In Defense of a Living Wage

When I was a boy, I ran a lemonade stand in front of our house.  I made the lemonade from frozen concentrate that my mother had bought at the market.  I was able to pocket a few bucks, because my mom didn't charge me for using her groceries.  But I'm not sure my business was actually profitable, and it certainly was not as profitable as it seemed to me because my cost of lemonade was zero.  Mom was subsidizing my business.

Similarly, any company that pays less than a living wage is, in effect, on welfare.  Such a company is not really profitable, but rather is being subsidized by tax dollars, just as my lemonade stand was subsidized by my mom.  

A company that employs workers uses labor, in the same way my lemonade stand used concentrated lemonade.  Labor requires people.  If a company does not pay the worker enough to survive at a minimum level, then that company is not really paying for what it is using.  And, it is usually the government that makes up the shortfall by way of welfare, food stamps and subsidized medical care.  

Each of us is capable of certain number of hours of work in our lifetime.  For example, let's say a man starts working full time at 18 years of age, and retires at 68, and lives to 80.  Let's call full time 40 hours per week, 50 weeks per year.  That's a total of 100,000 hours of labor.  If he receives $10 per hour, that is $1,000,000 earned over a lifetime, or about $12,500 per year.

A living wage must provide enough to support a person at whatever standard society decides is the minimum acceptable level.  This must include the cost of the person's education, medical expenses and taxes.  Taxes pay for things like police, roads and defense which we all use.  If a wage is not sufficient to allow a person to pay their fair share of these expenses then someone else must pay.

The Federal government collects on the order of $5,000,000,000 in taxes each year from about 300,000,000 people, an average of something like $17,000 per person per year.  Thus, $10 per hour is not enough to pay one's fair share of taxes, let alone to eat, even if one works full time for one's entire life.  

I realize that some of those taxes pay for welfare and social security, and that those amounts must be deducted from the calculation.  But even so, my back of the envelope calculation shows that $10 per hour is clearly insufficient to support a person.   My best estimate is on the order of $20 per hour, although I certainly do not pretend to have conducted a rigorous calculation.

Companies that pay less than a living wage may argue that some people simply are not capable of work that is worth $20 per hour.  And, better to pay such a person $10 per hour than to pay him nothing.  In extreme example, such as a person with Down Syndrome, this may indeed be admirable.  But a company who relies on such a labor force in a substantial way must recognize that it is getting cheap labor as a result of the misfortune of others, and that their worker would not be able to survive but for the generosity of society at large.

In the vast majority of cases, however, there is no excuse for paying less than a living wage.  What work is "worth" is a function of what it costs to create.  The calculation above shows what it costs to create an hour of labor.