What Entrepreneur Charity Proves about the Living Wage

Paying all employees a living wage is a grand experiment in charity.

KDSK.com calls Dan Price a Seattle CEO, but Newser.com identifies him as an entrepreneur. That is important to keep in mind because Price is definitely starting a risky investment. According to his plans he is going to pay everyone at his company $70,000 a year.

KDSK.com: “Seattle CEO to pay employees $70,000 minimum wage.”

The CEO of a Seattle company is reportedly boosting the minimum wage for every one of his employees to $70,000 per year and taking an enormous pay cut to make it happen.

The New York Times reports that Dan Price, founder of Gravity Payments, came to the conclusion after reading an article on happiness that showed money makes a big difference in the lives of people who make under $70,000.

How is he going to do it? Price is taking a pay cut from $1 million to $70,000. He’ll also use 75-80% of the company’s expected $2.2 million in profit this year, according to the Times.

Price told his 120-person work force that the raise would be phased in over the next three years.

I think it is great that Price wants to do this, and I hope it works for him. But if he succeeds it won’t be a model that everyone else can adopt.

[See also, “A Living Wage? Your Bad Life is Not Your Employer’s Fault (but It Might Be Yours)]

First of all, let’s get clear on what Price has done. Price has decided to give charity. He is not paying the people what market efficiency would dictate. Instead, he is being extravagant. There is nothing wrong with this, but it may cause confusion. The people at this company are going to find that they start to relate to Price not as simply an employer, but as a benefactor—someone to whom they are obligated for extravagant generosity and on whom they will be entirely dependent since moving to another job will soon seem impossible. While people will use the language of making money and earning, the truth is that much of their salary is charity. And the reason they make that salary is not what they contribute to production but what Price wants to give them because he happens to know them.

In history, as far as I know, most people have, to some degree, separated their production from their charitable giving. By making money as efficiently as possible, they have means to help those in need. Price is free to decide who he wants to help, but observers should realize that he is giving up opportunities to use his fortune to help other people. That doesn’t invalidate his current choice, but it does show how other options are also valid.

What we don’t know is whether his business will make it under this new scheme. Hopefully it will. But it will bring certain challenges. For one thing, is Price going to expect everyone else in the corporation to be satisfied with $70,000 a year? If so, what happens when they move on to other companies where they can get paid more?

We can be sure that not every company could possibly follow this model, even if it works for Price. This is a commendable work of charity on Price’s part but it is not a workable model for every business.