The Economics and Ethics of “Just Wages”

This essay is part of our collection on common good economics. Read related pieces here.  

From a strictly economic point of view, wages are nothing more than the price of labor, which are determined by the free agreement of buyer and seller. From an ethical perspective, however, wages are often the sole means of income for individuals and families, and workers have a right to wages that are sufficient to provide the necessities of housing, food, and clothing.

At first glance, these perspectives seem diametrically opposed to each other. It may seem there is no way to maintain efficiency in labor markets and justice in providing for the needs of all workers and their families at the same time. We can either treat labor as one of many means of production and let supply and demand alone determine wages, arguing that a price floor would lead to an excess of labor supply (i.e. unemployment, especially among the poor and unskilled). Or we can argue that a minimum amount of income is due to each worker, regardless of the economic consequences, if we are to respect the inherent dignity of the human person.

The tradition of Catholic social teaching does not take such a stark view of the matter. As with the concept of the just price, the idea of the just wage combines the subjectivity of the diverse needs and preferences of individuals with the objective demands of justice. As St. Thomas Aquinas wrote in regard to prices, the just wage “is not fixed with mathematical precision, but depends on a kind of estimate” (Summa Theologiae, II-II, Q. 77). Human labor, while central to human dignity, is not immune to economics.

The teaching of the Catholic Church on the just wage avoids both the Scylla of economism and the Charybdis of moralism. In this essay, I will examine what the Church teaches about the just wage, what particular popes have said about it in certain historical contexts, and some ways to think about it in contemporary Western society.

What the Church Teaches

According to The Catechism of the Catholic Church, n. 2434,

A just wage is the legitimate fruit of work. To refuse or withhold it can be a grave injustice. In determining fair pay both the needs and the contributions of each person must be taken into account. Remuneration for work should guarantee man the opportunity to provide a dignified livelihood for himself and his family on the material, social, cultural and spiritual level, taking into account the role and the productivity of each, the state of the business, and the common good. Agreement between the parties is not sufficient to justify morally the amount to be received in wages.

This concise teaching on the just wage begins with the concept of human work as a positive good, both for individuals and for society. It assumes that such work is available and useful—that there is an actual market for it. Cheating or not paying wages is the most obvious injustice. Not only is it morally wrong, it is also foolish: no employer would stay in business for long if he did not pay his workers. We can further assume that each side (buyer and seller) knows what his or her particular needs are better than any third party ever could.

The trickier part is determining what is needed for “a dignified livelihood,” while taking productivity, the state of the business, and the common good into account. There are certain material needs for housing, food, and clothing common to all, the prices of which are affected by supply and demand. Living standards have improved over time; what was considered “dignified” in the late nineteenth century may not be so at the beginning of the twenty-first century. There are different social, cultural, and spiritual standards in different places as well.

While agreement between the buyer and seller is not morally sufficient, it is necessary. The worker should be free to change jobs, which also implies that there should be other opportunities for employment in competitive labor markets. Workers are worse off when they are completely dependent on a single employer for their livelihood. Wage labor should not be the modern equivalent of serfdom or indentured servitude.

The emphasis of Church teaching on just wages is certainly more moral than economic. Yet the Catechism, last updated in 1993, assumes the presence of functioning markets for just wages to be realized. Laws against bad labor practices should be in place, but they can only do so much. A lack of markets severely constrains the ability of workers to escape overbearing bosses and bad working conditions.

Leo XIII

The Catechism summarizes the core of what certain popes have taught in particular historical circumstances. The writings of Popes Leo XIII and Pius XI are especially helpful for understanding the just wage. Later popes developed and adapted the concept to their times, although with less stridency and urgency.

Leo XIII wrote Rerum Novarum in 1891, when the “new things” of the day were the Industrial Revolution and the Marxist reaction to it. The “social question” at the center of Leo’s concerns was how to improve the conditions of the working class. The “class consciousness” promoted by Marxists in order to justify revolution was something new as well.

The working class of the Industrial Revolution was largely made up of men moving from rural to urban areas to work in factories. Marxist theory held that the owners of capital had every incentive to lower the costs of production in their search for higher profits. Due to intense competition, workers suffered long hours, unsafe conditions, and low pay as a result. Women and children likewise enlisted in the labor force to make ends meet. Conflict between the few capitalists and many workers was therefore inevitable.

Leo addressed the “social question” in part to defuse the Marxist threat. He denied the notion of inherent, perpetual class conflict and sought to promote cooperation between capital and labor. He also defended the right to private property that Marxism saw as the root of the problem, and considered working for one’s pay as both personal and necessary, rather than alienating and exploitative.

Regarding just wages, Leo wrote approvingly of free agreements to determine wages sufficient for a minimum standard of living.

Let the working man and the employer make free agreements, and in particular let them agree freely as to the wages; nevertheless, there underlies a dictate of natural justice more imperious and ancient than any bargain between man and man, namely, that wages ought not to be insufficient to support a frugal and well-behaved wage-earner.

Following Thomas, Leo believes the just wage is both necessary for and in accordance with a life of virtue.

The just wage should also be a family wage, meant to support the worker and his family so that women and children would not have to work for wages outside the home. Practically speaking, men are better suited for hard, often dangerous work in factories and mines, Leo argues:

Work which is quite suitable for a strong man cannot rightly be required from a woman or a child. . . . Women, again, are not suited for certain occupations; a woman is by nature fitted for home-work, and it is that which is best adapted at once to preserve her modesty and to promote the good bringing up of children and the well-being of the family.

Leo favored free associations, which allowed members to assist each other and, in the case of workers, bargain collectively with employers. Unions limited the supply of labor by restricting membership and working hours, thereby raising its price. At the same time, Leo thought employers should also be allowed to associate, which would have the opposite effect on wages.

In general, individuals, families, and associations should operate outside of governmental interference, absent fraud or dire necessity. Leo argues that the “State should watch over these societies of citizens banded together in accordance with their rights, but it should not thrust itself into their peculiar concerns and their organization, for things move and live by the spirit inspiring them, and may be killed by the rough grasp of a hand from without.”

Pius XI

Pope Pius XI’s 1931 encyclical Quadragesimo Anno commemorated the fortieth anniversary of Rerum Novarum. Like Leo, Pius rejected both the Marxist-socialist and the Fascist-corporatist solutions to the “social question.” The just amount of pay is a “most difficult matter” that cannot be solved by a single measure or standard. Pius worried that

[T]he State, instead of confining itself as it ought to the furnishing of necessary and adequate assistance, is substituting itself for free activity; that the new syndical and corporative order savors too much of an involved and political system of administration; and that (in spite of those more general advantages mentioned above, which are of course fully admitted) it rather serves particular political ends than leads to the reconstruction and promotion of a better social order.

What most distinguishes the Catholic approach is its emphasis on social harmony rather than conflict. Class antagonisms breed hatred and cannot be the basis of the just wage. Our duties to God and man are more fundamental than our rights or claims on others.

To achieve this latter lofty aim, and in particular to promote the common good truly and permanently, We hold it is first and above everything wholly necessary that God bless it and, secondly, that all men of good will work with united effort toward that end.

Pius agrees with Leo that the just wage must be a family wage, allowing a worker to provide for his wife and children:

To abuse the years of childhood and the limited strength of women is grossly wrong. Mothers, concentrating on household duties, should work primarily in the home or in its immediate vicinity. It is an intolerable abuse, and to be abolished at all cost, for mothers on account of the father’s low wage to be forced to engage in gainful occupations outside the home to the neglect of their proper cares and duties, especially the training of children.

It should be no surprise that Leo and Pius placed the issue of the just wage within a broader religious and social context, with God and family at the top. Sunday rest and worship was naturally a high priority in their social thought. They saw the dangers of unbridled capitalism and of the purported solutions offered by the totalitarian ideologies of Marxism and Fascism. The state has a necessary but limited role in promoting justice and order.

John XXIII

The context had changed dramatically by the time Pope John XXIII wrote Mater et Magistra in 1961, the last encyclical to deal with just wages in any kind of detail. Following World War II, the market economies of the West had produced enormous amounts of wealth and opportunity. Employers offered benefits such as health insurance and pensions in addition to wages in order to attract workers (partly due to wage and price controls establish by the state during wartime). Perhaps most significantly of all, women entered the workforce in large numbers.

The new opportunities offered to women meant the just wage could no longer be equated with the family wage based on a single breadwinner. The two-income family became an increasingly common reality, as did delayed marriage and fewer children. Pensions made it less likely that parents would have to depend on their children for support in their later years. These “new things” appear between the lines of later papal teachings on the just wage.

Like his predecessors, John XXIII maintained that principles of the just wage remained “valid always and everywhere,” while their applicability can and does “vary from country to country, and even, from time to time, within the same country.” A just wage “allows [workers] to live a truly human life and to fulfill their family obligations in a worthy manner.” Yet the encyclical does not specify that a man must earn enough to provide for his wife and children, or that a just wage serves as a protection of motherhood and the family.

There is also less concern with free agreements and civil associations in later papal treatments of the just wage. The religious duties that limited commercial activity are similarly deemphasized. Instead, the state has an increasingly large role in social and economic affairs, especially the education of children, the provision of health care, and labor law. International affairs such as war and peace, aid to developing nations, and the environment gain in prominence. These trends generally continue in the social encyclicals of Paul VI, John Paul II, Benedict XVI, and Francis.

Applying the Just Wage Today

The concept of the just wage remains, but under vastly different circumstances from the late nineteenth and early twentieth centuries. The welfare state has largely tamed capitalism with an array of regulations, safety nets, and transfer payments. Including benefits and taxes, what an employer pays can far exceed the employee’s take-home pay. Laws that make it harder to fire workers makes employers less willing to hire them. Exclusion from the marketplace is as much a problem as exploitation in it.

The nature of work has also changed. The working class of the Industrial Revolution has dwindled and been replaced by a property-owning, service-oriented middle class. People are able to work longer hours and later into their lives. If anything, developed nations have created a cult of work, leaving little time or capacity for true leisure.

The inclusion of women in the workforce has had enormous economic as well as social and cultural effects on the family wage. (It is an especially sensitive issue for men to address in public, which is probably one reason why popes do not write about it any more.) Single-parent households are increasingly common. A middle-class man is no longer expected to be the sole breadwinner, creating what Elizabeth Warren (back when she was a Harvard professor specializing in bankruptcy law) called the “two-income trap” for families, who can no longer count on the many forms of assistance provided by stay-at-home mothers in case of sudden misfortunes such as job loss, illness, or divorce.

What can be done to improve the condition of middle-class men and women who prefer to raise their children at home? Warren seems to be in favor of raising the minimum wage to a family wage, which would have disastrous consequences for the poor and unskilled. The usual remedies are subsidies to make up for low-paying jobs and child care. Some suggest the provision of a universal basic income, which is quite the opposite of a just wage as “the legitimate fruit of work.”

Expanding the “rough grasp” of the state into even more areas of our lives is probably not what popes like Leo and Pius would have recommended. They would have encouraged employers and employees to find an acceptable solution to their problems together before turning to the state. They would have recognized the plague of family breakdown and urged spouses to work out their marital problems instead of filing for no-fault divorce. And they certainly would have pleaded with us to seek to do God’s will in all things, which is the surest guarantee of justice.