As tax time comes around, and as the president keeps bringing up minimum wage, let’s consider our attitudes toward income, wealth and inequality.
One of the basic tenets of the capitalist marketplace (Adam Smith) was that a moral code binds the community within which markets operate. Our moral sentiments provide the framework for fairness and help us recognize that we are all in this together. The baker and her vendors and customers will likely trade with each other more than once, so in the long run they must maintain fairness.
Perhaps there is an obvious fairness in selling bread, but as an employee of the baker, is fairness involved in how much you are paid? Federal minimum wage provisions are contained in the Fair Labor Standards Act (FLSA) which in 1947 enacted 40 cents per hour, increasing steadily to its current $7.25 in 2009.
Many states also have minimum wage laws. Some state laws provide greater employee protections and/or higher minimum hourly wage (Oregon’s is $9.10); employers must comply with both.
What standard should be used to implement fairness? One standard is annual earning. With $8 an hour, we are looking at $16,000 (before deductions), which is where the poverty level is for a household of two (single mother, for example) according to the 2014 guidelines for Medicaid eligibility. For a single person the poverty line is $11,670.
On the other extreme of the income spectrum we have entertainers. Madonna topped the Forbes 2013 list of the “Top-Earning Celebrities,” making around $125 million in one year. Is “income inequality” even relevant here?
Among athletes, golfer Tiger Woods remains a steady top-earner with estimates of $80-$100 million annually (tournaments plus endorsements). In baseball, Miguel Cabrera of the Detroit Tigers has a long-term contract of $292 million, which pales in comparison to Woods’ annual earnings. Can we compare them to minimum-wage earners?
What about University of Colorado football coach Mike MacIntyre, who earns $2.4 million-plus to coach a notoriously losing program. Is he “worth” his salary? How about comparing his compensation to that of an instructor?
At UCCS, full-time instructors (with Ph.D.) earn about $32,000 to teach eight courses with an average size of 40 students who pay about $1,000 per course. Generating $320,000 in revenue, they receive about 10 percent of what they “produce.” Will MacIntyre ever “produce” 10 times his pay? Should instructors’ pay be related to minimum wage earners?
Perhaps those endowed with super-human talents deserve to be outside the orbit of income inequality, but what about those involved in the marketplace?
In the business world, Henry Ford famously (voluntarily) doubled the daily wages of workers in 1914 to $5. It reduced attrition on assembly lines and lifted most workers into the middle class. What informed this move was neither generosity nor altruism; it was a simple principle that his workers should be able to afford to buy the cars they produced.
While the president is pleading for a $10 minimum wage, CEOs of the largest 500 U.S. corporations got raises of about 16 percent in 2013 for an average of $10.5 million annually. About 60 percent of the total came as stocks or stock options. According to the AFL-CIO, the top CEOs’ income was about 354 times that of their average rank-and-file workers.
Is the president wasting political capital? Isn’t the marketplace a place where the “fittest” rise to the top? Why would anyone want to put the government in a position to regulate how much money one makes? Will this intervention undermine job creation?
Companies whose stock is publicly traded, or public universities with state constituencies, deserve public scrutiny and regulation. They embody American values. Is fairness an American value?
The debate over income inequality and minimum wage can be framed as a debate about fairness or about job creation and growth of the economy; it can be framed in terms of unregulated capitalism or in terms of government protection of basic human dignity and wellbeing.
How should we frame the debate? Thomas Piketty illustrates that except for a few decades in the 20th century, capitalism tends to increase wealth inequality (2014). Would Adam Smith worry about this? Would he appeal to moral sentiments to battle inequality? Would he invite instead government intervention?
Raphael Sassower is professor of philosophy at UCCS. He can be reached at firstname.lastname@example.org.