Using the below text - What are the pros and cons of increasing employee hourly wages?

One of the most heated compensation debates relates to individual need equity, or the living wage. What are the pro and con arguments? Figart (2001) provides a very cogent summary. The main argument against the living wage is that it distorts the effective and efficient operation of labor markets. A free labor market entails wages linked to productivity rates, the value labor adds to the production process, worker skill levels, and labor demand. Wage payments above the market equilibrium level distort the relation between the marginal value of labor and aggregate wage levels thereby inflating production costs. The result is lower demand for labor and the substitution of capital for labor attenuating overall job creation and economic growth. The end result is an overall decreased societal standard of living, higher taxation levels to support expensive social safety net programs, lower investment in job-creating industries, an increase in governmental dependency, and reduced individual economic and moral self-sufficiency (Figart, 2001).

In contrast to the conservative economic views, the Catholic Churchs teachings on social justice provide a strong moral and conceptual foundation for the living wage (Figart 2001). The Catholic Church is the primary Christian institutional advocate as represented in a more than one-hundred-year tradition of encyclicals on living wage policy (Zigarelli, 1993). Capitalist labor market theory atomizes workers and falsely assumes that promoting the self-interests of individual employers and employees cumulatively is in the best interests of society. This view is a distortion of the communal and social interconnections of labor to the larger health and well-being of the community and society as a whole. Hence, capitalist labor market theory dehumanizes workers and impedes the ability of employees to support their needs in a dignified manner. The capitalist labor market increases wage and income inequities between skilled and unskilled labor, which results in outsourcing of labor, substitution of technology for labor, reduction in living wage jobs for minorities, results in decline of cities, and promotes outsourcing of public sector jobs (Figart, 2001).

We cannot have a just and healthy society with a large segment of the population burdened by preventable poverty. In order to fully understand the debate, one must understand the philosophical basis of the living wage movement. The foundational principle underlying the living wage movement is that dignified human labor is essential for body, mind, and spiritual health (Figart, 2001). The biblical rationale for the living wage is compelling as well. The Old and New Testaments call employers to treat fairly both the poor and the laborer (Deuteronomy 24:15, James 5:4). Jesus commands us to help the poor meet their basic life needs (Matthew 25: 3426). Treating workers fairly glorifies God and enables these workers to serve the Lord effectively in their own personal life ministries and to raise their families in a fashion that promotes healthy spiritual, physical, and mental development. Hence, we promote a more just, moral, and prosperous civil society. Social justice theory states that the ultimate goal of the economy is to meet the material needs of employees to support a good and moral life. Hence, employers possess a moral obligation to provide wage rates that help employees meet their basic needs given that the right of private property is subordinate to human needs. If employers are unable to pay a living wage, society should supplement the salaries of workers with a variety of means including the negative income tax, childcare, and food subsidies, among others.

Proponents posit that paying workers a living wage glorifies God and enables workers to more effectively serve the Lord and raise a family thereby promoting a just, moral, and prosperous civil society. Employers who pay less than a living wage receive subsidies through societal cost shifting onto families through working longer hours, the need to work two or more jobs, less time for family needs, poorer quality child rearing, and the associated adverse mental and physical health outcomes with the higher levels of stress (Figart, 2001). Another major source of subsidy is the government through food stamps, welfare, Medicaid, and housing assistance, among other programs. Finally, churches and nonprofit organizations, both faith-based and secular, absorb costs and indirectly subsidize low-wage employers through food banks, housing programs, and other forms of assistance. Living wage supporters in the United States cite decreasing social mobility and increasing income inequality due to the increase in one-parent families (in which the parent is usually a woman), the depreciation of the value of the minimum wage, the reduction in unskilled manufacturing jobs, lack of national health insurance, and the globalization of labor markets as key factor justifications. The substitution of capital for labor, lower levels of construction employment, and international competition and the globalization of markets reduces the pool of living wage jobs, forcing more workers into the service economy (Figart, 2001; Economic Policy Institute, 2011). The result is a dramatic increase in jobs that pay below poverty wages with a concurrent erosion of the quality of life for millions of low-wage and skilled workers and their families. The pernicious combination of lower governmental spending in social services given higher deficits in combination with the increased demands and stagnating revenues of the nonprofit and church sector decrease the effectiveness of the social safety net, increasing poverty rates (Figart, 2001). Hence, these sources of church support are unable to meet the needs of the millions of low-wage workers with its present level of resource support, given that less than 5 percent of Christians tithe and the absence of a skilled labor force of paid and volunteer workers (Barna Group, 2013).

The living wage generates much controversy, with a considerable contention over the specific definition of basic needs. How can we differentiate necessities from, needs, wants, and luxuries? The definition does vary somewhat by culture, but social scientists have developed well-validated measures of life quality, including access to basic health care, adequate nutrition, and safe and affordable housing, among other key areas (Malik, 2013; Gross National Happiness, 2014). How would you view your compensation policy if the prevailing wage were inadequate to rent a basic apartment or provide health care for your family as it is in many developing countries?

From a research standpoint, the literature on the living wage issue has demonstrated little negative impact on employment levels and municipal budgets (Chapman & Thompson, 2006). Another follow-up question relates to the efficiency/effectiveness of labor markets. Clearly, we operate in a hybrid system with significant government regulation, much of it directed at what economists term market failure. A labor market may operate efficiently, but impose significant externalities upon society (low-wage employers receive indirect subsidies given that they fail to provide health benefits). In addition, markets often internalize other forms of inefficiency, including forms of gender discrimination in which predominately female dominated occupations such as personal care-giving receive lower wages than comparable male professions (Pynes, 2013). This is a very complex issue requiring a delicate balance to preserve the powerful positive incentives of free markets while reducing the impact of their imperfections. Finally, should employers voluntarily provide a higher rate of compensation than the market requires? To be a leader in compensation recognizes the value added by employees. A second important question relates to whether family size or the number of dependents should be a factor in wage levels. Compensating employees at differential wages based on family need raises many issues of internal equity. However, there are no legal prohibitions against considering family need in terms of compensation unless there is an intended or unintended discriminatory impact. We (as a society) must address both individual and systematic factors that contribute to a high degree of stress on our lower income workers. We have micro and macro obligations as Christians.

If the labor market human capital elements do not justify a living wage, I posit that SLHRM organizations make every effort to enhance employee human capital skills and performance either to increase employee productivity to justify higher wage or strive to place the employee with a new employer who can utilize his or her talents and meet living wage requirements after a reasonable term of employment. Even though employers may realize a loss on their investment in the short term, the cumulative and aggregate benefit of such a practice will be to enhance the reputation of the employer increasing the quality and quantity of the applicant pool to replace those who left.

The focus of the living wage movement is to reduce human suffering and promote the dignity of low-wage earners. Numerous public policy interventions can assist low-wage workers and their families including the earned income tax credit (Hamilton, 2010) and tax credits/subsidies for hiring low-income workers (Hamersma, 2003). Another important area relates to governmental regulation including elevating the minimum wage that has eroded in purchasing power significantly over the last 40 years (Addison, Blackburn, & Cotti, 2013). This area is by definition a political question relating to the balancing of key economic, religious, and social values. Our response, both as an individual employers and a society, are important elements of Christian social responsibility.

In conclusion, this discussion addresses very critical compensation and public policy issues. There are several levels of analysis with the most proximate at the level of the individual SLHRM employer and the balance of stewardship and servanthood values. From a stewardship standpoint, employers should provide a compensation system that is internally equitable in relation to job skill requirements and employee merit performance levels, and concurrently labor market competitive. What occurs if the market equitable wage is below a decent standard of living? Does the employer possess any larger servanthood obligations to address unmet employee needs? Our discussion to date has addressed the pros and cons of including employee need as a factor in individual employer compensation decisions. We miss the larger lay of the land if we ignore moral and ethical obligations and the larger market and public policy concerns. This issue will be a matter of ongoing debate.