The history of thought in labor economics does not attract many writers; luckily, it attracts Donald Stabile. Stabile, a professor at St. Mary’s College, makes two significant contributions in his published work—first, he explores subjects that have a modestly heterodox tinge and therefore tend to be neglected, and second, he brings to his topics careful, in-depth, and balanced research. His latest book, The Living Wage: Lessons from the History of Economic Thought, is no exception. It is well written and has considerable added value for any economist or policy analyst interested in the subject of minimum wages and living wages or, more generally, labor regulation and human resource development.
Stabile tells his readers in the Preface that a small group of students at his school occupied the president’s office in 2006 and refused to leave until the administration made a commitment to pay a “living wage” to the lowest paid workers. Although sympathetic to the student’s demands, and having earlier written on the economic case for socially adequate wages, Stabile relates that he nonetheless soon felt conflicted by concerns over both the appropriateness of the methods they were using and the potential consequences of granting their demand. In particular, Stabile wondered if the students’ demand for a living wage could garner not only solid support on social justice grounds but also on economic theory grounds. To answer this question, he embarks on an historical tour of what other economists and social thinkers have written on the subject of living wages. This history of thought tour includes Plato and the Greeks; Aquinas and the Scholastics; Adam Smith and the classical economists, such as Jeremy Bentham, Thomas Malthus, John Stuart Mill, and Karl Marx; the early neoclassical economists, such as Vilfredo Pareto, Alfred Marshall, and J. B. Clark; the early institutionalists, such as Richard Ely, Thorsten Veblen, John Rogers Commons, and J. M. Clark; mid-century writers in the neoclassical tradition, such as John R. Hicks, Milton Friedman, and Gary Becker; and other modern writers who are in some respect right or left of the neoclassical center, such as Ludwig von Mises, Friedrich Hayek, Ronald Coase, Arthur Okun, and Amartya Sen—to name only some.
Before diving into the history of thought, Stabile starts the first chapter by placing the living wage campaign in its contemporary context. He explains that over one hundred cities in the United States have adopted living wage laws and living wage campaigns continue in many other cities and states, pushed principally by a coalition of social activists, labor unions, and human rights groups. The goal is to raise wages for the lowest paid workers until they are at a level that supports a socially adequate standard of living—typically a wage considerably above the minimum wage. Stabile then gives a brief review of the standard economic arguments advanced by opponents of living wages, such as the adverse effect on employment, the distortion of prices signals in the labor market, and the government’s exercise of coercion over free economic agents.
The core of Chapter 1, however, is devoted to laying out the conceptual road map for the remainder of the book. In particular, Stabile identifies the triad of sustainability, capability, and externality as the three theoretical foundation stones on which an economics-based case for a living wage can be built. The rest of the book is then divided into three chapters, where each item of the triad is separately examined in terms of what economists and others have said about it both pro and con, and a final chapter on “Lessons Learned” from the history of economic thought.
Chapter 2 is devoted to the sustainability argument for a living wage. This idea is central to classical economics. Adam Smith, for example, argued that societies confront both an economic and moral imperative to pay workers a living wage—economic because without an adequate standard of living the nation’s labor input deteriorates and moral because social justice is part of the glue that holds countries together. Stabile demonstrates that even orthodox and libertarian economists, such as Marshall, J. B. Clark, Hayek, and Friedman, subscribe to the sustainability idea, although people such as Friedman oppose direct wage regulation and instead favor some form of income transfer program (e.g., a negative income tax).
The second leg of the living wage triad, examined in Chapter 3, is capability. By “capability” Stabile means the stock of productivity-enhancing characteristics possessed by the workforce, such as human capital, social capital, and ethical virtue. The central idea is that a living wage “pays for itself” over the long run in terms of generating extra gains in dynamic efficiency. Poverty, for example, undermines character, makes it very difficult to pursue additional education, and contributes to a host of antisocial behaviors; a living wage, by opposite reasoning, helps societies move on to a higher growth path by facilitating growth in workforce capabilities. These arguments are developed with insights from numerous economists, ranging from Marx on the negative side (the corrosive effect on workers’ productivity of low wages and alienation) to Sen on the positive side (capability as freedom).
The third leg of the triad is externality, the subject of Chapter 4. Beginning with Adam Smith, a long line of economists have argued that poverty wages not only harm individual workers but also impose substantial costs on third parties, such as families, communities, and society at large. In several earlier books Stabile examined this idea in other institutional contexts, such as the economics of trade unions, but couched it in the idiom of “social cost” rather than externality. With respect to a living wage, an example of social cost arises when children are forced by family poverty to drop out of school and search for gainful employment (thereby penalizing society of additional human capital investment); a second arises when low wages force people to work long hours and thereby slight family and community involvement. Economists such as Pigou, J. M. Clark , and Coase get considerable attention in this chapter.
In the concluding chapter of the book Stabile reviews the arguments and endeavors to distill a “bottom line” conclusion regarding the pros and cons of a living wage. The “pro” side of the debate is represented by what Stabile calls “moral economists,” while the con side is represented by “market economists.” He rejects either extreme and concludes, as does Adam Smith, that a compromise is needed. That is, Stabile interprets Smith to say that a modern economy must of necessity rely on impersonal competitive market forces, but that society cannot survive if it allows market forces to violate basic human rights and values—including a minimum standard of living from work. Thus, the lesson of the history of thought is that living wages have a reasonably solid foundation in economic theory—at least if theory is expansively considered; unfortunately, the other lesson is that no economist yet has figured out exactly how to measure and set a living wage. To a significant degree, therefore, the devil is in the details.
In sum, Stabile’s latest book covers a lively and timely topic and brings a wealth of interesting and insightful historical evidence to bear on it. I doubt his book ends the living wage debate among economists but most certainly it puts the debate in a much better historical context.
