The minimum wage as a policy measure has traditionally been viewed through the ethos of neoclassical economics. According to this ethos, the goal of the market place is to achieve efficiency and a wage floor is simply inefficient because it prevents wages from automatically adjusting to a point where demand for labor will be exactly equal to the supply. This ethos also defines social welfare in terms of Pareto optimality, whereby benefits to one group don’t in the process result in costs to another. A minimum wage, then, does not yield overall social welfare because its supposed harmful effects results in inefficient outcomes. The costs in the form of disemployment effects are viewed as outweighing the benefits of making another group of people better off because they now have higher incomes. But what if we were to define our social functions in terms of other societal goals? What about justice or greater democracy for instance? Would we not also come to a different view of what constitutes efficient behavior?

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.