The Minimum Wage

SEPTEMBER, 1913

BY JOHN BATES CLARK

OF pending measures of economic reform few appeal so strongly to public feeling as does the minimum-wage act, and perhaps none has a better right to appeal to it. If in every large city thousands of persons must continue to work hard and get less than a living, the fact is an indictment of civilization. Labor, as Robertus said, is an ‘economic merit’ which deserves good and sure returns; and if a competitive system of industry necessarily starves many of its workers, it is time to give to Socialism or some other new plan of living a candid hearing. If the starving is due, not to the basic quality of the existing industrial order, but to a fault, which can be remedied, the responsibility for it rests, not on the system as such, but on all of us, in so far as we can control public action and remove the fault. As citizens let us do our duty, and the evil will shrink and perhaps vanish.

The situation certainly calls for some action by the state; and the measure which has been adopted in a few cases, and demanded in many more, consists in legally fixing rates below which wages may not go. How effective is law for this purpose? Can wages be raised by the fiat of the state? It certainly cannot conjure into existence a fund of new wealth from which the additional wages can be drawn. Ordering mills, shops, mines, farms, and so forth, to produce more than they do would be like ordering the tide to rise. No one intelligently supposes that the government has an Aladdin’s lamp with its magical quality raised to the nth power, but there are many who think that it has a supply of talismans which would enable workers to conjure modest sums of money out of employers’ pockets into their own. Are they right in this opinion? Whoever will support a law which fixes minimum rates of pay needs first to assure himself that the thing can be done, and be done without causing more hardship than it remedies; but it is more emphatically true that whoever will reject such a law should exhaust the power of study and research before concluding that it cannot be done without causing a balance of harm. The proposal makes for itself a vast prima facie claim, in that it promises to end untold hardships and wrongs; and it is safe to say that no one at present can be sure enough that it is not workable to justify him in definitively rejecting it. If it were our own lives and comfort which were at stake, we should sift to the bottom any argument that should claim that nothing could be done for them.

Practical tests of the proposed policy are now in progress in Australia and New Zealand, in England, and in our own State of Massachusetts, and the results of these trials will be carefully watched; but a few things can be asserted in advance as necessarily true. We can be sure, without further testing, that raising the prices of goods will, in the absence of counteracting influences, reduce sales; and that raising the rate of wages will, of itself and in the absence of any new demand for labor, lessen the number of workers employed. The amount of this lessening of the force will vary with the amount of the raising of the rate of pay, and some of the legal minimum rates actually proposed would throw great numbers of persons into idleness. In some quarters rates are demanded which, if actually secured, would have an effect akin to that of a tornado or a Mexican revolution on the business immediately affected.

Enforcing a minimum wage of ten or twelve dollars a week for working women would cause a grand exodus from many industries; and yet even such rates are supported by plausible arguments. That they ought to be paid is asserted without due regard to the question whether or not they can be paid. They have been pronounced ‘necessary for decent living,’ and it is invidious for well-to-do persons to say that they are not so. The real issue, however, is whether industry can be made to yield these rates. If the demand that they be made obligatory carries with it a confidence that they will actually be paid without further ado, and that few workers or none will be discharged, the expectation is based on a vague trust in the great returns which the business is supposed to yield, and an undue confidence that these can be utilized for the purpose in view.

Now, first of all, certain basic facts concerning wages need to be realized. The rate that can be paid is limited by the specific productivity of labor. The man A must be worth to his employer what he gets, and so must B, C, and D. The total product of the business as a whole is not the basis of the payment, but the part of that total which is due to the presence of particular individuals; and if any person asks more than his own labor yields, he is virtually asking for a ticket of leave, with permission to return only when his demand is reduced or his prod net increased. Only when his specific product equals his specific pay can he expect to continue in the employment.

Now, there are several reasons why some workers create more wealth than others. Not only do they vary in personal quality, but their employers vary greatly in their capacity to make the most of their laborers’ quality, and one may get five dollars a week and anot her six dollars or seven dollars from the product of workers who are personally on the same plane of productive power. If we look at an industry as a whole, we often see evidences of large profit. Some employers are clearly rich, and it is easy to infer that the industry in its entirety represents a great income, some of which is ground out of the very lives of the workers. There may be thousands of women employed who, with the hardest labor, barely keep soul and body together; and if some of them, under such pressure, barter virtue for food, the business takes the guise of a devil’s traffic, the cruelty of which is enhanced by the gains secured by it.

What we need above all things is discrimination. An entire department of business does not stand condemned because of grave evils in some parts of it. If there is cruelty, we must find it where it exists, rather than conclude that it exists everywhere. The gains of the business as a whole do not afford the needed evidence. Of the employers some get large ret urns, some small ones, and some none; and a certain number are always getting a minus quantity and are on the ragged edge of failure. There is no available way of drawing on the returns of the successful employers to make up a fund to increase the wages paid by the unsuccessful ones. The policy we are discussing does not propose to annul rights of property, and short of doing that we cannot tax the returns of A, B, and C and make over the proceeds to the employees of their rival, D.

In the shops in which they are employed, workers need to produce all that they get in the way of wages, and there are always ‘marginal’ shops in which they barely do this, since in these the gross returns from the business, over and above what is paid to labor, barely yield enough to make good the wear and tear of machinery, the cost, of replacing antiquated appliances, and perhaps interest on borrowed capital. If so, these particular employers arc already in a bad way, and a forced increase of wages will send them out of business. If it be a fact, however, that, they are already foreordained to fail in any case, it may not do much permanent harm to precipitate the failure. On that point there is not a little to be said, and we must ret urn to it. What is clear at present is that, if we do precipitate a failure, we shall throw laborers for the time being into idleness.

Again, we cannot tax the product of efficient workers and make over the proceeds to the inefficient. Unless the employees A, B, and C are worth to their employer six dollars a week, we cannot make him pay them that amount, even though D, E, and F are worth seven dollars. The employer who is enjoined from paying less than seven to any one will do the assorting which his interest impels him to do and will keep those who are personally worth what he has to pay them.

Finally, we cannot make an employer pay to a force that in mere number is large, as high wages per capita as he could afford to pay to a smaller force. Here we go a little more deeply into the law of wages. Mere quantity of labor employed in connection with a fixed amount of capital has an effect on its productive power per unit. With one million dollars in capital it is possible to employ nine hundred laborers or one thousand or eleven hundred; but if we make no change in the amount of the capital, the laborers will be worth each a little more when there are only nine hundred of them. The larger force will produce fewer goods per capita than the smaller force, although it produces a larger total output. It would carry us too far afield to prove this particular point ; but it is not likely to be denied by many persons who have had practical experience, that crowding mills fuller and fuller of laborers would lessen the importance of each one to his employer, and that depleting the force would increase the importance of each of them. If we compel the owner of a factory to pay more than he can pay to his present force, he will reduce it till he can afford to pay the higher rate to the persons who remain.

For all these reasons, a forcible raising of the rate of wages for workers of the lowest grade will lessen the number employed. Some producers who can barely run their factories at present will drop out of the ranks. Some of the workers who produce barely enough to hold their places even under successful employers will drop out. Some establishments that can afford to keep a large number of workers at a certain rate of pay will find it for their interest to keep a somewhat, smaller number when the rate is made higher. How great the effect of any one of these influences will be, no one can predict with confidence, and it will require not a little experience to lake this problem out of the realm of crude guesses; but what can be asserted with entire confidence is that the higher the obligatory rate of pay, the larger will be the number of persons remanded to idleness. A twelve-dollar rale would deplete many shops where a six-dollar rate would have relatively little effect in this direction. A rigorous qualitative assorting of employers, a similar assorting of employees, and the survival of the fit in both cases, are the most obvious effects of a law which increases in any considerable degree the wages of a class of laborers.

Now it is perfectly clear that the legitimacy of such a policy depends on the rate of pay that the law requires. A certain low minimum rate may be clearly and wholly legitimate; and moreover, prescribing even this rate may have a very important effect in ruling out some of the hardest practices that now prevail. In the absence of a strong trade union an employer may take advantage of the necessities of an individual employee and secure his or her labor at a rate that is distinctly below what it is worth as measured by the productivity test. This fact affords the clearest justification of the principle of the trade union. Hungerdiscipline disqualifies the worker for making a successful bargain, and if the employer were everywhere at liberty to take men for what, under such pressure, they might individually offer to work for, he might get. them for very little. If when they became better fed they should demand more, he might conceivably turn them off and replace them by others whom the discipline of starvation would by that time have made amenable to such treatment. A process of rotat ion, whereby the working force should often be recruited from the ranks of necessitous men and women, might reduce the general level of pay below that which the test of actual productivity would yield.

Trade unions go far toward removing this evil, and in the absence of such unions the law might remove it. If it should place the rate of wages at the level fixed by the productive power of the individual workers, it might not cause many to be discharged and it might raise the rate of pay for a larger number. It would thus change for the better what passes for the ‘market rate of wages,’ provided that this market rate has been reduced by starving the candidates for employment; and yet it might not. change the legitimate market rate, as determined by the productive power of the laborer himself.

Suppose, however, that, the law goes much further: suppose it fixes a minimum rate which is distinctly more than many workers are worth. It is selfevident that some will be discharged, and that they cannot be reemployed in the ordinary way unless they manage to acquire a greater productive power. Till they can do this they must wait for employment, and, under a law that calls for double the amount they have heretofore been receiving, there is a good chance that they may wait until the end of their lives. Only such a drastic cutting down of the working force as should create a labor famine would raise the minimum of pay from five dollars a week to ten or twelve, as has sometimes been demanded. Even though the discharged workers could make themselves personally as competent as other members of the force, they could not be reëmployed, since that would put an end to the scarcity of labor and, by mere increase of supply, reduce the value of the individual laborer to his employer. Between the conservative policy, which estimates as best it can the productive power of labor in ill-paid occupations and prescribes a corresponding amount as the minimum of pay, and the radical policy which boldly demands whatever labor needs for a life of modest comfort, there are various gradations of policy, and the guiding principles in choosing between them are: first, that any legal rate above the value of labor to its employer will cause idleness; second, that the amount of the idleness will be greater the higher the rate established; and third, that any idleness created in this way and not relieved by natural causes will give to the workers an unanswerable claim on the state for emergency employment.

But will not the employers give the required pay and pass the tax at once on to the public? Will they not keep as many workers as ever and simply add the amount of the extra wages to the prices of their goods? Would not this make the community stand the cost of rescuing the class that at present has to bear the worst buffets of civilization — a burden which it may properly be asked to accept? It will not do naively to assume that producers can add what they please to their prices. They are now getting all that they can get for the amount of goods that they are putting on the market. If they continue to produce as much as they now do, they cannot get higher prices for it. An added cost will not, in itself, help them to get it. If they raise their prices, they will to some extent reduce their sales; and that will cause them to discharge some workers — which is the point we are studying. Raising prices will cause some discharges.

What is probable, even as the result of a more modest legal increase of pay, is as follows. Of the lowest grade of workers some would be promoted to a higher rank and some would be discharged. The output of the business would be reduced, and that would make it possible to raise the prices of its products, and thus pay the legal wages to all the workers remaining in the industry. Discharging some of them is the condition of getting the advance in prices and so retaining the others.

Will automatic changes relieve this evil? In a paper recently read before the Social Science Association, Professor H. R. Seager ment ions movements which tend in this direction. The law which ends the ‘sweating’ of home laborers may give a stimulus to factory labor and select the more capable of the discharged workers for transfer to that sphere. In the course of the transfer some workers may change their residence to better localities than the tenement districts. It is not claimed that these influences will relieve those who are unable to make tire transfers, or that they will act promptly enough to give immediate relief to any class.

The transfer from homes to factories and from the poorer factories to the better ones is, indeed, the chief means which, in the future, may be counted on for gradually raising the general level of pay. Many factories are now so efficient as to afford higher wages than home labor and still compete successfully with it. And as time goes on they are destined to become more and more efficient, since it is in them that the influences which make industry progressive or, as the term is, ‘dynamic,’operate most effectively. If the discharged workers were in a position to wait for such changes, they might have their recompense for suffering in the interim; but asking them to rely on this is asking that they satisfy the hunger of the present with the bread of the future; and the state that, with its eyes open to what it is doing, puts them in that position, incurs a clear obligation to care for them while they are thus helpless.

Mere need and helplessness give citizens a certain valid claim on the state, even though it has done nothing to cause their troubles. Privation that is traceable to social defects makes a more cogent claim. This, in fact, is the basis of the demand for minimumwage laws, since the ill-paid workers are regarded as victims of social arrangements. Curing the evil, however, by laws that throw any class into idleness is causing suffering by a direct and purposeful act; and this suffering is more intense, though probably less widespread, than that which it cures. If live dollars a week means privation for thousands, nothing per week would mean quick starvation for hundreds; and this might result from too radical a change of the minimum wage. If five dollars a week forces persons into vice, no wages at all would do it more surely and quickly; and here is a further claim upon the state which no one can for a moment question. Emergency relief needs to accompany the minimum-wage law, and effective measures for it must be ready to act the moment the law is passed. It will not do to discharge the workers and then debate the question as to how best to give them work. Moreover, such employment as we furnish should be such as self-respecting persons may properly accept.

The amount of emergency relief which will be needed will vary with the extent of the rise in pay which the law requires. If the statute does nothing more than correct the harsh action of competition and establish a rate corresponding with the existing productive power of labor, it may be that not more persons will be thrown into idleness than the present agencies of relief can be made to care for. Even that implies some stimulating of these agencies to do more rapid and effective work, and a law which should go far enough to make the required rate materially higher would demand a new and elaborate system of relief. Are we ready to establish it? If not, we are not justified in enacting the law that would recpiire it. Moreover, although we might invent a system or borrow it from a foreign country, the question would arise whether we could introduce it without encountering strong opposition. Emergency employment has never been easy to provide. Keeping prisoners at work has often been difficult, and during a recent period of business depression, committees which met to devise measures of relief for idle workers found every proposal thwarted by some interest, and they ended by doing practically nothing.

Can we avoid this fate and so be justified in causing unemployment by our own action? A benevolent despot might conceivably do it. It looks much as though a democratic government could not do it without devising a system which would depart from all American precedents. The conditions call for something which, besides being very thorough-going, will be free from the objections which organized labor has offered to proposals heretofore made.

The situation, then, is briefly this: Minimum-wage laws are urgently demanded. If they greatly raise the present minimum, they will throw workers out of employment and make it far more difficult than it now is for them to find new places under private employers. Without efficient relief in readiness, the measure would amount to starving some of the workers in order to avoid half-starving the remainder. The relief system will need to be more extensive than any which has ever been undertaken, and will need either to avoid or to overcome the opposition which has defeated efforts of this kind during business depressions.

What are some of the qualities which the system of emergency employment must have? First, it must provide a living that is at least as good as that, which is afforded by the worst wages now offering. Secondly, it must not offer attraction enough to lure workers from private employment. If the positions furnished by the slate are better than those furnished by private employers and yielding the new minimum rate, the relief bureau is likely to be swamped by throngs of applicants. Thirdly, it must not make products which would be sold in the market in a way that would afford a basis for the accusation that wards of the state are competing with independent; labor and reducing its pay. To meet these three conditions will involve a bold departure from plans which, in America, have thus far been tried.

These conditions point to such an organization of all the idle and needy workers that they can supply their own wants by their own labor and send little or nothing to the market. It would amount to creating a self-contained society, including all for whose living the state provides; and it would be nearly independent of markets in buying and in selling. Its relation to the private merchants would be like that, of a New England farm before the Revolution, or a modern baronial estate in a region where feudalism lingers; but it would be more completely independent than they are of commercial traffic. It would make all manner of articles for itself; and if it needed to draw anything from markets of the ordinary kind, it could do it by a bartering process which would not react appreciably on values or on wages.

If the pay of the workers were altogether in kind — if it consisted in food, clothing, shelter where necessary, and a moderate number of articles of comfort — such real wages might be fairly high without making the general attractions of the system great enough to deplete private shops or congest the public ones. It would be a large experiment in governmental production, and it would be of advantage to incorporate into it some industries now going on in prisons and workhouses. It could be made to afford a certain practical test, of the capabilities of Socialism, and would at least be a better object-lesson than is elsewhere afforded, since it would consist, not in an agricultural colony selling its own products and buying others from merchants, but in a little community directly making nearly everything it would consume. It would not be politically independent, since laws would be made for it by a state legislature and enforced by state and local policemen; but in economic relations it would be as self-contained as a modern community well can be.

State Socialism challenges a comparison between its results and those of private industry generally. To justify itself it would have to make its workers better off than they now are under successful employers and highly paid trades. Such a community within a community, as is here described, would challenge comparison only with the less successful parts of the present, system, and would need only to make its workers better off than the more ill-paid ones now are. It would be a socialistic society reduced to a microcosm, and enjoying the great advantage of having the present state as its guardian. Behind it there would always be a government, able to sustain it if its own finances should show a deficit. On the side of profit and loss it would have the disadvantage of having to depend on workers taken from an unsuccessful class, but would enjoy the compensating advantage of having capital furnished by the state and free from interest charges.

The chance of securing competent management would be vastly greater than it would be if the whole burden of general industry were to be assumed and the direction of it were to be given to elected officers. The management of the little society could watch private shops and keep pace with them in improving its machinery. If they did not do it, an inference could be drawn as to what progress they would make without these examples to guide and incite them. Something which we greatly wish to know is whether state industry is naturally progressive — whether it has within itself the springs of origination, and will be inventive and enterprising. A microcosm which will picture a collective state will reveal facts that we are profoundly interested in knowing, and throw light on an even larger problem than that of minimum wages. A confident Socialist should welcome it in order that he may see the claims of collective industry justified, and a confident opponent of Socialism should welcome it in order that, he may see them refuted; but a candid inquirer should willingly consent to it in order that a vital question may be fairly decided.

There are not wanting several paradoxes and a certain grim humor in the situation that would face us if we should enact a law placing the minimum wage much above the market rate. This would involve some form of radical treatment of the problem of involuntary idleness. The whole policy would be judged largely by its relation to State Socialism. The proposed wage law leads logically to a bold assertion of the duty of the state to furnish employment fora helpless class, which, in this case, is a class made helpless by a still bolder publicaction. To relieve privation which already exists, the government will intervene by its legal minimum of pay. It will proceed on ethical grounds, and undo an effect of demand and supply. In rescuing workers who are suffering under the influence of an economic law, it will forbid some of them to earn the living which they now get.

In order to undo the harm caused by this prohibition, the state will come to the rescue of its own victims. It will, perhaps, do an unprecedented thing and set up within the field of competitive industry a completely coöperative society. It will recognize, however, that this is an emergency measure, and will hope that no capable workers will long stay in public employment. To justify this hope, and guard against the danger of having greatly to enlarge the public workshops, the sponsors of the policy will resume an orthodox attitude and appeal from the state to a natural economic tendency, which they hope will turn the tide of unplaced labor toward private shops. In doing so they will single out what has been called a particularly cruel feature of a competitive system. They will cherish the hope that-factories will grow larger and more efficient by natural selection, and that displaced laborers will later find places in them. We should thus be invited to pin our faith to the crushing of small shops by big ones, and of inefficient employers by efficient ones. It is the process which is now going on against many protests, and which furnishes the ground for sharp denunciation of the system which permits it. We should expect, to give it a new impulse and to hope that it will act quickly and sweepingly.

We know that the legal raising of wages to the extent proposed will crush some employers who might have survived, and will hasten the crushing of those who are foredoomed to this fate; but after the state has forced wages upward we have to trust to this sacrificing of the less capable, and to the increased growth of the large and successful shops, to provide for the workers whom the new statute displaces. Of the employers who will be driven from the field we are not thinking. We have workers only in view; and we say to the employers something akin to what Dickens makes the lawyer, Tulkinghorn. say to Lady Dedlock: ‘The sole consideration in the case is the workers. Under other conditions we should have been pleased to make you a consideration.’ Our philanthropy has brought us to a reliance on the crushing of the unfit, and the survival of the fit among the captains of industry. It is, indeed, a sure reliance, though not a favorite one with philanthropists.

Society certainly must secure more and more efficient production, and laborers particularly must have it. The sole hope for fut ure comfort and modest luxury for the working class is dependence on the law of survival of productive methods and efficient managers. This tendency, whose remote effects give promise of translating all labor to a higher level of comfort, affords, by its nearer effects, the best promise of rescuing the workers who lose their places in consequence of the minimumwage law. The action of it, however, is at best gradual, and we are forced again to appeal to the state and ask it to furnish emergency employment. The state must do this on a scale that will suffice to provide for the number of laborers whom its wage law will displace. If its policy is very conservative — if it only legalizes a rate that a normal market would itself yield — the relief measures may not need to be planned on any radically new lines. If the law itself prescribes no minimum, but creates a commission with power to prescribe it for each particular occupation, there is ground for thinking that this commission may proceed in such a conservative way that its action will displace relatively few persons. If so, the system may do an unexpected amount of good and avoid a grave danger.

To displace many laborers and count on taking them into public employment would be hazardous; but displacing them with no such provision would be an inhumanity outclassing that which critics find in the present condition. As between such a devil and a moderately deep sea of experiments in relief, the latter is preferable, but a wise conservatism will keep clear of perilous depths.