The living wage: Theoretical integration and an applied research agenda

• Author: Paul A. WATTERS,James ARROWSMITH,Jane PARKER,Stuart C. CARR
• DOI: http://doi.org/10.1111/j.1564-913X.2015.00029.x
• Published date: 01 March 2016
• Date: 01 March 2016

International Labour Review, Vol. 155 (2016), No. 1

Copyright © The authors 2016

Journal compilation © International Labour Organization 2016

* Professor, School of Psychology, Massey University, Auckland, New Zealand, email:

S.C.Carr@massey.ac.nz (corresponding author). ** Professor, School of Management, Massey

University, Auckland, New Zealand, email: J.Parker@massey.ac.nz. ***

Professor, School of Man-

agement, Massey University, Auckland, New Zealand, email: J.Arrowsmith@massey.ac.nz. ****

Pro-

fessor, School of Engineering and Advanced Technology, Massey University, Auckland, New Zealand,

email: P.A.Watters@massey.ac.nz. The authors wish to thank Massey University for the Vice-Chan-

cellor Discretionary Fund support for this study; Associate Professor Kate Lewis and Ms Lindsay

Eastgate for their input into the research; and Professors Paul Edwards, Darrin Hodgetts and Thomas

Stubbs for their helpful and constructive comments on earlier versions of this article.

Responsibility for opinions expressed in signed articles rests solely with their authors, and

publication does not constitute an endorsement by the ILO.

The living wage: Theoretical integration

and an applied research agenda

Stuart C. CARR,* Jane PARKER,** James ARROWSMITH***

and Paul A. WATTERS****

Abstract. The concept of a living wage is dened by quality of life and work life,

not merely economic subsistence. It extends to adequate participation in organiza-

tional and social life. In development economics, these crucial components of

“decent work” connect with “capabilities”, whose development is important to

individuals, organizations and society. However, the links between income and cap-

abilities remain unknown, and living wages are often set by at. By integrating

theories from development studies, management, psychology and employment re-

lations into a single concentric, contingency model, the authors derive a series of

propositions with which to test this context-sensitive model in empirical research.

The question of wages became pressing in the wake of the 2008 global

economic crisis, generating arguments for Keynesian reation as well

as austerity (World Bank, 2012). Much of this focus was on poverty and min-

imum pay, including legal minima. The ILO’s World of Work Report 2013, for

instance, argued that minimum wages can help economic growth by increas-

ing the labour income share, encouraging domestic consumption, and gener-

ating local jobs – provided the level set is neither too low to be effective, nor

too high and thus raise employment costs and reduce compliance (ILO, 2013).

Perceived decent levels of income and fair processes of wage determination

have also been linked to motivation, performance and productivity at work,

including in capability-enhancing human services in health and education

(Carr et al., 2011; Stiglitz, 1976).

International Labour Review2

Alternatively, an argument against introducing or raising minimum wages

rests on their impact on employment. According to orthodox economic the-

ory, raising the cost of labour above the market equilibrium rate will reduce

demand for labour (whilst increasing supply), leading to lower prots and in-

vestment, fewer jobs and higher prices. As Milton Friedman put it, “minimum

wage laws are about as clear a case as one can nd of a measure the effects

of which are precisely the opposite of those intended by the men of good will

who support it” (1962, p. 180, quoted in Hirschman, 1991, pp. 27–28).

Empirical research at the level of the organization suggests, however, that

employment effects may be relatively benign (Gilman et al., 2002). This reects

two sets of dynamics. First, the direct costs of higher pay may be offset by im-

proved employee motivation and retention. The offset is understood in main-

stream economics as “efciency wages”, which were heralded by Henry Ford’s

introduction of the US$5-per-day wage, a century ago. Employers may also

respond with better management and work reorganization to improve labour

utilization. Second, organizations may simply be able to absorb the increase in

costs. Sociological perspectives on pay, moreover, stress its “discretionary, ran-

dom or opportunistic” characteristics (Rubery, 1997, p. 338). This is especially

so in small rms and many non-governmental organizations (NGOs), which

are often most likely to be affected by minimum wages. The indeterminacy of

pay setting in small to medium-sized organizations, and the wider informality

of their employment relationships, provide signicant scope for adjustment to

regulatory shocks and economic crises, as well as to economic booms when

they happen (Arrowsmith et al., 2003; Ram et al., 2001).

These various concepts of pay regulation are, despite their radically dif-

ferent paradigms and predictions, united by an essentially instrumentalist,

transactional rather than transformational and cost–benet approach to busi-

ness, and the role of businesses in society. Much of the debate is dominated by

a managerial discourse around incentives, costs and productivity, and not just in

the eld of economics. For example, employment relations scholars rightly em-

phasize the importance of equity as well as efciency in the employment rela-

tionship, but the former is commonly conceived or justied merely as a means

towards the latter goal (Budd, 2004; Parker and Arrowsmith, 2013). Similarly,

employment regulation may be considered a benecial constraint under con-

ditions where it favours more businesses than it disadvantages by stimulating

them to manage labour more effectively (Streeck, 1997).

This rather narrow “human resource” perspective understates the nature

of the human return from as well as contribution to work. An alternative ar-

gument, made by moral philosophers from Kant to Rawls, is based on the idea

that labour helps dene human dignity, social well-being and perceptions of

justice. Being fairly treated and rewarded through work is in this sense best

viewed in terms of human rights and social justice.

The concept of a living wage asserts such humanistic concerns quite liter-

ally through its linkage of “wages” with “living”. As Krugman (1998) has ob-

served, the idea of a living wage is profoundly shaped by questions of morality