The debate over raising the minimum wage in the United States has been in the news a lot recently. From proposals to require that big box stores pay at least $12/hour in Washington, DC to discussions in Congress of raising the Federal minimum wage to $10.10/hour, it seems there is a growing belief that a national average minimum wage of about $8.00/hour is too low. Increasing the minimum wage is seen more and more as a way to improve living standards, reduce growing income inequality, and, perhaps, stimulate lackluster demand and encourage economic growth. But is increasing the minimum wage the best way to meet these goals?
As many opponents of minimum wage increases have pointed out, an increase in the minimum wage only helps those with jobs. However, with the employment to population ratio still hovering around 58% — nearly 5% below its pre-recession level — there are still millions of Americans without jobs. And there are many who argue that an increase in minimum wage would make it even more difficult for those out of work to find work. Consider then, as a thought experiment, addressing the concerns listed above not by increasing the minimum wage but, instead, by paying every citizen a wage simply for being a citizen.
The idea may sound crazy but it is a notion that is currently being seriously considered in the Swiss legislature. It is a notion antithetical to the American capitalist approach to income; you are, in theory, paid the value of your contribution to your employer. Being paid simply for being a citizen, not based on value contribution, smacks of communism. But what happens when the labor of broad segments of the population isn’t worth anything to employers? What happens when, as this series by The Atlantic points out, the returns to labor are overwhelmed by the returns to capital? When a machine can do the job of a person more efficiently and for less cost than labor?
The answer? Returns to labor, represented by the wages paid to labor, stagnate. This is exactly what has happened over the last twenty years and the trend has accelerated since the recession. Returns to capital and business profits continue to grow while labor’s share of income has stagnated, and even declined in real terms since the 80s.
This has happened in America before. The decaying cities of the rust belt stand testament to what happens when technology and lower-cost foreign labor conspire to make American workers obsolete. In the past the answer has always been to retrain these workers and transition them into burgeoning sectors of the economy. Thus the modern argument that America today faces structural unemployment and the answer is just to retrain workers with the necessary skills.
Unfortunately, the data don’t back this argument. There is little evidence that there are major sectors of the economy with a skills shortage. Rather, the evidence suggests that the replacement of labor by capital is far more widespread than it has been in the past. Further, the historic response — retraining workers in growing sectors — relies on an economy that is constantly growing. Setting aside the anemic economic growth in America over the last decade, there are many who believe that infinite economic growth simply isn’t possible. Someday planetary limits will bind and the economy will cease to grow. Thus, rather than pursuing an economy that constantly grows, the only sustainable solution is to pursue a steady state economy: an economy in which there is not always a new, growing sector in which to move labor made obsolete by technology.
It is in this context that the idea of paying a wage simply for being a citizen begins to make some sense. It is, admittedly, a very socialist notion — even bordering on communism — but in a society that increasingly relies on technology and capital to provide our goods and services, labor is being left behind. Raising the minimum wage is one step to help alleviate the growing divide but it is likely only a stop-gap measure, especially if the current unemployment rate is the new normal.
Paying a wage simply for being a citizen has a number of advantages that may not be immediately obvious. It may ultimately reduce the size of government — if everyone simply receives a salary there is no longer a need for programs like welfare or food stamps. It obviously helps the lowest socio-economic groups and it may ultimately, counter-intuitively, increase employment. This last could be achieved if individuals reduce the amount they work as a result of receiving their citizen wage. Any reduction in wage income would be offset by the citizen wage and now two employees would be needed to accomplish what one had been doing. Yes, the company becomes less profitable in that scenario but, arguably, the quality of life of both employees improves.
Is the idea of paying everyone a wage for being a citizen fully fleshed out? No. It is a thought experiment. There would certainly be problems with implementation that have been glossed over here. But there are some, possibly significant, advantages of such a system over our current patchwork of social assistance and minimum-wage programs. Moreover, as returns to labor continue to decline relative to returns to capital and economic growth becomes constrained by environmental factors, there will be a growing class of citizens whose skills are no longer necessary. Citizens will have trouble earning a living wage because the economy no longer values their skills. Society must find a way to make sure they are not left behind. Paying a citizen wage is one way to ensure everyone benefits.
Image Credit: Jean Kay via Wikimedia Commons.