Skip to main content

The living wage

The issue of the “living wage” inevitably crops up from time to time and has done so again recently. The notion can be traced back to at least St Thomas Aquinas and has long featured in Catholic moral teaching. The Anglican Archbishop of York recently called for a ‘living wage’ to be paid to all government workers. In a recent newspaper article, he said, “what workers really need is pay, not platitudes”.

We have always asserted that workers should receive the full fruits of their labour, and in most normal circumstances that should be more than enough to support a labourer and his family. The difficulty is that wages cannot be set directly by legislation or decree, because they are governed by economic laws. These need to be understood if the problem is to be remedied.

The law of wages can be formally stated as follows: where land is free, and everyone who so wishes may procure a portion to himself, wages are determined by what a man can produce at the margin without the payment of economic rent. In this situation, there is always the choice between working for an employer and working on one’s own account on a plot of marginal land, free of any requirement to pay rent. In practice, this might mean the opportunity to provide for oneself on some kind of smallholding. Of course not everyone would wish to or be able to, but the fact that the opportunity existed would mean that no-one would be forced to work for penurious wages as they would always have the option to be self-sufficient.

In practice, all land is normally enclosed. Everyone who is not a landowner is like someone who joins a game of Monopoly after all the squares (apart from the twelve that are not for sale) are owned by one or more of the original players. The newcomers are obliged to pay rent almost wherever they land. The board game is in this respect a true model of the real world. Where all land is enclosed, those with no access to land must either pay rent or work for wages on the best terms they can obtain, in other words, the least anyone will accept. Since they cannot work for each other on their own account, they will be competing for apparently scarce jobs. This will drive down wages to a subsistence level. Where some kind of benefit payment system is in operation, take-home pay will equate to the level of benefits. In effect, the benefit sets a “floor” to wages. The overall result is that economic activity is throttled.

A further effect of an increase in wages is to drive up residential rents and property prices. Thus, the minimum wage legislation eventually leads to no overall improvement. The effect was described in a speech given by Winston Churchill in the House of Commons in 1909, when he was campaigning for land value taxation:

“Some years ago in London there was a toll-bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings appealed to the public conscience: an agitation was set on foot, municipal authorities were roused, and at the cost of the ratepayers the bridge was freed and the toll removed. All those people who used the bridge were saved 6d. a week. Within a very short period from that time the rents on the south side of the river were found to have advanced by about 6d. a week, or the amount of the toll which had been remitted.”

For practical reasons, in our present system of economic organisation, all land is, probably of necessity, enclosed. For historical reasons, this enclosed land is owned and controlled by a small proportion of the population. In these circumstances, the best and quickest way to increase the general level of real wages is to abolish taxes on wages and production and use the annual rental value of land as the principal source of public revenue. It would probably also be necessary to introduce some kind of unconditional “citizens’ income”, paid for out of the land value tax, as a safety net for those who were genuinely unable to provide for themselves.