Economist, activist present action, faith reasons for living wage

>From economic theory and social justice understandings, regulations to assure that people who work earn a living wage help prevent the greed of a few people from impoverishing others.

In a recent forum on “Who’s Afraid of a Living Wage,” Doug Orr, professor of economics at Eastern Washington University, and Scott Cooper of the Catholic Charities Parish Social Ministries office discussed economics rationale and church teachings on social justice.

Opening the discussion, Kelly Masjoan, economic justice coordinator for the Peace and Justice Action League of Spokane, which sponsored the event, said many companies come to Spokane “to take advantage of the relatively low wages paid here.”

Because companies receive tax breaks to create jobs, Kelly said, wages should allow people to meet their basic monthly expenses of about $2,500 for a family of four.

A full-time minimum-wage worker makes $1,141 a month, which is below the federal poverty line, she said, leaving them “making dangerous choices” between groceries and rent, between child care and utilities, and leaving health care out of the picture.

The living wage campaign across the United States urges cities to adopt an ordinance to mandate a living wage for city employees and employees of companies with which the city contracts.  Kelly said 123 U.S. cities have passed such ordinances.

Doug Orr

Doug said that the 1995 Pace Group report on what helps and what hinders Spokane’s economic development said poverty hinders growth.  It found that 45 percent of people employed in Spokane earn incomes too low to lift them out of poverty.

“We need to attract jobs that pay more than poverty-level wages,” he said, adding that income inequality inhibits growth and hurts everyone, because it limits demand for goods and services produced in the region.

Before the federal government implemented the first minimum wage law in 1938, Henry Ford recognized in the 1920s that he had to pay workers wages high enough so they could buy cars.

Doug outlined an economic theory:  If a firm enters a region where companies pay adequate wages and it pays lower wages, that firm’s costs are lower, its profits are higher, and it can sell products at a lower price.  When firms with higher prices begin to lose customers, they lower wages.  Regional incomes fall until people cannot afford to buy the region’s output and the regional economy stagnates.

“What is profitable for one firm to do is not profitable if all firms do it at the same time,” he said.

To encourage firms to do the right thing, government needs to put limits on firms that cut wages and undermine the region’s economy, said Doug, who considers competition beneficial in controlling prices but knows that too much competition is destructive.

He challenged myths that raising minimum wages 1) increases unemployment, 2) leads to inflation and 3) reduces profits.
• On unemployment, he said increased wages mean workers have more to spend locally, creating more demand for goods and services, so local firms need more labor.

• On inflation, he said if 30 percent of companies in an area raise wages 20 percent and pass on the cost, which is half of their total costs, the region’s average price increase is three percent.  He cited Adam Smith, the father of free-market economics, who taught more than 200 years ago that firms always try to raise their prices, but competition deters them.

“Most people benefit by increases in minimum wages, which means fewer people around us live in poverty, welfare caseloads drop and with that the tax burden drops,” Doug explained.

• On reducing profits, he said most demand for goods and services increases as regional income rises, so profits increase.  Usually small, locally owned firms with few employees and small profit margins are exempted from living-wage ordinances, he said. 

“Franchises of national companies that employ many minimum-wage workers may see profits decline somewhat, but those profits leave the region anyway and thus contribute nothing to the local economy,” he explained. “In contrast, every dollar of income received by a low-income worker at a local business creates about $2.50 in the local economy.”

Beyond these perspectives, Doug said, is “the reality that poverty-level wages add to the costs of public assistance and government services.”

He opposes a city’s subsidizing businesses that create poverty by awarding contracts to them.  He urges cities to reward companies that employ people at wages that lift them out of poverty.

“Once cost savings of reduced social services and crime are factored in, it is clear that the livable wage makes sense,” Doug said

Scott Cooper

Scott discussed moral issues related to the living wage from his religious tradition.

When he started in social services at St. Vincent de Paul in the mid 1990s, two thirds of families served were on welfare.  When he left in 1998, two thirds worked.

“The number working rose, but their need did not go down,” he said.  “We saw a shift of that part of the burden from the public to the private sector.”

In the Industrial Revolution in the 1890s, Pope Leo XIII began modern Catholic social teachings. He was troubled by families crowded in tenements in cities of Europe and North America and by children from the age of four working 12 hours a day six days a week in factories.  Some were Catholic and part of “his flock.”

So he issued an encyclical, “Rerum Novarem”—“On the Condition of Labor.”  This church doctrine on the working poor was a departure from church practice, Scott said.

The pope said that poor labor conditions, industrialists’ greed and high interest rates caused social problems that affected the moral life of the church. 

Subsequent popes have seen the encyclical as the cornerstone of the church’s social teaching, Scott said.

U.S. Catholic bishops, speaking on day-to-day human dignity, have said every individual is “a beloved child of God due dignity” and the measure of every institution is how it upholds the rights and dignity of people, not whether it increases profits, he said.

In the 1990 “A Century of Social Teaching,” the bishops wrote:  “Work is more than a way to make a living.  It is an expression of our dignity and a form of continuing participation in God’s creation.  and economic initiative.”

In the 1980s, U.S. bishops issued “Economic Justice for All:  Pastoral Letter on Catholic Social Teaching and the U.S. Economy,” pointing out that if firms pay low wages, society picks up the tab in social services.

“That means we need more food and coat drives and more affordable housing to make up the difference,” said Scott.

Although the church does charity work, he said, it also cares about people’s dignity.  Too much charity undermines dignity.

“Many of the people who come to Catholic Charities for assistance weep because they have to ask for help and never thought they would,” said Scott, describing the emotional and social cost.

“The church says the issue is dignity, not economics.  Money is morally neutral.  It’s what we do with it.  Do we use it to uphold dignity?  The economy exists for people, not people for the economy,” he said.

Scott said French worker-priests in the 1940s and early 1950s became concerned about working class people estranged from the church.  They took off their collars and applied for factory jobs, believing the church should enter into the world of the poor.  Many became union leaders.

The Second Vatican Council in the 1960s said the joy and hope, grief and anguish of people who are poor and oppressed are the joys and hope, the grief and anguish of the people of faith, said Scott. It established a sense of solidarity with labor.

This diocese’s Campaign for Human Development carries on the church’s social teachings by funding low-income groups that empower poor people, who know their needs and what they need to overcome poverty.

“The faith community is to be a moral voice saying unrestrained free market capitalism does not serve the dignity of all people.  Any human system has shortcomings, including the market economy,” said Scott.  The market needs checks and regulations—if it is to benefit people.

“Regulation saves capitalism from abuses that undermine human dignity,” he said.

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Copyright © January 2005 - The Fig Tree