The Living Wage and the traps of motivated reasoning

A while ago, I saw a study on American attitudes towards the death penalty, and in particular, on how the belief in its deterrent effect correlates with the belief in its moral justifiability. I don’t remember any details, but it could be summarised like this:


Believes the death penalty

is morally justifiable



Believes the death penalty deters murder Yes





(100 – a – b –c) %

In this, b and c were negligibly small numbers, which is not obvious, because there is nothing inconsistent about these two combinations. You can believe in the deterrent effect of the death penalty, and still reject it for moral reasons. And you can believe that a multiple murderer deserves death, even if you do not believe that this will deter future murderers. One is a moral question; the other is an empirical question. In an ideal world, our moral position would have no impact whatsoever on our evaluation of the empirical situation.

But the study argued that people generally seek to reconcile the two dimensions. We want the things we consider morally right (wrong) to also produce good (bad) outcomes. This makes the yes/no combinations unstable. Think of the upper-right and the bottom-left cells as rooms in an old countryside youth hostel, with plank beds, no heating, and no hot running water, while the other two cells are more like suites in the Hilton. Those on the bottom-left will seek to move upwards, and those on the upper-right will seek to move downwards. The key to the Hilton suite is ‘motivated reasoning’, the deliberate search for arguments which permit such a move.

Unfortunately, economic policy debates often follow exactly the same pattern. Here are three topical examples of motivated reasoning:

  • ‘Female quotas are not just morally the right thing to do, they also good for the economy, because women tend to be more cooperative and conciliatory than men. While their male colleagues are busy trying to impress each other, women come up with pragmatic solutions. A female quota might even have prevented the financial crisis, because the excessive risk-taking that we saw in the banking industry was a typical example of macho behaviour.’
  • ‘Green policies are not just a moral imperative; they are also good for the economy, because they create green jobs.’
  • ‘Bailing out the southern members of the euro zone is not just a moral obligation of the northern members; it is good for them too. If the Mediterraneans are rescued and held within the euro zone, they can buy more goods from the North.’

The latest example is the so-called Living Wage(LW). The LW, supporters argue, does not just benefit the low-paid; it is also a terrific idea to boost business performance. Employees who are paid the LW will be more motivated and loyal, which will manifest itself in, for example, lower rates of absenteeism.

I am not opposed to the LW. As far as I am aware, nobody has as yet argued that the LW should be legally binding, in which case it would simply be a hike in the minimum wage. The LW is not meant to be compulsory, but a social expectation; not enforced, but encouraged through reputational carrots and sticks. There is nothing wrong with that in principle.

Of course, higher pay can be a way to increase motivation and loyalty, or simply to attract better people to begin with. And yet, there is some truth in this (rather lame) old joke about economists:

Says a non-economist to an economist:

-‘Oh look, there’s a £20 note lying on the sidewalk.’

To which the economist, without bothering to look, answers:

-‘That’s impossible. Somebody would have picked it up already.’

Do employers really need social justice campaigners to tell them what would be good for their business? If higher pay was always and everywhere a win-win situation, would they not eventually discover that themselves, if only because some less miserly competitor is more successful?

If not, maybe the social justice campaigners ought to set up their own businesses, and demonstrate how easily they can outperform the misers.

Dr Kristian Niemietz is the IEA's Editorial Director, and Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

4 thoughts on “The Living Wage and the traps of motivated reasoning”

  1. Posted 03/11/2012 at 14:04 | Permalink

    An excellent article. Maybe it helps explain why so many people ‘know’ that ‘improved’ gender diversity on boards will lead to enhanced corporate performance, while the overwhelming evidence is that the ‘improvement’ leads to a decline in corporate performance. These people continue to ‘know’ what they ‘know’, quite untroubled by the evidence. It’s an example of delusional ‘groupthink’, ironically, and it lies at the heart of government policy. I look forward to debating this issue (and related issues) with the House of Commons select committee on ‘Women in the Workplace’ on November 20.

    Mike Buchanan

    Author of ‘The Glass Ceiling Delusion’


  2. Posted 03/11/2012 at 15:10 | Permalink

    I thought the joke about the £20 note on the pavement (we don’t have sidewalks’ in England!) referred not to economists in general but to the Efficient Market Hypothesis, which somewhat naively implicitly assumed that desirable adjustments occur instantaneously. The other aspect of the EMH worth noting is that it only ‘works’ (if it does) if most people don’t believe it.

  3. Posted 05/11/2012 at 11:03 | Permalink


    That should give EMH advocates great hope, as none of us believe it anymore!

  4. Posted 26/11/2012 at 19:17 | Permalink

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