Smith and Living Wages: Arguments in Support of a Mandated Living Wage

By Clary, Betsy Jane | The American Journal of Economics and Sociology, November 2009 | Go to article overview

Smith and Living Wages: Arguments in Support of a Mandated Living Wage


Clary, Betsy Jane, The American Journal of Economics and Sociology


The distribution of income, the level of wages, and other factors affecting living standards are among the most important topics of discussion, not only in the United States during the current election cycle but also throughout the world. Of further concern are the interactions among the distribution of income, the level of wages, and economic growth. One solution aimed at addressing low wages is a government-mandated living wage, and since 1994 more than 100 living wage ordinances have been passed at the local and state levels. (1)

All of the ordinances have the common goal of requiring private businesses that benefit from public money through government contracts to pay their workers a living wage. These efforts are based on the belief that public dollars, which go to the business through the contract, should not also be necessary to subsidize wages of employees of these businesses through food stamps, medical care, housing, and other social services that low-wage workers require because of low income. Thus, a living wage is a wage that is high enough to ensure an income above the poverty line so that a person is not eligible for supplemental income programs. (2)

Edd Noell has shown that Adam Smith's analysis of the process of wage determination provides the first full exposition of the case for a living wage and that Smith's analysis, based on the role of the competitive process, is an extension of the Scholastic discussion of the elements that determined a living wage (Noell 2006: 152-153). Noell concludes that it is evident from Smith's analysis that a rising demand for labor, brought about by economic growth, undermines the need for living wage legislation.

This article argues that Adam Smith, as a proponent of a living wage for labor, was also a proponent of public policies, in addition to economic growth, that might ensure the achievement of a living wage. This argument rests, in part, on the conclusion that Smith had at least some reservations concerning the ability of the economy to experience sufficient growth and the ability of growth to raise wages and reduce poverty. The article will attempt to show that there is ample evidence in the body of Smith's work to support the thesis that he would endorse the modern-day living wage movement,

Smith was a leading participant in the Scottish Enlightenment, and as such he was an adherent to the idea that social arrangements evolve and are the consequences, even if unintended, of many individual actions. Social arrangements and the rules that govern society thus change as attitudes, behaviors, and events change. Smith argued that changes in the way that the wealth of a society is produced come about gradually, and these changes in the means of production are reflected in the evolution of property laws and in the structure of government (Hamowy 1987: 16). Laws and regulations affecting labor and their wages also evolve as the way by which production takes place itself evolves. What is considered reasonable depends on the circumstances of the situation and on the state of the society in which outcomes are judged (Haakonssen 1981: 105), Circumstances are such in the United States at the beginning of the 21st century that, given Smith's views about labor and justice and his theory of growth, a mandated living wage could be acceptable policy to Smith.

I

Smith's Views of Wages as Living Wages

WHILE THE CALL FOR a living wage is, indeed, about money, it is also a moral issue concerned with the ethics of work. In almost all cases, the local grassroots campaigns have been organized by coalitions of community, labor, and religious groups, resulting in the unification of ethical and economic concerns leading to a call for social justice and the recognition of the role of labor in human identity (Figart 2001). (3) A concept of wages that measures the wage, not merely as the price of labor but instead as a means of securing a living, leads to public policy that addresses both the level of the wage as well as the fairness, adequacy, and decency of the wage. …

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