The Big Picture of Small Wages

Low wages are an increasingly prominent subject of public debate. Whether it’s the movement for a living wage, debate over what the minimum wage should be, or attention paid to low-paid foreign workers and illegal immigrants, a link has been made between the cynicism expected of business – what some would label pragmatism – and the poverty of those most in need of economic help.

But the reality is that penny-pinching with the lowest wages isn’t just socially irresponsible – it may be far more economically damaging than high wages could be.

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Medicaid and the Spectrum of Unemployment

Many of those who argue against higher wages at the bottom of the food chain are the same people who opposed the expansion of Medicaid, one of President Obama’s highest profile reforms. They argued that the system and its costs would damage business and so lead to unemployment.

The truth has been entirely different. Since the Affordable Care Act (ACA) came into effect in March 2010, employment in the US has steadily grown. It would be a mistake to assume that correlation indicates causation, but it would now be virtually impossible to argue that Medicaid’s expansion has in any way increased unemployment.

Medicaid and economic growth have come hand in hand.

The reality is that penny-pinching with the lowest wages isn’t just socially irresponsible – it may be far more economically damaging than high wages could be.

Taking a Holistic View

So has Medicaid contributed to the growth in jobs? Realistically, it’s impossible to tell. But a strong case can be made that such measures, by increasing the prosperity of the poorest, do more for the economy than any business tax breaks.

The traditional arguments for this are rooted in Keynesian economics, an approach that influenced both America’s New Deal and the moderate left-wing governments of 20th century Europe. One of its central concepts is the ‘Keynesian multiplier’, the idea that a government can stimulate a great deal of economic activity for only minimal expense, if the money goes to those who will spend most of it quickly. Give $40,000 as a bonus to a single businessman and he will probably save most of it. Spread it around as $40 each to a thousand factory workers just managing to get by and they will spend it on new shoes, better food, or the dental check-up they’ve been unable to The money keeps going around, and the economy grows.

This is one of the ways in which measures such as the ACA can boost business. They make the poor a little less poor, giving them more spare money to spend. This goes into the economy, and so to job creation, creating a virtuous cycle of growth.

Living Wage for a Living Economy

Paying a living wage can have similar effects. It’s one of the reasons why paying as well as you can, even to the lowest members of staff, is not just good for morale within the business but also socially responsible. It helps to boost the local economy, to give something back not through charity drives or fundraisers but through one of the fundamental mechanisms of a business in a capitalist economy – paying wages.

Paying as well as you can, even to the lowest members of staff, is not just good for morale within the business but also socially responsible.

As businesses, we shape the world around us. We may not all have bank accounts that rival those of many nations, like Apple does, but we make a difference in our own way. Higher pay can make the biggest difference to your worst paid employees, and through them it can have the greatest impact on economy and society. So next time you’re looking at raising wages, think most about what you can do at the bottom of the workforce. Use your business to make a difference.

Mark Lukens is a Founding Partner of Method3, a global management consulting firm. He has 20 plus years of C-Level experience across multiple sectors including healthcare, education, government, and people and potential (aka HR). In addition, Mark currently serves as Chairman of the Board for Behavioral Health Service North, a large behavioral health services provider in New York. He also actively serves on the faculty of the State University of New York (SUNY) and teaches in the School of Business and Economics; Department of Marketing and Entrepreneurship and the Department of Management, International Business and Information Systems. Mark holds an MBA and is highly recognized in the technology and healthcare space with credentials including MCSE and Paramedic. Most of Mark’s writing involves theoretical considerations and practical application, academics, change leadership, and other topics at the intersection of business, society, and humanity. Mark resides in New York with his wife Lynn, two children, and two Labradors. The greatest pursuit; “To be more in the Service of Others.”

  • Wow! I would not have expected to see a purveyor of socialism and Keynesianism on this website. Driving policies to further destroy the middle class and cause huge unemployment of our youth to say nothing of college grads is quite a surprise. No wonder the US has more businesses going out of business than are being created.

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