Why the need of a living wage

It could have been 40 years to the day. I had just settled down in my new place at Plater College, a Catholic college in Oxford, when during a class by the college principal, Joe Kirwan, on the social teaching of the Church on economic matters I recall being asked point blank: “ Edward, do you agree with the Pope Leo XIII in Rerum Novarum that businesses should pay a living wage?” As a budding economist I recall disagreeing vehemently, arguing that businesses cannot discriminate between the family situation of different workers, single, married, married with children and so on. Businesses had to pay the market wage and the government should do the rest.

So it is quite a wake-up call to comment today on this 120-year concept, now that it is being resuscitated by two upcoming young Labour Party leaders at home and in the UK.

We must recall the context in which the Pope had first raised this concept. It was a time when capitalism was coming to mean the slavery and misery of the working class, which seemed to be destined by a market system to lifelong poverty.

The political answer seemed to favour the uprooting of the capitalist system with a communist one where capital should not be used by some persons to enslave others. Faced with such a threat, the Church wanted to save the day by imploring the business class to be more humane in their wage policy if they were not to be overtaken by communism.

A lot of water has passed under the bridge since then. A global economic depression followed by two world wars gave many a political and economic lessons to many.

Workers learnt that to obtain their rights they had to get organised in trade unions. Labour movements realised that the best way to exert political power was to seek political representation.

Wages have since improved appreciably through economic growth but more so in those sectors that were unionised.

Following World War II, starting in the UK and spreading globally, the welfare state, which was meant to take care of the citizen from the cradle to the grave, took root and grew in different shapes in many a country. The mixed economy came to stay even in the US.

The welfare state sought to compensate families not by raising wages but by taxing incomes of those persons who earned most to compensate those who earned least.

Over time, growth did raise wages in nominal and real terms, that is, over and above the rate of inflation. Productivity increases were the source of these raises. But, again, this success could not be maintained in all sectors or branch of industry, especially in those depressed or declining ones.

The practice of an effective legal minimum wage was thus introduced in some countries. Each country sought its own way to notch it up from time to time to keep up with inflation.

Furthermore, over the last three decades, the popularisation of many a privatisation made many families owners of assets other than their homes. Wages were now supplemented by other sources of unearned income.

So why should one raise the concept of a living wage now?

The naked truth is that never as today have so many families felt themselves slowly but surely sliding down into abject poverty. Many Maltese families are feeling they can no longer live decently with one’s wage and crumbling welfare state system. What has been obtained incrementally over four post-war decades is now unravelling in a matter of a few years.

A decade of sluggish growth, exploding deficits and high debts has put our economy in a straight jacket whereby the old tricks of the past do not seem to work anymore.

And although we seem to convince ourselves that Malta came out unscathed from the global financial and economic crises, the results show that, compared to other countries, our relative performance (in exports, foreign investment and employment rates) over the past decade failed miserably.

Hidden regressive taxes under various guises have been introduced.

The national tax share and its record jump proves it. Nibbling at the welfare state is carried out in a haphazard fashion, which only hurts the poor and the powerless. Our real barometer are the real families who, within the confines of their home, find that their maths do not add up. Poverty is becoming a real threat. Their wage is definitely not delivering what they consider decent living. Definitely they yearn for a living wage.

Words like poverty and near poverty, with their respective percentages, seem to lose their meaning and do not carry their real and significant implication. A living wage does.

A serious debate on this subject would help us re-dimension our view of tackling the basic economic and social questions of our time – the what, the how and the for whom.

We just cannot afford to bury our heads in the sand and treat the 2011 Budget as “business as usual”.

www.timesofmalta.com – Monday, 4th November 2010

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