Minimum Wage and Moral Consequences
Suppose that GreatBigCo has a retail center in Carterville, and pays its employees slightly more than the minimum wage. Suddenly the minimum wage is doubled. If GreatBigCo decides to close its store and move elsewhere, has it committed a moral wrong against its employees?
Yes, I know, the company is obviously run by evil right-wing capitalist greed-heads who would pay workers pennies if they could. But that’s not what I’m asking. The question is whether GreatBigCo has a moral duty to remain in business in Carterville and pay the higher wage.
A lot of people would say yes. The ethical question, however, turns out to be one of considerable complexity. In ethics, rights and duties are correlatives. Therefore GreatBigCo has an ethical duty only to a person who holds a right against it. If GreatBigCo has a moral obligation to stay and pay, it’s because employees have a moral right to those jobs, and at a particular wage.
Now let’s frame the question differently. If you believe, as many do, that GreatBigCo would be committing a moral wrong by closing its Carterville store, do you feel the same way about a family that decides it can no longer afford to pay for lawn care and hands the kids the keys to the riding mower?
This speculation is prompted by a blog post by Ryan Decker, an economics doctoral candidate at the University of Maryland. I came across the piece when the economist Tyler Cowen recently linked to it under the heading “simplistic arguments which are nonetheless essentially true.” Decker’s argument, although not perhaps the slam dunk he seems to think, deserves considerable attention. Here is the heart of his case:
Walmart employs 1.2 million people in the US, more than any other private firm. Why is Walmart any more obligated to pay high wages to 1.2 million people than you or I? Does Walmart’s decision to provide jobs for these people automatically obligate them to provide pay above a certain level?
What makes this complicated is that you ... and I employ zero people (or close enough by comparison), which means we effectively pay 1.2 million people a wage of $0/hour.
Walmart critics embrace two moral standards: in the first, morality requires payment of high wages to 1.2 million people. In the second, morality can be achieved without employing anyone at all -- that is, by paying zero wages. Most of us have chosen to live by the second standard, and from our lofty moral position we can criticize Walmart for not meeting the first standard. How convenient!
If Decker is right, then either GreatBigCo violates no moral duty to its employees when it leaves Carterville, or the family that stops paying for lawn care violates the same moral duty. Put the other way around, if the family can ethically pay an effective wage of zero (by hiring nobody), then so can GreatBigCo.
Is Decker right? One way to look at the question is this: When a group of people combines its resources to maximize its utility, does the group’s ethical obligation depend on whether it’s called a corporation or a family? Note that we are not discussing legal obligation; the question is one of right and wrong.
It’s often asserted that “business” has a particular moral duty to hire, a proposition that would successfully distinguish the corporation from the family. But the proposition is unpersuasive. The fact that the private sector might create jobs does not mean that the private sector exists in order to create jobs. To think otherwise is to accept that a movie star or best-selling novelist who earns $10 million a year should hire exactly the same number of employees as a private company that earns $10 million a year. If anything, high-earning individuals should have a higher ethical duty: After all, they probably have much lower overhead costs.
The principal alternative theory -- one with a great deal of currency nowadays -- is that big businesses, because of lobbying clout and regulatory capture, have rigged the game. By this logic, their moral duty flows not from their bigness or their privateness but from their success at rent-seeking.
This theory, however, cannot plausibly be applied to every industrial sector at the same time. Even if we think that GreatBigCo has rigged the game and is extracting extra profit, the same is less likely to be true of BigBurgerCo, or at least of its many franchisees. Moreover, in areas where we can plausibly point to serious rent-seeking, wages already tend to be high. Take finance. GreatBigBank is not going to shut its doors, because it will barely be affected by an increase in the minimum wage.
Thus the answer to the question I posed at the outset would seem to be that in most cases the ethical obligation to hire, or not to fire, is the same for the family as it is for GreatBigCo. I am making no claim that the obligation exists -- only that, if it does exist, it is the same in both cases. If GreatBigCo acts immorally in closing its Carterville store and reducing employment to zero, so does our hypothetical family in firing its lawn-care company.
This is not an argument against any particular level of the minimum wage. But I do think it important that we make clear moral arguments about what companies do as a consequence.
If you think that GreatBigCo owes a moral duty to Carterville itself -- presumably, the residents of Carterville collectively -- the essence of the analysis isn’t changed. But the overall moral case will be weaker. (And, yes, there is a sizable scholarly literature on the topic; this time, however, we are skipping it.)
True, the family may also be a successful rent-seeker, if, for example, it owns its home and deducts its mortgage interest. But let’s assume otherwise.
Rent-seeking in finance, although notorious, is often hard to pin down.
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