The political aspects of the minimum wage

Discussion of the minimum wage can easily slide into a technocratic back-and-forth that ignores the vital political aspect at play. We can see this in much of the response to the report just released by the Ontario government’s Minimum Wage Advisory Panel (MWAP). Andrew Coyne, for example, once again argues that a basic income is a better solution to poverty than increases in the minimum wage. The question, however, should not be one of which single tool is best for fighting poverty, but how we can build the most effective toolkit, one that also puts political power into the hands of the poor. Poverty is multi-faceted and, while low-wage work is only one potential aspect of being poor, the minimum wage has effects beyond providing much-needed higher incomes.

The title of this post is a play on Michal Kalecki’s 1943 article, “The political aspects of full employment.” There, Kalecki – prominent heterodox economist of the first half of the 20^th century: Keynesian before Keynes, committed but critical Marxist – explains why government policies that generate full employment will be opposed by business interests, even if they increase profitability in the short term:

…under a regime of permanent full employment, the ‘sack’ would cease to play its role as a disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow.

Political economic, rather than merely economic, concerns are the key to sustained and secure accumulation.

Like full employment or high union density, a relatively high minimum wage also has the potential to increase the power of workers vis-à-vis firms, though clearly to a lesser extent. On the other hand, a lower minimum wage is a powerful disciplinary tool. Working poverty is not only painful and difficult, it is demoralizing. In the context of declining public services and more regressive taxation, it is doubly so.

Sidelining the political aspects of the minimum wage dovetails with an approach to poverty that prioritizes charity over justice – the “most efficient” policy over the one that may alleviate poverty but also have transformative potential. Under the charity perspective, experts decide what will help the masses after intense calculation of economic effects. Social problems are reduced to technical puzzles.

A key potential criticism needs to be dealt with at this point. Mine is not an argument that devalues the potential for individual policies to produce real effects in people’s lives; the point is not that the minimum wage has purely political potential or that a policy is useless without its political aspect. It is of crucial importance that studies have shown minimum wages to actually improve both employment and poverty outcomes. I have reviewed the most current evidence on this topic in a recent post on the Progressive Economics Forum. Indeed, in its chapter on the economic impact of minimum wages, the Ontario MWAP report ignores some of this evidence and still refers to studies whose methodology and conclusions are questioned by the larger and more rigorous recent evidence. This understates the case for the positive effects of the minimum wage and surely had its part in the minimal recommendations made in the report. A basic income similarly has real potential to impact poverty on its own.

The point is to not allow the technocratic mindset to take over policy. We should instead consider policies as parts of comprehensive political strategies – in terms of anti-poverty this includes better public services, progressive taxation, wage and employment policies and income supports. If we do not, then in the race for the best technical fix something like a basic income that does not touch any of the other policy planks just outlined will win out. Yet on its own, most any policy can only be a partial solution that does little to challenge the very unequal distribution of power in society. The lack of attention to power and politics creates a negative feedback loop by which isolated policies have even less of an effect and smaller chances of successful implementation precisely because they ignore power. In terms of fighting poverty, this is especially the case for a basic income that is not supported by concomitant minimum wage increases and other policies. Unlike the redistribution that happens via a basic income, minimum wage levels affect redistribution directly via the employment relation that is the cornerstone of capitalism.

Higher minimum wages increase not only the incomes of workers but their power in their relationship with business. A basic income, on the other hand, only increases people’s power as consumers. Interestingly, in “The political aspects of full employment,” Kalecki also mentions direct cash transfers and consumption subsidies as part of the solution to full employment. These, he however recognizes, will be opposed on their own because they also reduce labour discipline by questioning the maxim that “you shall earn your bread in sweat.” Without attention to the political and without a comprehensive strategy that recognizes anti-poverty as a question of justice, individual policies risk becoming little more than window dressing: vaguely pleasing, yet inconsequential and obscuring what’s on the inside.

Recognizing wages levels as a site of political struggle answers those critics who treat higher minimum wages as if they were merely a technocratic economic fix. If the focus is on what gives the biggest “bang for the buck” and doesn’t question the distribution of power, then other policies may come out on top. Higher minimum wages, however, have individual ramifications beyond the purely economic. They increase self-worth and dignity as much as they increase incomes, but more importantly and more broadly, they have the potential to challenge and change power relationships in the economy. Thus, the demand for a $14 minimum wage is in some sense arbitrary (Coyne’s word for it), but in another sense, it is not so at all. Given the current scope of political possibilities, it sits right on the border of what is possible – more than a band-aid, less than a pipedream.

Indeed, support for a higher minimum wage often comes from minimum wage workers themselves – witness the wave of protests by fast food workers that recently swept the United States. These are not middle-class teenagers protesting for the equivalent of a higher allowance, but precariously-employed adults, often also marginalized as women, people of colour, recent immigrants or some combination of the three, sticking their necks out knowing that they have much to lose. These workers know what is in their interest – not just the very real economic benefits but broader issues of empowerment.

Discussions like that found in the MWAP report and mainstream responses to it, risk turning the minimum wage and other anti-poverty measures into technical fixes removed from their political context. If we want effective solutions instead of mere window dressings, if we want justice instead of mere charity and if we want to distributed economic power instead of a few dollars here and there, then we need comprehensive, political solutions. So yes, minimum wages are only part of the solution to poverty…but they are a crucial part of the picture that recognizes the political in the economic.