Welcome to the Deep Dive. If you've followed,
well, any policy debate in the last decade, you've
probably heard two terms thrown around that sound
almost the same. Minimum wage and living wage.
They get used so interchangeably. And it's frustrating
because they're used to talk about a floor on
pay. But the philosophical, historical and economic
evidence we've gathered shows they are built
on fundamentally different, often conflicting.
And that's the core confusion we're really here
to cut through today. Our source material for
this is incredibly rich. I mean, it provides
comprehensive definitions and historical context
stretching all the way back to ancient Greece.
Oh, it's amazing. It is. And then it goes into
contemporary philosophical justifications, global
examples, and maybe most importantly, the core
arguments driving the really intense economic
debate today, including, you know, these competing
quantitative models. So our mission is pretty
straightforward. Cut to being truly well informed
on this. We want to precisely delineate the difference
between these two ideas, the moral aspiration
versus the legal price floor, and then analyze
that intensely contradictory economic evidence
on their real world impact. So you walk away
understanding the costs, the benefits and the
deep underlying political tensions surrounding
each approach. OK, so let's start with the standard
that is fundamentally a moral and needs based
concept. The living wage. Right. The core definition
of a living wage is based on human need, not
not on market forces. It's the minimum income
necessary for a worker to meet their basic needs.
And basic needs is a really important phrase
here because it's defined quite broadly, isn't
it? It is. It's explicitly defined to include
things like food, of course, but also adequate
housing, clothing and other essential necessities
like utilities, transport and very often child
care. The crucial element here is the goal of
that income. It's not just about a biological
minimum to survive, which is what we used to
call subsistence wage. It sounds like the living
wage is aiming for something much higher and,
well, more holistic. It is. The goal is explicitly
to allow a worker to afford a basic but decent
standard of living just through their employment.
So without having to rely on government help.
Exactly. Without having to rely on government
subsidies for day -to -day survival. It's about
dignity and self -sufficiency, which automatically
makes it higher than a mere subsistence wage,
which, as you said, only accounts for the biological
minimum required to keep you going. That concept
also connects back to that historical idea of
the family wage, the idea that one worker's income
should be enough to support not just themselves,
but also to raise a family. Yes, though many
modern living wage calculations, they tend to
start with the needs of a single adult and then
they scale it up for different family types.
And that adaptability, or you could call it calculation
flexibility, is where all the complexity and
frankly, the massive local variation comes from.
The definition of needs is flexible because the
cost of those needs vary so much by location
and household type. A decent standard of living
in, say, Manhattan looks fundamentally different
from one in rural Alabama. Completely different.
To understand this, let's look at how different
groups actually calculate it. It's not just economists
with spreadsheets. It's often based on these
really detailed baskets of goods and services.
A literal shopping list for a decent life. Pretty
much. For example, in the United Kingdom and
New Zealand, advocates define the living wage
very holistically. It means a person working
a standard 40 -hour week with no other income
should be able to afford the full package necessary
for a modest but decent life. And that package
includes what? Well, that bundle has defined
allowances for housing, utilities, transport,
basic health care, and crucially, child care.
They aren't just calculating the cost of one
bedroom rental. They're trying to model a real
life. And then you have a completely different
method, like the one used by the Greater London
Authority, the GLA, which links the required
wage directly to the prosperity of the community
it serves. Yes. The GLA calculation is fascinating
because it doesn't just look at expenses. It
benchmarks against general income levels. They
calculate the threshold wage as an income equivalent
to 60 percent of the median income in London.
Okay, so it's relative. It's relative. And then,
because they recognize that life isn't always
predictable, they add an extra 15 % allowance
on top of that for unforeseen events or emergencies.
A little cushion. A cushion. This method makes
sure that the living wage tracks overall societal
prosperity, at least somewhat, rather than just
inflation on, you know, bread and fuel. If London
gets wealthier, the calculated living wage rises,
so the working poor don't get completely left
behind the average standard of living. To really
drive home just how much local variation there
is in the United States, we have to look at the
striking estimates from groups like the National
Low Income Housing Coalition. Their approach
is so powerful. It really is. They tried to calculate
the necessary wage purely through the lens of
housing affordability, using that basic rule
of thumb that no one should have to spend more
than 30 percent of their income on housing. And
the results, the resulting disparities are just
incredible. I mean, they're often shocking. In
2019, based on that 30 % rule for a fair market
two -bedroom apartment, the necessary full -time
hourly wage ranged from a staggering high of
$36 .82 per hour in Hawaii. Wait, $36 an hour?
$36 .82. That's nearly $76 ,000 a year just to
afford a decent two -bedroom apartment without
being house poor? I mean, that single number
tells the whole story of the housing crisis in
high -cost areas. Better than any chart. It absolutely
does. And the absolute lowest state they calculated
was Arkansas at $14 .26 per hour, still double
the federal minimum wage. And these numbers are
just so starkly different from the minimum wage
in those same areas. Well, exactly. The MIT Living
Wage Calculator uses a similar expense -based
approach, and it produces a U .S. heat map showing
that even for a single adult with no children,
the estimated living wage ranges from $15 to
over $20 per hour across most of the country.
So it confirms that $7 .25. is just, it's not
a living wage anywhere, really. Not in almost
any urban or suburban environment, no. Okay,
so if the living wage is this highly variable
needs -based goal, a measure of dignity, then
the minimum wage is something else entirely.
It's a legal boundary. Precisely. The core definition
of the minimum wage is just the lowest remuneration
that employers can legally pay their employees.
It's a statutory wage, a legal price floor for
labor, enforceable by law. Simple as that. And
the key distinction, which is what causes all
the policy conflict, is that the minimum wage
can and often does fail to meet the requirements
for that basic, decent quality of life. And that
failure is a policy choice, isn't it? It is the
central conflict in the modern debate. When the
legal minimum wage falls short of a living wage,
it means that worker cannot meet their essential
needs through employment alone. Which forces
them onto government programs. Exactly. Forcing
them to rely on government programs for supplementary
income. This is the heart of that welfare subsidy
argument we'll get into later. Economically speaking,
the minimum wage is a legal threshold, a non
-negotiable floor, while the living wage serves
as a guideline or a moral target for where that
floor ought to be. That difference becomes just
crystal clear when you zoom out to a global view.
Let's look at how the mandatory minimum wage
looks across different developed economies using
2024 OECD data. And this data is adjusted for
purchasing power parity or PPP, which makes the
figures comparable in real terms. The divergence
is dramatic. So who's at the top? At the higher
end of the OECD, you find countries that effectively
use the minimum wage as a near -living wage floor.
Luxembourg and Germany are both around $17 per
hour. The U .K. is at $16, and the Netherlands
and New Zealand are also high. So these countries
have national minimums that are relatively robust
compared to their cost of living. Right. But
then you have nations like the United States,
where the federal rate is just a mere $7 an hour,
though of course many states mandate higher,
and Mexico is even lower at $3 per hour. That
gap between a $17 floor and a $7 floor just shows
these vastly different national attitudes toward
what the minimum wage is even for. It reflects
whether the minimum wage is seen as a primary
anti -poverty tool or just a safety net against,
you know, egregious exploitation. And this brings
us to a very specific metric economists use to
gauge this. The Kites Index. Tell us more about
this metric. Why is it so telling? The Cates
Index is simple, but it's really powerful. It
is the ratio of the legal minimum wage to the
median wage in that country. It tells you how
close the floor is to what a typical worker makes.
And among the OECD countries listed in our data,
the United States has the lowest CAITS index.
It's at 0 .25. So 0 .25 means the federal minimum
wage is only one quarter of what the typical
American worker earns. That is a massive gap.
It is. It shows the minimum wage is not tracking
national prosperity at all. Now, contrast that
with, say, Colombia, which has a CAITS index
of 0 .92. Almost one to one. Almost. Or Costa
Rica at 0 .87. In those countries, the minimum
wage floor is nearly synonymous with the median
income. So this index clearly shows whether a
country is setting a very low baseline for entry
level work like the U .S. or if it's trying to
use the minimum wage as a primary forceful tool
for wage equalization. The index itself is a
proxy for the whole philosophical debate. That
comparison really drives home the point that
before this was a policy debate or a statistical
argument, it was a profound question of societal
fairness and human dignity. Okay, let's unpack
this. The idea of a needs -based wage stretches
back far beyond modern industrial economies.
That's right. The concept of an income that ensures
the communal good or just basic fairness can
be traced all the way back to ancient Greece.
And Aristotle's contribution is particularly
significant here because he explicitly linked
income to quality of life and the ability to
participate fully in society. He certainly did.
Aristotle saw self -sufficiency, a life that
lacked nothing essential, as a requirement for
happiness. And he defined happiness as that which
on its own makes life worthy of choice and lacking
in nothing. That's a high bar. It is. And crucially,
he placed the responsibility for ensuring that
the poor could earn a sustainable living squarely
on the state. These weren't just abstract moral
points. They were political arguments about how
to maintain a functional society. And this philosophical
bedrock, it then evolved into theological discussions
during the medieval period, particularly around
trade and fairness. Right. Scholars like Thomas
Aquinas argued for a just wage, and he directly
correlated it with the concept of just prices.
Just prices were those that allowed everyone,
regardless of their status, to get access to
life's necessities. Though a wage that didn't
allow for that was unjust. It was considered
inherently unjust because it imperiled the virtue
and moral capability of those without access.
If a worker couldn't afford food or shelter,
how could they possibly uphold their spiritual
or civic duties? The theological concern was
that poverty forced individuals into sin and
vice, and therefore an unjust wage imperiled
the soul. And then we get to the earliest form
of state intervention. which ironically was born
out of a crisis where the state was trying to
suppress wages. This is a fantastic piece of
historical irony. We're talking about the ordinance
of laborers in England in 1349. The Black Plague
had wiped out a third of the population, creating
this severe labor shortage. So supply and demand
kicked in. It did its thing and wages soared.
Landowners and the ruling class panicked and
enacted the ordinance, which was designed to
set a maximum wage a ceiling to stop workers
from demanding too much. They were trying to
rewind the clock on market forces, but that policy
failed and it laid the groundwork for the exact
opposite policy decades later. Precisely. The
policy evolved. It became the statute of laborers.
By 1389, instead of setting a simple ceiling,
it was fixing wages to the price of food, trying
to stabilize the system. That state mechanism
of setting a wage based on calculated needs,
even if the initial goal was constraint, created
the institutional machinery. And this leads to...
The first minimum wage. Eventually, this long
history culminates in King James I's 1604 Act
fixing a minimum wage, specifically for textile
workers. The initial attempt to set a wage ceiling
inadvertently paved a way for the first formal
minimum wage floor, a surprising lineage for
the modern system. It's important to remember
that this moral imperative didn't just die with
the rise of industrial capitalism. Even the canonical
figures of classical economics recognize the
necessity of adequate pay. You're talking about
Adam Smith himself. Exactly. We often think of
him as the champion of free markets. But his
work, Wealth of Nations, recognized that rising
real wages were a significant advantage to society.
Smith was very clear on this. He argued, and
I'm quoting here, that those who feed, clothe
and lodge the whole body of the people should
have such a share of the produce of their own
labor as to be themselves tolerably well -fed,
clothed and lodged. More than just subsistence.
Way more. He advocated for an equitable share.
For Smith, higher wages actually increased labor
productivity. A well -fed worker is a better
worker, which benefited the entire economy. He
saw higher wages as a driver of overall growth,
not just a cost to be minimized. And the moral
foundation was continuously reinforced outside
of secular economic theory, especially by powerful
religious institutions. Yes, the Catholic Church
has provided long -standing philosophical support,
starting with Pope Leo III's 1891 encyclical
Rerum Novarum. This document clearly articulated
that wages should be sufficient to support the
family wage concept. And that view has been consistent.
Very consistent. It's been reaffirmed across
the centuries, most notably by Pope John Paul
II in 1981, who stated that a just wage is the
concrete means of verifying the whole socioeconomic
system. The moral imperative spanning from Aquinas
to the 20th century has consistently placed the
needs of the worker and their family above the
pure pursuit of profit. This rich moral bedrock
really informs the contemporary arguments, which
frame the living wage not as a temporary anti
-poverty patch, but as a fundamental right essential
for a functional, sustainable democracy. Modern
proponents typically rely on three powerful ethical
frameworks. First, there's the rights perspective,
championed by thinkers like John Ryan. He argues
the living wage is a right derived from the concept
of the common bounty of nature. So if private
ownership stops laborers from accessing essential
resources, the owners have an obligation. That's
the argument. That's a strong claim. That the
right to a decent life is superior to an employer's
right to set wages based only on market clearing
prices. It is. And this connects to the second
framework, the argument based on community health
and stability, the communal civic republicanism
perspective, as articulated by Gerald Waltman.
And his view is that poverty is just. Bad for
everyone. Right. Waldman views poverty and extreme
inequality as inherently destructive to a healthy
community. A living wage ensures basic autonomy.
It prevents that societal fissure that develops
between the extremely rich and the chronically
poor. And it ensures all classes can participate
meaningfully in civic and political life. If
you're working three jobs just to survive, you're
not going to be an engaged citizen. You lack
the time, the resources, the mental capacity.
It compromises social sustainability and cohesion.
Okay, here's where it gets really interesting
for me. Connecting that moral failure directly
to hard economic costs through the concept of
negative externalities, particularly from the
perspective of Donald Stable. Stable's moral
economic thought links the lack of a living wage
to profound economic inefficiencies. He argues
that by paying subliving wages, businesses are
not paying the full cost of maintaining their
labor force. They're pushing that cost onto someone
else. They are imposing a negative externality
on society, essentially exploiting and exhausting
the workforce. This failure to internalize the
true cost leads to a mispricing of products.
If your low -cost widget relies on the community
to cover the health care and housing, of the
worker who built it, that widget is artificially
cheap. And this leads directly to the core of
the well -known welfare subsidy argument. Precisely.
Economists like Mullenberg, Singh, and Grimshaw
reiterate that externality argument. They state
clearly that welfare programs, housing assistance,
food stamps, school meals, they effectively act
as a direct taxpayer -funded subsidy to employers
who pay low wages. So taxpayers are covering
the true cost of labor for private companies.
That's the argument. Society, via its taxes,
is covering the true cost of maintaining the
workforce, while the employer enjoys the low
labor cost and retains the profit. This became
a high profile political issue when politicians
criticized large retailers like Walmart, arguing
taxpayers shouldn't have to subsidize the wealthiest
corporations just so they can pay low entry level
wages. It flips the moral critique into an economic
inefficiency argument. That moral argument didn't
just disappear, it crashed head -on into neoclassical
economic theory. Now we transition from philosophy
to formal economic models. Minimum wage implementation
is analyzed as a classic price floor intervention,
and the debate rages because the simple theoretical
predictions clash so intensely with complex empirical
reality. The classical prediction is really the
cornerstone of opposition to minimum wage hikes.
This model assumes a perfectly competitive labor
market, where labor is homogeneous and workers
are perfectly mobile. So in this textbook world,
the minimum wage acts like a classic price floor
on labor. Just like a price floor on corn or
oil. Exactly. And if this price floor is set
above the equilibrium wage, that's the market
clearing price where supply meets demand. Standard
theory dictates a surplus of labor will occur.
And that surplus is. By definition, unemployment.
It is because firms demand fewer workers at the
higher price. And at the same time, more workers
are willing to supply their labor at that higher
statutory rate. And the consequence of this,
according to the standard model, is that the
job losses are concentrated among the most vulnerable
workers. The theory predicts that the minimum
wage prices the services of the least productive
workers out of the market. These are the individuals
with the lowest wages to begin with, typically
those with limited skills or education. or young,
inexperienced workers. So if a worker's productivity
is less than the new wage, the employer won't
hire them. A rational employer won't. Critics
also argue that this accelerates labor substitution,
encouraging employers to quickly replace low
-skilled labor with capital -themed self -checkout
kiosks or automation further depressing entry
-level positions permanently. The classical prediction
is simple. Mandated high prices lead to less
demand. But modern labor economists have pushed
back hard against that simple theoretical certainty,
questioning the core assumption of perfect competition.
They argue that labor markets are often imperfect,
and that's where the alternative models gain
their power. That's where the monopsony model
provides a powerful and often highly relevant
counter -framework. A monopsony is a single buyer.
In a labor context, it means an individual employer
often has some degree of wage -setting power.
How does that happen? It happens because workers
aren't perfectly mobile, maybe because of high
search costs or geographic isolation, non -compete
clauses, or just the dominance of one big employer
in a small town. So if a company is basically
the only game in town, they don't have to compete
aggressively on wages, right? Precisely. They
can pay workers less than the actual value the
workers create for the firmless than their marginal
revenue product. When that happens, the market
is failing. So the minimum wage could actually
fix the market. In this scenario, a moderate
minimum wage doesn't cause unemployment. It actually
corrects the market failure. By fixing a price
floor closer to the marginal product of labor,
it forces the monopsonist employer to raise wages,
which can actually increase labor demand, potentially
increasing both employment and efficiency at
the same time. The minimum wage in this view
is a necessary regulation policy. That completely
flips the script. But how does the macroeconomic
view, the Keynesian view, support this? The Keynesian
view focuses on aggregate demand. A minimum wage
increase necessarily shifts income from high
income earners who tend to save a lot to low
income workers who have a very high propensity
to spend their entire paycheck immediately. So
more spending in the economy. Right. This increase
in purchasing power for low income workers stimulates
aggregate demand across the economy. That increased
demand for goods and services encourages companies
to expand production and therefore hire more
workers to meet the new sales volume potentially.
And beyond these entire economic models, there
are specific critiques of why that simple supply
-demand model just doesn't translate well to
real -world business decisions. One major factor
is inelastic demand for the final product. If
the demand for a firm's product, say fast food
in a highly convenient location, is highly inelastic,
management can absorb the cost increase by passing
it on to consumers as higher prices without reducing
jobs. And labor costs are often a smaller piece
of the pie than people think. They often are.
Then you have the counterintuitive idea that
paying more can actually save the company money.
The efficiency gains argument. Exactly. Higher
wages often lead to significantly reduced employee
turnover. Low turnover means the firm saves money
on constantly recruiting, interviewing, and training
new employees. It also means employees are more
experienced and productive. These saved costs
can, in some cases, fully or partially offset
the higher wage rate. Finally, we noted that
the most complex mathematical models, they deal
with the sheer friction of the labor market.
the difficulty of finding the right job or the
right worker. Absolutely. In labor markets, with
frictions like search costs or lack of perfect
information, the model suggests significant nuance.
They show that if the minimum wage is set at
a sufficiently low level, it can actually boost
the job search effort of the unemployed and decrease
the overall unemployment rate. Because the reward
for finding a job is greater. Exactly. Conversely,
they confirm that a very high minimum wage is
still detrimental. This suggests the impact isn't
just binary. It's highly sensitive to the exact
level set relative to the median wage and productivity.
OK, this is where theory meets reality and where
the consensus among economists truly collapsed
over the last few decades, forcing a dramatic
reevaluation of long held assumptions about the
minimum wage. For decades, I mean, until the
mid 1990s, the economic consensus was almost
monolithic. The minimum wage unequivocally reduced
employment. especially for young workers. This
changed decisively with the 1992 New Jersey,
Pennsylvania study by David Card and Alan Kruger.
This study became famous because of its methodology.
They focused on the fast food industry, a major
employer of minimum wage labor, after New Jersey
raised its minimum wage from $4 .25 to $5 .05
per hour, while neighboring Pennsylvania's rate
held steady. The methodology was crucial, a difference
in differences approach. They surveyed fast food
restaurants in both states before and after the
New Jersey hike, and their initial surprising
finding was that the minimum wage increase slightly
increased employment in the New Jersey restaurants.
Increase it. Slightly increased it compared to
Pennsylvania. This result fundamentally contradicted
the supply and demand prediction. Their 1995
book, Myth and Measurement, didn't just challenge
the consensus, it shattered it and ushered in
a new imperialism. empirically driven era of
minimum wage research. But that finding didn't
end the debates. It ignited a methodological
war. Subsequent research immediately tried to
refute their findings. Exactly. The debate immediately
became a battle over data sources. David Newmark
and William Washer later reexamined the data,
but they used official payroll records from large
fast food chains instead of the phone surveys
Card and Kruger had conducted. And they found
the opposite. Newmark and Washer claim to find
the predicted employment decreases. This methodological
dispute surveys versus administrative payroll
data became the core tension in labor economics
for years. Later, analyses have tried to reconcile
these differences, showing that maybe positive
employment effects were localized in small independent
businesses, while large corporate chains showed
the negative effects more clearly. So after all
this back and forth, what does the weight of
modern evidence tell us about the actual impact
on the goal of fighting poverty? When analyzing
the impact on poverty, the sources draw a subtle
but clear line. The evidence suggests that living
wage legislation modestly reduces urban poverty
rates. But not minimum wage laws. In stark contrast,
state minimum wage laws often fail to show this
measurable, direct effect on poverty reduction.
But we have to factor in the limited scope of
living wage laws. Right. They usually only apply
to businesses that have government contracts.
That limitation is fundamental to understanding
their societal impact. Because of their limited
application, it's estimated that only one to
two percent of the bottom quartile of the wage
distribution actually qualify for living wage
legislation. So while they might be locally effective,
their overall impact on national poverty is small.
Let's dive into the hard economic tradeoffs.
Using the Congressional Budget Office, the CBO,
their projections on raising the U .S. federal
minimum wage significantly. This gives us the
clearest look at the predicted cost. The CBO
projected in 2021 that raising the federal minimum
wage incrementally to $15 per hour by 2025 would
be a massive policy intervention. It would directly
increase wages for 17 million workers and lift
900 ,000 people out of poverty. Those are significant
poverty reduction gains. They are. But this is
where the policy tradeoff becomes stark and unavoidable.
The other side of the ledger. Absolutely. The
CBO also projected that the same policy would
reduce employment by approximately 1 .4 million
people. Furthermore, it would lead to a slight
decrease in overall economic output and cause
prices to rise. So for critics, that 1 .4 million
lost jobs number is definitive proof that the
standard model still holds true at scale. And
for proponents, the 900 ,000 lifted out of poverty
makes the policy worthwhile. It forces an ethical
choice on policymakers. We even have more recent
specific data from California. following a significant
$16 to $20 per hour fast food minimum wage increase.
Yes. Studies tracking this immediate sharp height
estimated a 2 .7 to 3 .6 percent decline in fast
food employment in California compared to the
rest of the U .S. during the same period. This
translates to an estimated 10 ,000 to 23 ,000
lost jobs in that highly specific sector. So
the empirical evidence here supports the classical
prediction for sharp, focused increases. Yet
we can't ignore the non -economic benefits that
accrue, especially for employers. who voluntarily
adopt the higher ethical standard of a living
wage. Research consistently supports these soft
benefits. A study in Canada found that workers
who received a living wage showed significantly
higher effective commitment to their organization,
meaning they genuinely liked and felt loyal to
their employer, and they had lower turnover intention.
And this translated into better behavior. It
did. They protected the company's public image,
and they were more willing to help colleagues.
This is interpreted through social exchange theory.
You treat me well, I feel a mutual obligation
to you. It improves overall organizational stability.
And moving beyond the workplace, minimum wage
increases have been linked to some surprising
social benefits that reduce societal costs. Yes.
Studies show that higher minimum wages are correlated
with a decline in property and drunk crimes among
ex -incarcerated individuals. And even more profoundly,
one study found that for every $1 increase in
the minimum wage, the annual suicide growth rate
fell by 1%. Wow. When economic pressure is reduced,
mental health outcomes improve. Finally, let's
circle back to that crucial question of who ultimately
pays the pass -through of costs to the consumer.
Yeah. How significant is that erosion of the
nominal wage increase? That pass -through is
a consistent finding. A 10 % minimum wage hike
is typically translated into higher consumer
prices. Specifically, studies suggest this might
translate to about a 0 .4 % increase in grocery
prices. And for fast food? In the fast food sector,
studies on McDonald's found a 10 % minimum wage
increase translated to a 1 .4 % increase in the
price of a Big Mac. What this means in practice
is that low -wage workers, who are also customers,
end up paying slightly higher prices. So the
increase in their real wage, their purchasing
power, is slightly less than the nominal increase
suggests. The journey of economic opinion itself
is one of the most compelling narratives in this
whole deep dive. The declining consensus is just
dramatic. It's a huge story. In 1978, a staggering
90 % of surveyed economists agreed that the minimum
wage increases unemployment among low -skilled
workers. That certainty has been completely eroded.
What's the number now? By 2000, that number in
full agreement had dropped to only 46%, although
74 % still agreed with the statement if you included
various provises like, only if it is set too
high. This shift is entirely attributed to the
debate sparked by the Card and Kruger research.
It forced the profession to acknowledge the limits
of the simple textbook model. It did. And when
we look at the highest level meta -analyses,
the studies that synthesize all the research,
the current professional assessment is, well...
It's nuanced. What's the bottom line? The most
recent ones suggest a minimal employment effect
overall, while confirming a significant increase
in earnings for low paid workers. Many of these
analyses explicitly correct for historical publication
bias, where studies that found a negative result
were more likely to be published. So what's the
honest assessment now? The honest assessment
as of 2021 is simply that there is no consensus
on the employment effects of the minimum wage.
We are truly in a period of intense intellectual
uncertainty. And this lack of consensus in theory
has led to really diverse policy responses globally.
The application of the living wage model is most
visible in these large -scale social movements,
often leading to voluntary standards that aim
to surpass government mandates. The UK Living
Wage Foundation, LWF, is a perfect example of
a successful voluntary system driven by grassroots
activism. It started in London, right? It did,
launched by London Citizens in 2001. It's a coalition
of community organizations and unions. And they
don't lobby for legislation. They promote a voluntary
accreditation scheme for employers to pay a wage
calculated to meet the costs of a basic decent
life. It creates a moral incentive for firms.
And it's crucial. to draw that line again between
the voluntary living wage and the government's
mandatory floor. Absolutely vital. When the UK
government introduced the mandatory national
living wage in 2016, it sounded like they'd adopted
the movement's goal. But the government's rate
was and remains a lower statutory minimum for
older workers. It's distinct from the LWS calculation,
which is based purely on need. The voluntary
standard maintains an ethical high ground. This
movement is also really active in targeting multinational
supply chains in the developing world, where
the moral argument is perhaps the most urgent.
That's the mission of the Asia Floor Wage, AFW
coalition. They tie up multinational employers
in textile manufacturing across 11 Asian countries.
Their goal is to implement a true living wage
in sectors where wages can be exceptionally low,
sometimes as low as U .S. $38. per month in places
like Bangladesh a decade ago. So they're pushing
the moral framework onto global commerce. Exactly.
They're asking multinational brands to cover
the true externalized cost of labor in their
supply chains. In the Republic of Ireland, the
campaign also focuses heavily on objective calculation
to drive voluntary compliance. Since 2014, the
Irish campaign has been very active, using academic
research into a minimum essential standard of
living, MEASL, to set its targets. The MEASL
research determines the minimum necessary income
for different household types. And has it been
effective? The social pressure has been effective.
Major companies, including supermarkets like
Little and Aldi, committed to paying the living
wage in 2020, illustrating the impact of a clear,
verifiable, ethical standard. In the U .S., living
wage policies have historically been localized
and served as policy laboratories, though their
scope is limited. Right. U .S. living wage laws
typically cover only businesses with government
contracts or receiving state assistance. Early
examples include Santa Fe, San Francisco and
critically Miami -Dade County in Florida, which
in 1999 became the first location in the South
to pass such an ordinance. And these policies
often try to bridge the gap by tying the wage
to inflation. They do. For instance, the Miami
-Dade rate reached over $12 an hour with benefits
or $15 without by 2018 rates significantly higher
than the federal minimum. And sometimes the moral
argument needs more than just a well -researched
proposal. It needs direct action to pierce the
public consciousness. The University of Virginia
Living Wage campaign in 2012 is a great anecdote
of this. Twelve students initiated a hunger strike
to publicize the issue of low -paid contracted
workers, bringing intense public and media scrutiny
to the university's labor practices. It shows
that the moral and ethical components are often
the most powerful tools activists have. Let's
pivot to a foundational global precedent. Australia's
legal system provides an incredibly early, powerful
example of mandating a human dignity wage. The
1907 Harvester Judgment in Australia is a landmark
ruling. It set the stage for defining wages based
on social necessity. The ruling mandated that
an employer pay a wage guaranteeing a standard
of living reasonable for a human being in a civilized
community living in frugal comfort. And it mandated
regardless of the employer's ability to pay.
Exactly. It firmly established that labor laws
should guarantee a standard of living based on
social decency, not just the market's current
ability to clear prices. Finally, we have the
tragic case of Lebanon, illustrating what happens
when the legal framework, however robust, robust,
is rendered meaningless by macroeconomic collapse.
Lebanon provides a stark lesson in fragility.
Following the financial collapse that began in
2019, the local currency plummeted, pushing three
quarters of the population into poverty. The
minimum monthly wage, which had been about USD
$450 pre -crisis, lost virtually all its real
value. It sank to barely $30 by 2021. This failure
occurred despite Lebanese law mandating that
the minimum pay must be sufficient to meet essential
needs. It shows that macroeconomic stability
is absolutely essential for even the most ethically
sound statutory minimums to work. Since the minimum
wage is frequently criticized, especially due
to the empirical evidence showing that at scale,
it carries the risk of job cuts, economists often
propose alternative policy tools, things that
aim to achieve the same anti -poverty goals without
directly interfering with the price of labor.
And let's start with that fundamental economic
criticism that remains powerful, even with the
shift in consensus. The unemployment risk. Right.
If the legal price floor is set too high, it
leads to unemployment and reduces the availability
of crucial entry level jobs. This is also linked
to the argument that a business voluntarily adopting
a high living wage will struggle to compete with
rivals who pay lower market rates. The second
major criticism is that the minimum wage is just
a blunt instrument poorly targeted for poverty
relief. Correct. Critics argue it's an inadequate
anti -poverty tool because the benefits often
miss the intended target. Many beneficiaries
are secondary earners in relatively high income
households, like a college student working a
summer job while living at home. So the policy
doesn't target the actual working poor efficiently.
A 2000 survey of labor economists showed only
31 % viewed minimum wages as the most effective
tool for fighting poverty. They preferred other
methods that target income directly. So if the
minimum wage is a blunt instrument that may cause
job loss and is poorly targeted, what do economists
propose as a cleaner solution to help the working
poor? The alternatives are designed to solve
the low wage problem by using the tax code or
improving worker value rather than dictating
a price floor that interferes with the labor
market. And the alternative most highly supported
by economists is tax based income support. That
is the refundable tax credit, specifically the
Earned Income Tax Credit or EITC in the US. In
that same 2000 survey, 98 percent of economists
views this type of policy as an effective anti
-poverty measure. How does it work? It works
by supplementing the income of low -wage workers
through the tax system. Crucially, the credit
is targeted only at those with earned income,
reinforcing the work ethic, but it avoids subsidizing
low -income workers from high -income families,
making it far better targeted. And it was championed
across the political spectrum, which speaks to
its effectiveness. It was. President Reagan famously
called the EITC the best anti -poverty, the best
pro -family, the best job creation measure. Economically,
its effectiveness is often undisputed because
it doesn't directly raise the cost of hiring
labor for the employer, minimizing the job loss
prediction. The CBO agrees. The CBO itself found
that the EITC delivers larger monetary benefits
to the working poor at a lower overall societal
cost compared to minimum wage increases. It's
a more efficient alternative. The other major
alternative is the complete support model, basic
income. Basic income, or UBI, involves providing
every citizen with a periodic, unconditional
sum of money sufficient to live on, regardless
of employment status. Proponents argue this radically
changes the dynamic. It increases worker bargaining
power. Significantly. If you have a guaranteed
floor of income, you aren't desperate, and you
can refuse a substandard job. This allows individuals
time to search for a better job or invest in
education. Proponents also argue it's more economically
efficient because it bypasses the employer entirely.
We also noted that some highly developed economies
manage wage floors without any statutory minimum
wage. Yes. Countries like Sweden, Denmark and
Italy. They rely exclusively on collective bargaining.
They achieve very high minimum earnings by sector
through agreements negotiated directly between
strong employer groups and powerful trade unions.
But that system only works because of high union
density. It's only viable because of the very
high union participation rates in those countries,
which gives labor the necessary power to negotiate
effectively across entire industries. And finally,
a strategy focused not on regulating price, but
on increasing worker value itself. Education
and training. This strategy attempts to fundamentally
alter the supply curve of labor. By providing
state -funded apprenticeships or technical training,
like Germany's renowned dual system, low -skilled
workers are enabled to increase their value and
move into higher -paying roles. This decreases
the supply pressure on the low -skill labor market.
It focuses on mobility and investment rather
than regulation. Precisely. We've covered a tremendous
amount of ground today, transitioning from Aristotle's
philosophy all the way to 21st century empirical
data. To synthesize the key knowledge nuggets
we've extracted, the living wage is fundamentally
an ethical standard demanding a decent quality
of life without government subsidy. Contrasting
sharply with the minimum wage, which is just
a legal price floor, we traced the history of
the needs -based argument from Aristotle's self
-sufficiency principle to Adam Smith's call for
equitable shares. And we also thoroughly dissected
that major split in economic theory, the classical
supply and demand model versus the modern monopsony
and frictional market models, which shows why
the longstanding consensus on job loss has eroded
so dramatically. And the real world evidence
confirms this complexity. We see these real quantified
tradeoffs like the CBO projecting 900 ,000 left
out of poverty versus 1 .4 million lost jobs.
But we also saw evidence of non -economic benefits
like reduced crime and higher employee commitment
when a living wage is implemented. This leads
us back to the final necessary conflict. If the
core policy fight boils down to who ultimately
pays the cost of maintaining a low -wage workforce,
the consumer, the taxpayer, or the employer.
And we know empirically that minimum wage increases,
like that 1 .4 % price hike on a Big Mac, are
often passed on as price increases to the consumer.
Then, what happens to the core ethical mission
of the living wage when the poorest workers who
benefit from the higher paycheck end up paying
a hidden sales tax on the very goods and services
they buy? That conflict, the erosion of the real
wage through cost passed through, is the core
tension of distributive justice worth mulling
over long after this deep dive is complete, an
economic problem where the solution seems to
be part of the cost. Thank you for diving deep
with us. Thank you.