In the Shapiro-Stiglitz model workers are paid at a level where they do not shirk. This prevents wages from dropping to market clearing levels. Full employment cannot be achieved because workers would shirk if they were not threatened with the possibility of unemployment. The curve for the no-shirking condition (labeled NSC) goes to infinity at full employment. (Photo credit: Wikipedia)
In a laboratory-condition economy, subsistence wages do not exist. This is not because it is immoral, but because it is not possible. This principle is called the “[[Iron Law of Wages]]”, where workers who are not given enough to survive … well … they don’t survive and therefore cannot work. “Wage Slaves” and even outright slaves must be fed, clothed and housed, even if not compensated enough to buy their freedom or a better way of life.
So why is there so much talk these days of a “living wage”? Subjective morality aside, let’s ask a more objective and perhaps more important question: How are non-living wages even possible, and even common in our society? The answer is simple if you are willing to take a closer look.
Plenty of people obviously DO live on “non-living wages”, or more accurately, while receiving them. This means they must have other means to survive. Secondary employment. Social Security. Off-the-books income. And perhaps the most common — other household income — is the most abused in terms of statistics, where even one person with a meager income counts as a household where someone is living beneath a “living wage”, be it in a hovel or a mansion. But I digress.
What is the consequence of underemployment? Public assistance. And what is the (unintended) consequence of public assistance? Underemployment. (The cost of living is thence shifted from employers to taxpayers, and the fault lies at the feet of government, not business.) There is a huge market for non-living wages because (in part) there are so many people on such assistance that don’t need a living wage.
It’s a jumble of misconstrued causes and effects.
We could also discuss [[Efficiency wages]], but let’s leave that for another time.
