Why Wage Policy is an Essential Ingredient in a Democratic Society

Discussions of wage policy, especially as it assumes the form of a minimum wage, often revolve around whether it really benefits the poor sufficiently to justify adverse employment consequences. Those arguing for it claim that it is an essential ingredient to raise the poor out of poverty. Those arguing against typically argue that raising the minimum wage leads to greater unemployment. Moreover, not only are most minimum wage earners not poor, but they are not even primary earners. Rather they are secondary earners. Therefore a wage policy along these lines cannot be justified because it violates the basic premise of Pareto optimality. 

This study argues that wage policy is an essential ingredient in the maintenance of democratic society for the following reasons: First, it raises the wages of those at the bottom, and thereby gives workers more independence and power as they are placed on a more equal footing with managers. This is not just a matter of affording low-wage workers greater monopoly power, but it is also a matter of enabling these workers to develop their capabilities and thus enhance their freedom.

Second, because wage policy through wage contour effects will increase median wages for the middle class, it has the potential to arrest wage stagnation, thereby forming the foundation of a jobs policy. This alone forms an essential ingredient in the maintenance of democratic society: economic development.

And third, by adding to personal autonomy and benefitting the middle class, wage policy can also result in reduced income inequality. In an effort to establish the potential impact of a wage policy on personal autonomy, this study presents data from the Current Population Survey (CPS) that shows that individuals with higher incomes (more autonomy) are more likely to be engaged in the civic affairs of their communities.