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Building shield

If you’re on the conservative wing of the Conservative Party then you obviously care about family structure and stability. But do you also care about low pay? Writing for the American Institute for Family Studies, Amber and David Lapp argue that you jolly well ought to.

There is a “conservative case to be made for the living wage” they say – or, to use the terminology of the Catholic Church, the ‘just wage’:

“…according to the Catechism of the Catholic Church, ‘A just wage is the legitimate fruit of work. To refuse or withhold it can be a grave injustice.’

… in his encyclical Centesimus Annus, St. John Paul II says that ‘society and the State must ensure wage levels adequate for the maintenance of the worker and his family, including a certain amount for savings.’”

On this definition, there are millions of jobs where a just wage is indeed withheld:

“How is a parent of two or more children supposed to support a family, and leave aside a certain amount for savings, with an annual wage of $20,000? (We haven’t even mentioned that these low-wage jobs rarely offer health insurance or other benefits that college-educated people mostly take for granted.)”

In practice, the state steps in to ensure a basic standard of living (at least in the case of people with children):

“…corporations that pay employees low wages effectively depend on subsidies (food stamps, Medicaid, the EITC) from taxpayers and the government to top off their low-wage workers’ incomes… What corporations don’t do—pay their average workers a living wage—they can depend on taxpayers and the government to do.”

There are two kinds of welfare at work here. Benefits and tax credits for the low paid and ‘corporate welfare’ for the companies that pay low wages:

“Conservatives concerned about unsustainable levels of government spending should care about a living wage because when businesses don’t pay living wages, taxpayers foot the bill and the welfare state expands.”

In addition to the moral, pro-family argument and the small state argument, there is third part to the conservative case for a just wage – the market interference argument.

Contrary to the objection that low pay is inevitable for unskilled workers and better than no pay at all, there are companies in sectors like retail who make a point of paying a living wage:

“…businesses like Costco (where the average hourly employee earns more than $20/hour) and Hobby Lobby (whose full-time employees start at $14/hour)…”

Enterprises like these stay competitive because they’ve developed business models that make the most of a loyal and motivated workforce. Other companies will choose other ways of doing business.

The trouble is that in topping up poverty pay, the modern welfare state effectively subsidises one business model, but not the other. In fact, it effectively transfers resources from companies who do pay a just wage to those who don’t. This represents a major distortion of the market – one that all conservatives should object to.

Is there anything government can do put a stop to this?

Short of dismantling the tax credits system for working families or legislating for a living wage, there is one thing: Where companies that pay low wages make a profit, the Treasury should clawback the cost of tax credits before a single penny gets paid out in bonuses or dividends.

The money could be used to help fund a higher threshold for National Insurance Contributions. In other words, let’s cut the subsidy for poverty pay and use the savings to cut the tax on jobs.

21 comments for: The state should stop subsidising poverty pay

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