosts in the minimum wage. Any increase in the minimum wage will destroy some jobs even as it creates others. Gradual increases in the minimum wage can yield dramatic reductions in poverty when accompanied by complementary policies to encourage ongoing worker training and broader forms of worker involvement in workplace decisions. Tax policies, like the earned income tax credit, must also be improved and better publicized to supplement the incomes of the least well off. The best blend of such policies would need continual adjustments.

Sustainable capitalist economies are works in progress. Our health, and paradoxically the health of our markets, requires a reexamination of the articles of faith so many market defenders unreflectively embrace.