Living Wage

Reviving Georgism: George was a root hacker not a branch wriggler

Universal Basic Income vs Minimum/Living Wage

Bryce Edwards compiled a round-up of the inequality debates regarding NZ’s 2014 Election. I suppose, whether the motivation to focus on inequality is well-intentioned or a vote grabbing exercise is yet to be determined.

My issue with the inequality debate is that it is most often framed in terms of whether we should (a) increase the minimum wage, (b) legislate for a living wage, or (c) target assistance through wages subsidies like Working for Families. Not really root hacking stuff.

The presumption from those advocating increasing the minimum wage or having a living wage is that it will improve outcomes for the working poor.

Minimum or Living wage (MLW)[1] proponents also tend to argue that it is unfair that government subsidises businesses through the various welfare packages made available to low-income earners absolving businesses of the responsibility to pay fair wages to its workers.

In fact, I have made this argument myself and while I have revised my views on MLW strategies, I do think it has some merit. But whether MLW strategies address the issue of economic inequality is a different story.  In my view, part of the remedy to overcoming economic inequality is to implement a Universal Basic Income (UBI).[2]

I have posted this particular piece in my Reviving Georgism series because like many Georgists,[3] I think UBI and Land Value Tax (or land rent, land fees etc) are complementary policies for tackling inequality.

I do not necessarily oppose a MLW, in fact, a living wage is precisely what I advocate. I’m just not convinced that state regulating private enterprise to pay a particular minimum amount will necessarily have the effects intended. I think that UBI is a better goal because it benefits all society, not just one group, i.e. low skilled, low-income ‘workers’.

I also think we overlook that a MLW is a legal privilege that favours business and is therefore out of step with the objectives of the Unions and campaigns who typically lobby for MLW. I set out my argument below.

MLW as legal privilege

A MLW is a legal privilege weighted in favour of business because it removes the negotiating power of the worker to obtain a higher wage. It does this by legally entitling businesses to pay workers less (the minimum) than they might otherwise be willing to pay. Moreover, businesses are likely to choose to pay the legal minimum required simply because the law says they can.

Robert J Murphy adds another dimension where he argues that:

“Raising the minimum wage might represent a drastic harm to the most vulnerable and desperate workers…What could happen is that the higher wage would attract new workers into the labor pool, allowing firms to become pickier and, thus, to overlook the least-productive workers, who would remain unemployed or lose their jobs to more-highly-skilled workers”

I agree that MLW increases could represent a harm to low-income earners and I think that Murphy’s point reinforces my argument about privileging business. Additionally, MLW strategies might attract those who are unemployed but looking for work, to take on low skilled jobs in the interim, thereby potentially increasing unemployment for low skilled workers – an unintended consequence.

I’m not ignoring the fact that in non-minimum wage societies businesses can (and do) exploit workers.  My criticism is not that MLW strategies are inherently bad for all workers, indeed they probably do have some positive short-term effects for some but as Fred Foldvary points out [Henry] George would argue that minimum wage simply treats the effects [of poverty] not the symptoms, and that it distracts and appeases to avoid confronting the remedy.

Wages increase when rent decreases

George argues that ‘the line of rent is the necessary measure of the line of wages’.[4] He thinks that under free conditions, no-one would work for someone else if they could make the same amount working for themselves.[5] He argues its only when land is monopolised that individuals are forced to compete for work.[6]

George’s theory argues that wages are determined by what is left after rent is taken out.[7] Rent being that which is paid for using land.[8] He further argues that:[9]

“No matter how much they might actually produce, they receive only what they could get on land available without rent—on the least productive land in use. Landowners take everything else. Hence, no matter how much productive power increases, neither wages nor interest can rise if the increase in rent keeps pace with it”

He also proposes that:[10]

“Where land is subject to ownership and rent arises, wages will be fixed by what labor could secure from the highest natural opportunities open to it without paying rent (i.e., the margin of production). Where all natural opportunities are monopolized, wages may be forced by competition among laborers to the minimum at which they will consent to reproduce. Clearly, the margin cannot fall below the point of survival”

At first glance, this quote seems to support having a MLW, but in context George would say MLW is not conducive to solving inequality – it simply ‘appeases’ the workers to avoid dealing with the free lunch income enjoyed by land owners at the expense of workers who are forced to compete for a minimum wage. Noting, a minimum wage could never be lower than the margin or landowners would risk an uprising that could threaten their privilege. So even without a MLW setting, landowners will always have a minimum at which they can charge rent, and businesses would have a minimum at which workers would consent to work or they risk workplace strikes.

On this basis, I think a MLW plays right into the hands of the landowners and businesses to the detriment of the most vulnerable members of our society because it provides a sense of certainty around rents i.e. a MLW provides a legally specified minimum wage that must be paid to workers (by businesses)  on which land owners can base their rents.

Importantly, as Nate Blair points out minimum wages in the long-run can only shift economic rent to different locations or decrease aggregate wages. And while a minimum wage can benefit labour in the short-run, including labourers who also happen to be landlords,  the long term impact on real wages is negligible.

Arguably, UBI is no different than MLW because it too provides everyone with a specified minimum amount of income. However, this is why I think in order for UBI to be effective it must be accompanied by a LVT and because it focuses on long term outcomes.

Another benefit of UBI is that it provides a mechanism for recognising and rewarding our currently economically invisible members i.e. those who carry out valuable but unpaid work such as stay at home parents, or volunteers.

The UBI and LVT combination also provides a foundation for setting up a participatory democracy framework which would enable individuals to voluntarily take part in public decision-making forums (e.g. multi-body sortition etc) without the stress of having no income. But that is a discussion for another post.

To conclude, if the politicians aren’t going to address the root of inequality by looking at tax evolution and a UBI, then we deserve an answer as to why. This is what I believe we ought to challenge our politicians on this year to determine if their policies are simply vote grabbing or genuine. How we decide the amount, or the age, or the frequency at which individuals receive a UBI (or the rate or measure for determining LVT) is beyond the scope of this particular post but I think what we should be focusing on (as the title of this post suggests), is hacking at the roots instead of simply wriggling the branches of the failed system we have inherited.

UPDATE:

Its been brought to my attention that I have probably been a bit presumptuous in assuming that readers would take into account the current wage subsidies and welfare packages already available in NZ.

Its important because this is the context within which I base my argument. Here are a few sites to help get your head around NZ minimum wage and the government transfers available:

In NZ there are two predominant broad views about how to improve poverty. The first broadly subscribes to the Scandinavian model – progressive taxation and increasing the top marginal rate to increase revenue to provide free core public services. Critics of the welfare system and of those advocating for a Scandinavian model in NZ argue that welfare creates dependency and this dependency causes the poverty and wage gaps we see in our country.  The critics are the second group who typically subscribe to the neoliberal model – lower taxes, privatisation, user pays services, the free market. Scandinavian model advocates usually argue that if the wealthy paid more taxes on their productive incomes that we could afford to provide core public services to those most in need.

There is a strong tension between these two groups. As a relatively recent subscriber to Georgism, I think that both models are flawed because unlike Georgism, they ignore the role that speculative behaviour plays in creating inequalities.

In this post, I tried to clarify that I didn’t think a MLW was inherently bad, just that UBI with LVT was better overall.

The reason most often cited for pursuing a MW is ‘fair pay for a fair days work’ and I agree with the sentiment. However, I don’t think ‘fair pay’ and ‘minimum wage’ are the same, but this is how MW proponents often frame their arguments.

In fact, MW’s often aren’t ‘fair’ for the work carried out. If they were then government transfers i.e wage subsidies wouldn’t be necessary. No matter how little a worker is paid by their employer, the wage subsidies supplement those incomes enough so that supplemented income makes working more attractive than just receiving jobseeker support (a welfare payment).

So if we had no MW (in NZ), and some workers were to receive less from an employer than they might currently get those low-income earners would have their incomes supplemented by wage subsidies.

Additionally, no business could pay below the maximum someone could get on welfare because most workers would choose not to work for less than what they could get for not working. This would apply in any country who has a welfare system. In effect, even if there was no legally specified MW there is actually already a minimum in place i.e. more than a worker could receive as their maximum on welfare. Admittedly, in NZ this rate would probably change depending on the region a person lives, because the accommodation supplement is location based.

Aside from the arguments set out in this post, MW also has the effect of forcing workers to compete for jobs, which gives business the upper hand to choose the person willing to accept the least amount in wages i.e. the minimum legal amount.

I reiterate, I don’t disagree that MW’s can have short term benefits. However, I think that focusing on MLW prolongs getting to the real remedy because it appeases workers, which means the more vulnerable members of our society – those who are unable to work for whatever reason, only receive welfare payments, which are necessarily less than those who earn any productive wage with additional government transfers (wage subsidies). A UBI and LVT combo would iron out this inequality and ensure even those who were unable to work had access to a living wage, not a bare minimum.


[1] For ease of reference, I use MLW to include those who advocate:

  1. a minimum wage; and or
  2. increasing the minimum wage; and or
  3. a living wage.

[2] Others refer to this is Guaranteed Minimum Income or Guaranteed Basic Income.

[3] I have resolved to use the term ‘Georgism’ (as the title of each post suggests) to reinvigorate interest in Henry George’s economic theory. However, in doing so I think I may have inadvertently neglected the preferences of some who prefer ‘Geoism’ and others who reject describing themselves under an ‘-ism’, such as Martin Adam’s who writes at Land, A Humaniteer Project. Adam’s proposes that while Henry George’s economic theory is traditionally understood as Georgism, a more accurate term is ‘Geoism’ because it ‘contains the prefix Geo, from the Greek word γαια, meaning ground or earth’ and because George’s philosophy advocates the sharing of nature. Please note that I use the term ‘Georgism’ broadly to include any persons who share in advocating the fundamentals of George’s economic theory.

[4] Henry George and B. Drake (ed.) Progress and Poverty (2006, Robert Schalkenbach Foundation, New York) available online: http://www.henrygeorge.org/pdfs/PandP_Drake.pdf  at 117.

[5] Ibid at 116.

[6] Ibid.

[7] Ibid at 93.

[8] Ibid at 89.

[9] Ibid at 93.

[10] Ibid at 116.

Credit for the title of this post belongs to Adam John Monroe

Thanks to all those in the LVT Facebook group that helped me get my head around this and directed me to relevant chapters!

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