Q: My workers get a low wage and have trouble making ends meet, but they don't really have other options. Do I have to pay them a "living wage"?
A: This week's column focuses on self-interest: better conditions mean better work.
The fact is that buying labor is not the same as buying an item from a store shelf. The "product" that you get from a worker is not a standard and uniform one, dependent only on the work agreement; it is a highly variable one, depending also on the worker's ability, attitude, motivation, and so on. Higher wages impact all of these.
In economics, the "efficiency wage" theory suggests that employers do, and should, pay higher wages than what is needed to fill job openings. The Wikipedia article on efficiency wages give a number of reasons:
Avoid shirking: when workers make more than they could elsewhere, they will work harder because if they get fired for poor performance they will suffer a loss of wages.
Avoid turnover: when workers make more than they could earn elsewhere, they are less likely to quit; this means that the employer invests less in hiring and training new workers.
Attracting quality workers: When wages are higher, the job will draw applicants of higher ability.
Attitude: paying a higher wage creates a feeling of gratitude and solidarity which then gives the worker higher motivation.
Henry Ford, who introduced the five-dollar day in his factories when the going wage was far less, called this step "one of the finest cost-cutting moves we ever made". A side benefit was that demand was also increased, as large numbers of workers could afford Ford cars due to their improved income.
Jewish law provides a fascinating precedent for this idea. The Torah tells us that a person who harms someone else must pay for their medical bills -- "he shall pay for his idleness and will surely cure him." (Exodus 21:19) In practice, that means that a doctor is hired and the damager pays the bill.
But who decides what the bill is? The Talmud discusses a case where the damager/payer doesn't want to pay for the doctor chosen by the patient; he offers instead to provide his own physician who will heal free. The Talmud rules that this offer may be refused, because "healing which costs nothing is worth nothing". When a person doesn't get paid, he doesn't have a sense of responsibility, and is not motivated to do the best job he can. Many commentators add that the same is true if the patient is offered a physician who works for an unusually low salary; the quality of service will likely be commensurate with his fee.
Also rejected is to bring a physician from afar who will work for less; again, since his reputation is not on the line he will not exert himself. Another explanation is that we are concerned that the unknown physician is unqualified, an explanation which is echoed in the "quality workers" aspect of the efficiency wage. (1)
My experience is that many employers who pride themselves on finding workers willing to work for starvation wages are penny wise and pound foolish. If they get poor workers they have to fire them, and when they get qualified workers they jump to better jobs just as they begin to be productive. While each workplace is different, I think that many employers would find that providing good conditions is an excellent cost-cutting measure.
SOURCES: (1) Bava Kamma 85a; commentaries on Maimonides' Code, Chovel uMazik 2:18