When inflation spikes: Do employers have a moral obligation to raise salaries?

Experts in business ethics and Catholic social teaching weigh in on how employers should treat their workers, in good times and in bad.

A key measure of inflation rose 6.4% in February compared to a year ago, the largest such increase since 1982, the Commerce Department reported Thursday. Prices on gas, food, and other essentials are spiking, and many American families are finding that their paychecks are not going as far as they used to.

What Catholic social teaching tells us

A tight labor market brought on by the pandemic-related “Great Resignation,” led many employers to raise wages in order to retain and attract workers. But many U.S. workers haven’t received raises significant enough to offset the effects of inflation.

Catholic social teaching promotes human flourishing as the desired outcome of social, economic and political affairs. Does that mean employers are morally obligated to increase their employees' wages to keep pace with higher prices?

It’s not that simple, say experts on business ethics at two leading Catholic business schools.

Andreas Widmer, director of the Arthur & Carlyse Ciocca Center for Principled Entrepreneurship at The Catholic University of America’s Busch School of Business, says an increase in inflation does not necessarily require an increase in wages.

“Catholic social teaching (CST) is not like the Ten Commandments, the Ten Commandments tell you what to do. Catholic social teaching does not tell you what to do, it tells you how to think,” he told Aleteia.

Describing Catholic social teaching as a “mental model,” Widmer explained that it helps people think about the “ultimate end of things, and informs a well-formed Christian conscience of what to do.”

“Catholic social teaching is not a paint-by-numbers management book. It forms your thinking, so you have a well-formed conscience to act in the moment,” said Widmer. “I think there is very little prescriptive stuff in Catholic social teaching on purpose.”

While most companies adjust pay for inflation as a matter of course, Widmer said, employees aren’t bound by Church teaching to increase pay if it would put the very health of their business in jeopardy.

“Commanding somebody to do something when it’s just not there, you are basically just putting a knife into it and killing it. If a business doesn’t have the wherewithal to pay a cost of living increase because the value isn't being produced, then of course you have no obligation to give the store away in that sense,” he said.

“Do to your employees what you wish your employer would do to you. Because you know what you are able to do and what you are not, and act accordingly. It’s like tithing, you don’t give a specific amount, you give what you can,” said Widmer.

On the other hand, “if a company’s profits suddenly go up because of the scarcity of things I think there is a moral obligation to reward, compensate, include the employees who help you create this value to adequately share the rewards with them,” he said.

Ronald Jelinek, professor at Providence College’s School of Business, concurs. Employers should consider inflation when determining pay raises, assuming the “good financial health and viability of the employer,” he said.

“It does no one any good -- the employee, the customer, the shareholder, the company's suppliers -- if by increasing wages, the employer commits suicide. No one continues to get milk from a dead cow,” said Jelinek.

What is a just wage?

Catholic social teaching, Jelinek said, provides two “goalposts” for determining what is the “just” treatment of an employee.

“First, as Pope John Paul II offers in Centisimus Annus: ‘A workman's wages should be sufficient to enable him to support himself, his wife and his children.’”

“However, Pope Pius offers the other goalpost in Quadragesimo Anno: ‘In determining the amount of the wage, the condition of a business and the one carrying it on must also be taken into account; for it would be unjust to demand excessive wages which a business cannot stand without its ruin and consequent calamity to the workers.’”

Jelinek explained that in some cases of steeply rising inflation, “yesterday's ‘just’ wage becomes no longer ‘just’ today." Inflation also takes its toll of businesses as well on employers. When prices are rising for consumers, costs tend to increase for businesses.

“To make matters more difficult, in some sectors of the economy, there are industries where costs are going up but top line revenues can't because these companies cannot sell product. The current supply chain crisis makes this evident -- from cars that global manufacturers can't sell because they are waiting on chips produced overseas to small businesses that can't sell glass shower doors because they can't get metal hinges -- it's hard to pay employees more when employers can't sell product,” he said.

Citing “an oft-overlooked pearl of wisdom from CST,” Jelinek advises employers to consider that “tough times call for sturdy employees and sturdy employers.”

“Pope Leo XIII's reference to the ‘frugal and well-behaved’ is a good recommendation to both the wage-earner and the wage-provider. And though this principle is tested in tough times, it's important that it's practiced also in good times. Generally, I think it's a signal to be prudent always. Lean away from excess. Save. And these rules apply to individual employers, individual employees and to the arrangement that binds them,” he said.

“After all, CST emphasizes that a cooperative spirit is at the heart of what makes for an healthy -- and enduring -- employee-employer relationship. So, both individual employees and employers are asked to prudentially discern what their obligation is to each other -- in good times and in more difficult times as well,” he said.

Beyond inflation: Employees treated as a means to an end

The current state of employee-employer relationships, however, leaves much to be desired, says Widmer, who sees a problem in corporate America that runs deeper and is more troubling from an ethical point of view than the issue of inflation.

The “Great Resignation,” he explained, is the result of employers treating employees as a means to an end.

“We have this huge out-flux of employees, people are leaving, 2/3 of our workforce is disengaged at work,” he said. “Gallup has this measure of work, and found that 2/3 of our employees are disengaged, meaning they just want to get home, they can’t wait until the day ends and they don’t care if your company is successful or not. Sixteen percent are actively trying to hurt the company that they are working for.”

“This is a management issue, that people are disengaged because we are treating them in a way that instrumentalizes them, that uses them as a means to an end,” he continued.

“We need to go back and have a meeting with each one our employees and say ‘Who are you as a person and how can I help you flourish? What is meaningful to you in life and this work here, and how can I help you become the best person that you can be?’ There is very little of this going on, never mind inflation.”

A business consultant and former CEO, as well as a professor a Catholic University, Widmer served as a Pontifical Swiss Guard protecting Pope John Paul II as a young man. In speaking of business ethics he frequently refers to the teaching of the pope he protected.

He advises CEOs to “love their employees,” a subject which he addresses in his forthcoming book:

“Just sit down with your employee and show them that you love them, Pope John Paul II used to say that you should love your employee. Now in English that sounds so weird, but in Italian you wouldn’t say “Ti amo” (“I love you”), you would say, “Ti voglio bene,” (“I want good things for you”).

“It doesn’t matter whether they are Catholic or not, if you wished them well and say I am going to do anything to help you become the best version of yourself, and nothing to hinder it then that is the true Catholic approach to business. Love your employees, that’s how you want me to treat you therefore that’s how you treat me. It’s the Golden Rule,” he said.