The Living Wage

Donald R. Stabile , The Living Wage: Lessons from the History of Economic Thought . Cheltenham, UK : Edward Elgar , 2008 . vii + 163 pp. ISBN : 978 1 84844 197 2 . Hardback £59.95 . In the last 15 years, a social movement has grown in the US: labour–community coalitions and students pushing cities and universities to pay workers a living wage. The idea is not unique to the US, as workers have called for a living wage in countries around the world. The idea is also not new, as Donald Stabile shows in The Living Wage: Lessons from the History of Economic Thought. Stabile was inspired to write the book when students at his US-based college took over the president's office, demanding the school pay a living wage. Finding the campaign dialogue unsatisfactory, Stabile set out to examine the history of the living wage in economic thought. Although most economists today argue against the idea of a living wage, he shows that many prominent economists have been concerned with this in the past. Stabile begins his examination with Aristotle and Plato, showing how debates about the role of markets, competition, skills, and morality have been with us for many centuries. The bulk of the book focuses on economists from Adam Smith onwards. Stabile cites Smith, showing his concern for the growing capitalist system that seemed to lack the morals of village life. From this, Stabile groups the thinkers into two categories: the moral economists and the market economists. Moral economists have argued for living wages on the grounds of sustainability, capability, and externalities. In early capitalism, workers faced harsh conditions and starvation was a real threat. In this context, the living wage was necessary to ensure the survival of individuals and the system. Adam Smith believed that workers would not have enough power to negotiate a living wage on their own, lacking leverage with employers. At the same time, these economists did not want governments to enforce higher wages. Stabile says the economists were vague about other ways to raise wages – John Stuart Mill argued for unions; Adam Smith suggested education for workers. In addition to sustainability, moral economists have also argued for living wages on the grounds that they enable workers to develop their skills as workers and citizens, and improve the life chances of their children. Stabile finds mixed opinions on this question. While Mill and Marshall saw that higher wages could improve capacities, they agreed that there was no guarantee that workers would spend their higher wage on productive purposes. Finally, Stabile discusses externalities. If workers do not receive a living wage and therefore live in poverty, does this create a negative externality for society as a whole? While this point relates to issues of sustainability and capability, only John Maurice Clark and Solomon Barkin argued clearly and consistently that it is possible to have negative externalities in labour markets. Stabile raises an interesting proposal: unions should negotiate higher wages on behalf of workers and the community because the community pays when wages are too low. The Living Wage provides a thorough examination of the living wage concept and will be useful for any activist or academic wishing to explore economic theories of wages. He shows that many prominent economists made a case for living wages in various ways until the views of the market economists came to dominate. This lesson in theory is helpful. However, the theoretical emphasis also represents a weakness. Market economists today tend to overemphasise theory and ignore empirical work. In the area of living wages, this is a serious problem. We now have significant empirical work that challenges some of the basic premises of the market economists' understanding of labour markets: divergence between productivity and wage rates, persistent wage discrimination by race and gender, and repeated cases where employment does not fall after minimum wage rates go up. Stabile says that for most market economists today, the moral economy ‘could never exist’ (p. 148). But as he notes, the perfectly competitive market is also an ideal. I look forward to a next generation of economists who will build on the works that Stabile reviews to advance our theories of how wages are and should be set

Economics · Keynesian economics · Labour economics · Living wage · Sociology · Wage · Economic Theory and Institutions · Economic Theory and Policy · Political Economy and Marxism · Psychology