Conservative economists like Milton Friedman thought that monetary policy would serve as a means of maintaining wage restraint. While advocating roughly a three percent steady growth in the money supply to maintain stability, it was also assumed that money wages would also be constrained. In short, wages would increase to match productivity (which was roughly rising at three percent per year overall), but faster wage growth would be harder to achieve.

Weintraub sought to go further with the argument that incomes policy was really the missing stabilizer, and that proponents of both fiscal and monetary policy should actually welcome incomes policy as a supplement to their proposals. His approach didn’t leave the constraint of wage growth to chance—there would be tax penalty for further wage increases. Today, the problem is the reverse of the one found in Weintraub’s time—too sluggish wage gains, not too rapid gains—but the logic and need for a wage policy still applies.

What we need today is faster wage growth. Although the term incomes policy was often used as a euphemism for wage and salary restraints, an incomes or wage policy for our time should be viewed as an essential ingredient in shoring up the middle class and maintaining economic security through its potential to arrest wage stagnation.

The problem is that monetary policy and fiscal policy are not enough to do the job alone. Fiscal policy involves huge expenditures of public monies which, if not properly targeted, will not necessarily have the desired effects. Sure, various interests will benefit from grants and contracts, but the impact will not be widely dispersed. Moreover, increased spending eventually necessitates new taxes. Monetary policy also comes with a cost. By law, the Federal Reserve serves the banking interest and its primary responsibility is to ensure the solvency of banks. As inflation rises, the Fed typically applies the breaks with higher interest rates and reserve requirements, which produces unemployment. And yet, increased taxes due to increased spending will only lead workers to seek higher wages to pay the increased tax, thereby exacerbating inflation. In the current downturn, when wages are stagnant, and in the upturn when wages will—hopefully—be rising, the missing third element is an incomes policy that aims at more steady wage growth.

Weintraub was only too quick to point out the immorality of economists applying the brakes to control for inflation, as they themselves were unlikely to lose their jobs. As he put it: “The unemployed are thus the innocent lambs led to the slaughter through conventional tactics.”^[1] Therefore, Weintraub was suggesting that if wages could be stabilized, then price stability would avert economic damage occasioned by conventional stabilization tools.

In previous posts I have argued for wage policy as a set of labor market institutions for the purpose of bolstering wages. Wage policy is important because without it the erosion in the value of workers’ wages means that they are unable to continue demanding goods and services. Without a wage policy that would have the macroeconomic benefits of allowing workers to maintain their purchasing power, traditional fiscal and monetary policy as tools for job creation are only bound to fail. An economy, after all, needs to be built from the bottom-up; not the top-down.

As policymakers debate the best means of moving forward on job creation, it might behoove them to think of all the possible tools that could be employed, even if it means thinking outside their traditional boxes.

Instead of spending huge sums of money on bailouts — especially bailouts requiring companies receiving money to restructure in such a way that effectively results in job loss —  and other stimulus types of packages, money should be spent on ways intended to prevent layoff. Arguably, many companies may use the cover of recession to restructure as a means of saving money, in which case these jobs will not come back. But many more companies might benefit from policies that would enable them to retain their workforces during economic downturns. The easiest way to accomplish this might be to reform the Unemployment Insurance (UI) system to allow for the payment of short-term compensation (STC) in lieu of traditional UI benefits to laid off workers.

To maintain the work force through a program of short-term compensation payments would represent a major departure from the current UI system that grew out of the Great Depression during the 1930s when millions of workers found themselves out of work. UI was more specifically a response to the business cycle inherent to industrial production. Downturns in the business cycle would naturally result in layoff. And yet, if it was cyclical, workers could expect to be recalled back to their former employers once the business cycle picked up again. Therefore, unless a system was in place to provide wage replacement for laid off workers during the down cycles, there might not have been an available pool of workers to return upon recall. UI has historically served two principal functions. First, it has offered laid-off workers critical income protection during temporary spells of joblessness. And second, it has fulfilled a macroeconomic function to the extent that it replaces lost wages and thus enables workers to continue having purchasing power in the economy, especially during times of recession. In an industrial economy where it is assumed that workers might be recalled during an upturn in the business cycle, UI allows workers to collect insurance during the downturn. It also assumes that greater efficiency is to be achieved if workers can have the time to engage in the type of job search that will better match their skills to the demands of the economy.

The fundamental assumption of this model is workers will be laid off. In fact, it encourages managers to lay their workers off, which in turn effectively raises the cost of human capital investment. Would the investment into the prevention of layoffs not achieve greater efficiency through the maintenance of a ready workforce and the cost savings associated with not having to engage in job search and training? Many European countries, as well as Canada and Japan, have experimented with work sharing and short-term compensation.. The typical UI system with work sharing routinely pays short-term compensation (STC) to those workers on reduced hours. Instead of laying off workers, employers can simply reduce work weeks, with their employees drawing partial benefits. The effect of STC, then, is to encourage work sharing rather than layoff, which in turn makes it less costly to invest in human capital in the long-run.

In the U.S. the state of Maryland has a voluntary work sharing program. Its rationale is that work sharing is beneficial to both employees and employers. The state’s Department of Labor website states that “Using Work Sharing, an employer can maintain high productivity and quality because the existing trained work force remains in place. When business improves, the work force is intact, ready to go, and employers are able to avoid the time and expense of rehiring and retraining. Work Sharing enables employers to keep productivity and employee morale high because workers avoid the insecurity, unrest, and “bumping” characteristics of layoffs. Also, firms can maintain affirmative action gains since with Work Sharing they can avoid “last hired-first fired” layoffs.” Moreover, because employees are able to maintain their jobs, they are able to continue pursuing opportunities for advancement and skill enhancement. The effect is no doubt to ensure a strategic alignment between human capital and human resource management.

Work sharing, however, would serve to maintain the workforce, thereby making in more  likely that employers would invest in human capital development. A corporate bailout to a large extent does follow a trickle-down approach: give money to managers, they keep their businesses going, they retain most of their workforce, and maybe begin to hire again when they can. Work sharing, on the other hand, might represent more of a grass-roots type of community investment into human capital. There is no question that health care reform, as I have argued in a previous post, would make the economy more competitive by alleviating business of the burden of rising healthcare costs. But if we really believe in investing in workers, we need to think of other ways by which we can strengthen the social safety net.

The current wage labor system assumes that workers receive wages, and perhaps other negotiated benefits, in exchange for their labor. Moreover, it is assumed that they are entitled to no more. That their labor contributed to the success — the profitability — of a firm might have a moral point, is generally taken to be no more. Let’s consider the automakers for a moment. Were it not for the efforts of workers, these companies would not be what they have become, their current need for a bailout notwithstanding. The human capital investment of workers has never been likened to the property rights that are enjoyed by the liquid capital investment of shareholders and investors. Many companies seeking bailouts have also been beneficiaries of community investment in the form of tax abatements intended to maintain plants. One of the most famous cases involving a public/private partnership between General Motors in the late 1970s and the City of Detroit is particularly instructive.

GM had made it known to public officials that they would open two new Cadillac plants and create 6000 new jobs in Detroit if the city would undertake to acquire the land, clear it through the laws of eminent domain, and prepare it for construction. GM specifically wanted to locate its new plants in the Poletown section of the city, an ethnic neighborhood, and GM was also expecting tax abatements. Public officials feeling compelled to create jobs jumped at the chance, secured funding from Michigan and the federal government, and in the end bulldozed an entire community in the name of a public/private partnership aimed at achieving growth, or in the case of Detroit basic economic revitalization. This, of course, raised the question of whether such partnerships were tantamount to contracts whereby the company owed the community more than job creation. This very issue came to a fore in a Michigan state court when the community of Ypsilanti sued GM for breach of contract following a restructuring plan that would close 21 plants in the U.S. and Canada, including in Ypsilanti. The state court initially held in favor of the community on the grounds that a contract of sorts existed, especially given that the community offered financial assistance. The Appellate court in Michigan did not recognize this new type of public/private partnership as akin to a binding contract, that it would effectively trump GM’s property rights to dispose of its property as it would see fit.

There appeared, however, to be another implication as well; that the workers made a human capital investment that perhaps was akin to a property right, and that the company would not be what it was were it not for that human capital investment. This only seemed to echo a case during the late 1970s when community groups in Youngstown, Ohio sought an injunction against U.S. Steel to remain open. Although the injunction was never granted, the remarks of then Federal Judge Lambrose were all too prescient. The free enterprise system, he observed, could no longer be viewed, “albeit we desire to view it, in terms of rugged individualism.” Rather as the system evolved, it only acquired “an interdependence, a greater interdependence than ever before.” Moreover, this interdependence was in many ways similar to the old feudalistic order in which the lord provided work for serfs and in exchange for their labor, the serfs were “take care of, provided for and given assurance, didn’t have to worry.” As steel was virtually the reason for Youngstown’s existence, the community had acquired a property right to the extent of “being permitted to preserve the institution of steel in that community.” (1) In other words, U.S. Steel would not have been what it was had it not been for the efforts of the workers and the community working together in order to achieve a common purpose.

The point of this tale is that the current structure and arrangements of the free market economy would appear to be insufficient given the new global realities. We live in an integrated economy where the decisions of some affect the livelihoods of many. Workers never assumed the type of risk that investors did; after all, they would only be out of their jobs. But as the poor investment decisions of the automakers illustrates, should the workers be made to suffer because of the decisions of their employers? If they are to assume that level of risk when they accept a job, should they not also reap some of the profits as well? In his classic An Inquiry into the Nature of The Wealth of Nations, Adam Smith observed that the wages of labor are higher for those engaged in unusually dirty work or in particularly dangerous work. Of course, Smith was referring to the type of work that nobody else would do precisely because it was dangerous. But in making this observation, Smith clearly alluded to the concept of risk; that the one who assumes risk is entitled to more. But given the changing nature of the economy, and particularly our evolving conceptions of what constitutes property, one wonders if it isn’t dangerous these days to accept a job, especially in the absence of knowledge about the financial health of, and decisions made by, that employer. Workers, in the end, are making a human capital investment and assuming a measure of risk.

This, of course, is not to say that bailouts should not occur when in the public interest, but that the public interest, especially when taking into account the social wage and other aspects of social responsibility, should be the criterion. During the 1930s, various public programs and public works projects, along with an array of regulations, were promulgated in order to immunize us for risk. Indeed, the precedent created meant that it would be easier for those in need, including corporations, to request assistance. But now it is time to go further. The workers contribution must be recognized as being integral to the growth of his/her company. While liquid capital investment and limited liability are still hallmarks of a free market economy, human capital investment is just as essential for companies to prosper. Ultimately that means that workers in what might emerge as a new form of capitalism will need to have a measure of voice. To trust in corporate leadership as we have for so long is really to assume too much risk, because they aren’t only gambling with their own fortunes, but the fortunes of others. The new capitalism cannot simply be the government as bank of last resort, but must ultimately entail a measure of economic democracy. That is, labor has to have a seat at the table, rather than being viewed as the problem.

1. Judge Lambrose quoted in Staughton Lynd, The Fight Against Shutdowns: Youngstown’s Steel Mill Closings (San Pedro, Singlejack Books, 1983), p. 164

The real question that policymakers, especially when contemplating the types of bailouts that are being requested, should be just how can we meet the needs of workers while simultaneously making American industry more competitive around the world. Perhaps the larger message from these economic crises is that we really cannot count on deregulated markets to do this. Government obviously has to play a more active role. One area where government can make a difference is in the area of universal healthcare. When a company adds on average $1000-1500 per car to cover the health insurance costs of both its active labor force and retirees, as per union contract, it finds itself at a competitive disadvantage, especially against foreign competitors whose healthcare costs are picked up by the state.

The answer isn’t to absolve companies of their responsibilities to their workers, but for companies to stand by their workers on matters of such importance. It really is in the interests — the self-interests even —  of business to demand national health insurance. The current healthcare regime predicated on employer provided insurance no longer serves the national interest. This isn’t only because coverage is limited to only those employed or fortunate enough to work for firms that provide it, but because the current system really does put us at a competitive disadvantage.

Initially begun as compensation for not providing higher wages in collective bargaining agreements between the big automakers and the United Auto Workers following World War II, as the idea spread and more companies provided this benefit it ultimately came to be expected as a matter of right. At the time health insurance was relatively cheap, but that is no longer the case. One might even think that corporate America would be begging government to take over health insurance in the same way it begged to be regulated during the early Twentieth Century. Unfortunately, corporate America has not been so eager to relinquish it in favor of national health insurance because it would also weaken their control over their workforces. Because workers need coverage, and increasing prior conditions among an aging workforce makes it difficult to get new coverage, workers are only effectively locked into their employers.

Corporate paternalism not only hurts working Americans by locking them into their jobs, but it ultimately renders us as a nation less competitive because the costs have to be worked into prices. Were there to be national health insurance, American companies could become more competitive, and American labor could become more mobile, which might also ensure a better match-up between skills and jobs thereby resulting in greater productivity.  Even if workers had to pay an additional tax for this insurance, it would be offset by what they would save in the ever rising premiums they currently pay out of their paychecks to cover their families.
If corporate America is going to come hat-in-hand to the American taxpayers for assistance, then we as a condition of that assistance need to demand that this corporate paternalism be ended in favor of a system that not only can make us more competitive, but also empowers workers. The need for national health insurance is only one issue to be addressed as we consider bailing out companies. Others include higher wages, particularly at the bottom of the distribution to reduce income inequality; caps on exorbitant executive compensation for those companies receiving assistance; requirements that companies receiving assistance provide job retraining and job search assistance to those who will still have to be laid off; and an overhaul of existing American labor law so that workers’ rights will be protected. If we are truly going to redefine capitalism at taxpayers’ expense, let’s ensure that it is done in such way that it truly benefits workers.

Those in the middle were no doubt motivated by a view that unless something was done, the entire financial system will collapse and the consequences will no doubt be felt by everybody. That both Democrats and Republicans can actually agree on action is quite a feat. It is doubtful that this agreement stems from a true meeting of the minds as opposed to a system of financing campaigns which relies on multiple contributions from political action committees. This systems simply rewards incumbency regardless of party affiliation. That Congress felt the need to respond to calls by a Treasury secretary who hails from Wall Street and a Fed Reserve Chairman whose primary constituency is the banking industry perhaps says more about the orientation of Congress and its general responsiveness to business interests over the last several decades than it does about the specifics of the crisis. Congress has increasingly been responsive to business interests, and the additional $130 billion in pork in the Senate version that was ultimately passed clearly attests to this.

On one level, the responsiveness of Congress to business interests owes much to the absence of institutions that give voice to workers’ concerns. Labor unions, in particular, historically gave voice to workers and served as a key constituency to ensure that national economic policy would also serve their interests. With the decline of labor institutions that constituency has simply been absent from the policy process. But on another level, Congress was bound to be more responsive to those special interests that were able to contribute large amounts of money to their campaigns out of the sheer reality of the political universe in which we live. When the average campaign for a House seat costs several million dollars, it is to be expected that members of Congress will seek contributions from where they can get them. This is not an issue of Democrats versus Republicans; but of incumbents v. non-incumbents.

If the crisis can be said to be in part attributable to a general political climate that has consistently voted for deregulation, that same climate only made it a foregone conclusion that the same Congress that favored deregulation would also favor a bailout, regardless of its form. Arguably a welfare state that immunizes society from risk and in turn creates a set of expectations that whenever a problem arises government will solve it is also a contributing factor. But if Congress wasn’t so beholden to the myriad of interests for campaign contributions, it would perhaps be in a better position to actually contemplate the merits of a bailout in a deliberate fashion, rather than deferring to so-called  “expert” opinion that just happens to come from the very industry seeking assistance. In short, if we hadn’t seen the erosion of the types of institutions that gave workers voice — and voice finding expression in a Congress responsive to the needs of workers — we would never have seen the type of policies over the years that were favorable to business that ultimately gave us this debacle. In order to level the playing field so that Congress will be responsive to the needs of all citizens we really do need to have a system of campaign finance that does not rely on private contributions. Perhaps the American worker ought to be making the case that campaign finance reform is ultimately a matter of workers’ rights. It is ironic, then, that Senator McCain missed a tremendous opportunity to remind the public why campaign finance reform was so important.

Union membership has been in a state of steady decline. At its peak in the 1950s, as much as 35 percent of American wage workers were union members, and by the end of the Twentieth Century only 14 percent were. Among industrial workers, union membership fell from just under one half in 1955 to around 16 percent by the end of the century. The implications of this decline have been enormous. While union membership was declining, in part due to economic transformations from an industrial based manufacturing economy to a service based post-industrial economy, and also in large measure to right-to-work laws in many states particularly in the South that made union organizing more difficult, conservative members of Congress were launching an assault on social policy and other labor protections. The biggest stagnation in the minimum wage appeared to coincide with the sharpest decline in union membership during the 1980s and 1990s. Because workers were unorganized, the federal minimum wage had failed to keep pace with inflation, the social safety net had been eroded, and the gap between the top and bottom of the wage distribution had grown, and many localities sought to remedy this with passage of their own living wage ordinances. This trend, of course, was triggered in large measure by the outsourcing of municipal services, which had been done previously by unionized municipal workers — in other words another assault on organized labor.

Were all these events and labor’s decline a mere coincidence? Historically one of the greatest contributions of the American labor movement to the American political process is that they were able to organize their rank-and-file members and get them out to vote. That the composition of the U.S. Congress changed during this time was also no small coincidence. With the decline in union membership many of those who would have voted for the Democratic party simply didn’t, and in many cases disfranchised themselves. But it was also the case that when labor presented itself as a strong constituency in the political/policy process, that Congress was more inclined to pass legislation beneficial to working Americans.

All this clearly has implications for the direction of national economic policy today. Without a strong constituency to lobby for the types of policies that will further the interests of working Americans rather than the financial interests who profit off the backs of workers, we are only likely to see more policies that effectively enable irresponsible behavior — the very behavior that we the taxpayers in the wake of the collapse of Fannie Mae, Freddy Mack, Lehman Brothers, and AIG are being asked to foot the bill to clean up. Moreover, unless there is a strong constituency to influence not only public policy but the election of friends of labor to Congress, we are not likely to see much of a difference between the two political parties on matters concerning the economy. But in order for Labor to lobby, there does indeed need to be a constituency to rally behind that political activity. Therefore, Labor needs to do both —  organize more workers and then engage in the type of political activity that can have an impact: get their members out to vote for those who will truly advance the interests of working Americans. This is perhaps where the American labor movement may have lost its way, and we are all suffering because of it.

To paraphrase Bill Clinton’s 1992 Campaign slogan of it’s the economy stupid, it is institutions stupid. Middle class wages have stagnated because of the deterioration of labor market institutions — primarily labor unions and minimum wages — designed to bolster wages. Reducing wage and income inequality requires bolstering the wages of those particularly at the bottom of the distribution. Wage inequality tends to be less when the percentage increase is greater for those at the bottom of the distribution relative to those at the top. It is no small wonder, then, that European nations with strong labor market institutions tend to have lower levels of inequality. But they have something else which nobody seems to be talking about in this presidential campaign: universal health care.

We talk about the stagnant wages of the middle class over the last few decades, but those wages have stagnated as healthcare costs increased. The basic social contract of our health care regime has called upon employers to provide health care to their employees. This contract was born out of pattern bargaining between the automakers and the UAW following World War II. If workers agreed to take lower wages, the employers would provide health insurance. Then insurance was relatively cheap. But as insurance increased in costs, and these costs were only part of the overall wage package, it only seemed logical that firms would recoup some of those costs by holding the line on wage increases. And if institutions were no longer there to assist workers, their wages could only be expected to deteriorate even further.

There is no question that the current tax code is unfair, but to make it the centerpiece of an economic reform and recovery package only obscures the true import of institutions. An Economic recovery package that strengthens labor unions and raises the minimum wage — one that essentially gives workers voice — is what the country needs and would represent true change. To focus on the tax code as Senator Obama’s advisors from University of Chicago’s economics department suggest is really nothing more than a repackaging of the proposals the Chicago School of economics is famous for: Friedmanomics.

Were we to conceive of the minimum wage in terms of contours, we would be able to understand just how important the minimum wage is as a labor market institution that can serve as a bulwark against stagnating middle class wages. In the 1950s John Dunlop developed the concept of a wage contour to explain how a firm’s internal wage structure might be as much affected by external forces as internal ones. A wage contour would be defined as a group of workers with similar characteristics working in similar industries and earning similar wages. For each group there would be a group of rates surrounding a key rate, and these group rates would be affected by changes in the key rate. The key rate was essentially to be defined as any rate serving as a reference point in a particular industry. A minimum wage can similarly be viewed as a reference point for what others in similar industries and occupations ought to be paid.

If we took the low-wage labor market and divided it into contours, it would look something like this: the first contour would be comprised of those earning in a wage interval between the statutory minimum wage to about 25 percent above. The second contour would pick up at the end of the first and range to about 25 percent above that. The third would range to 25 percent above that, and so on. This naturally encompasses a broader segment of the labor market. But even looking at the first contour, for instance, an “effective minimum wage” population will emerge as those earning the median of the first wage contour. As a raise in the statutory minimum wage results in a raise in the “effective” minimum wage, it is also likely that there will be resulting increases in the median wages of at least the second and third contours, and perhaps more.

According to data from the Bureau of Labor Statistics’ Current Population Survey, following New York State’s increase in the minimum wage from $6.00 to $6.75 in 2006, the median wage rose from $7.05 to $7.21 in the first contour. But it also rose from $8.57 an hour to $9.61 in the second contour, and from $10.33 an hour to $12.01 in the third contour. Meanwhile in the rest of the U.S. where the federal minimum wage was still $5.15, the median wages remained $5.77, $7.21 and $9.21 an hour in the first three contours respectively.

The point that I wish to make is that following New York’s increase in the minimum wage, and the effects were similar for other states, the median wage also rose for those who had been earning up to at least 91 percent above the state’s statutory minimum wage, and most likely rose above that. But in states where there had been no increases in the minimum wage, the median wages of those earning up to at least 91 percent above the statutory minimum wage remained stagnant. A minimum wage that would  keep up with say the rate of inflation might well put an end to wage stagnation at the bottom of the wage distribution and among the lower middle class. As such, there are overall macro welfare benefits that cannot be overstated.

In this blog, I would like to argue that a minimum wage as but one form of wage policy has a role to play in achieving not only a more just society, but a more democratic one. But to understand that we do need to view our traditional cost-benefit calculations differently. In the case of justice, social welfare is defined in terms of a society where individuals are able to live autonomously and in dignity and not be exploited by others. Societal outcomes simply are not just when market efficiency considerations are permitted to trump the rights of workers. And in the case of democracy, social welfare is defined in terms of a society where the benefits of democracy, perhaps measured in terms of maximum citizen participation, are considered to be of greater importance than again considerations of market efficiency. My larger point is that if we can see beyond the neoclassical ethical foundations that have long dominated the minimum wage debate to ethical foundations predicated on creating a just society, it is only a small step further to move to ethical foundations predicated on democracy.

The first question one might ask is why we need to move beyond the traditional efficiency considerations of the minimum wage? Prior to the New Economy of the minimum wage that was borne out of the famous studies by David Card and Alan Krueger, and others that followed, it was indeed the accepted wisdom that increases in the minimum wage would lead to adverse employment consequences. Even the early institutional perspective championed by Sidney Webb that a minimum wage could be an efficiency wage because it would result in workers being more productive acknowledged that employers forced to pay higher wages might have incentive to engage in substitution. Webb made it clear that better paid workers would better maintain themselves and would come to work with more energy, in part because their morale would be raised as well. Employers would not only have incentive to offer their workers better training; they would also have incentive to perhaps invest in labor saving technologies. It was this acknowledgment that was echoed in George Stigler’s famous observation that a minimum wage results in one of two consequences: either it results in lower employment or it results in greater efficiency.

Empirical studies in recent years have simply not borne out the traditional orthodoxy that increases in the minimum wage result in employment consequences. When they studied the fast food industry, Card and Krueger noted that employment actually increased following a minimum wage increase. Others have similarly noted that although there most likely was a tipping point, moderate increases in the minimum wage would not have harmful effects, largely because the minimum wage has for years been so far below a market clearing wage. Other studies also noted that with the deterioration in value also came corresponding increases in income inequality, especially at the low-end of the wage distribution.

Perhaps the challenge to the conventional wisdom has made it clear that the traditional orthodoxy of the minimum wage is less of an orthodoxy because it is necessarily correct and only an orthodoxy because the mainstream happens to subscribe to it. And yet, that it has been shown not to be true in all cases does open the possibility for policy experimentation. Society is freed up to consider other goals and objectives and other means of achieving social welfare. If those goals and objectives include achieving a more just and democratic society, the crucial question becomes just how the minimum wage, or any other type of wage policy for that matter, can be put in the service of those goals.

A justice ethos rejects the neoclassical’s social welfare function predicated in efficiency. Rather, social welfare is measured in terms of equity and fairness, and ultimately whether those working for a living are able to sustain themselves in dignity. Consequently, the cost-benefit calculation changes. That is, if the benefits of marketplace efficiency mean that there are many workers who will live in poverty and be exploited, or will suffer indignity because they have effectively been coerced into working in the low-wage labor market that does not allow them to live fully autonomous lives, then the costs are too high. And in so doing, it effectively redefines what it means to talk about efficiency. A society with workers earning low wages who are in a position to be exploited because of their low wages, may not be the most efficient society after all. On the contrary, a justice ethos does not assume a just distribution to occur when a competitive market in the name of efficiency results in great disparities in income with those at the bottom not being able to meet their basic subsistence needs. Rather, individuals who work for a living should earn a wage sufficient to support themselves above the poverty line and in dignity. To earn a wage below subsistence is essentially to be exploited. A minimum wage that serves the justice ethos’s social welfare function is ultimately about a policy measure that equates labor rights with human rights. On a more practical level, however, it is about compensating low-wage workers for their lack of collective bargaining power. By raising the wages of those at the bottom, the minimum wage is able to effectively accomplish for non-unionized workers what labor unions have been able to accomplish for their members through collective bargaining. It gives them a sense of voice by establishing a set of standards through the force of law that can also be enforced by the state.

A justice ethos in short redefines social welfare in terms of the benefits of equality and individual autonomy — especially autonomy because of its importance to human dignity — outweighing the costs of traditional market place efficiency. The justice ethos, then, leads to a third ethical foundation — that of democracy and the idea that the concept of the minimum wage can be put in the service of achieving a democratic society because it may serve to further the ends of equality and personal autonomy. Once we get beyond the ethical foundations of the neoclassical orthodoxy and see the value of a justice based approach to the minimum wage, it isn’t too difficult to ultimately view the minimum wage from the perspective of ethical foundations of democracy.

The democracy ethos asks how a minimum wage furthers the objectives of democratic society. The social welfare function is again conceived differently. The benefits of democracy are clearly judged to outweigh otherwise laissez-faire notions of efficiency and other policies that serve to achieve those benefits, even at a cost to market efficiency. They are worth it precisely because of the vision contained in this ethos. Democratic theory assumes a society of free, equal, and autonomous individuals. These individuals enjoy the same rights of citizenship as others and must enjoy their autonomy so that they can participate as full fledged citizens in the democratic process. The greater their autonomy, the more likely they are to participate in the democratic process. The democratic ethos’s conception of autonomy actually takes the justice ethos’s conception of autonomy to the next level. Whereas the justice ethos views autonomy as an end unto itself which is ultimately a matter of human dignity, the democratic ethos views it as an essential element to achieve democracy. One cannot participate as a full-fledged citizen if one is not fully autonomous. A wage policy, then, whether in the form of a minimum wage or some other labor market institution, that effectively gives workers greater voice has a role to play in achieving greater democracy.

A minimum wage, as but one example of wage policy, that can enhance individuals’ autonomy can play a role in enhancing the equal standing of individuals as that which is essential for them to function more autonomously. Not only does the minimum wage improve their standing, but it serves to enhance their autonomy as individuals, thereby enabling them to have greater participation in the democratic process. By enhancing their autonomy, the minimum wage also enables low-wage workers to make greater claims to citizenship as both a process that furthers the equal dignity of all citizens and also as an essential ingredient for participation in the democratic process. If the minimum wage effectively enables one to function autonomously, which in turn enables one to participate more in the political process, that minimum wage can be said to constitute but one policy tool in the service of greater democracy.

Therefore, a minimum wage needs to be viewed more broadly than simply a limited tool to boost the wages of the poor. Rather it must be viewed as but one tool in a larger arsenal of wage policy intended to achieve a more just and democratic society. If we can to this, we might then be able to look back and say that it accomplished the following: First, it enabled workers, especially those at the bottom of the distribution, to achieve human dignity through greater autonomy. Second, it enabled these workers to use their newly acquired autonomy to participate more fully in the democratic process. In the end, measures than effectively enable more to participate also allow for more people to be included.