Elizabeth Warren: Hey, why isn’t the minimum wage $22/hour?

posted at 1:21 pm on March 18, 2013 by Erika Johnsen

Oh, minimum wage — the simple- and friendly-sounding yet actually regressive and economy-damaging populist throwback that just refuses to die. President Obama once again resurrected the timelessly terrible idea in his State of the Union speech in February, and it’s been percolating among the Democrats as a potential 2014-oriented rallying cry for how those obstructionist Republicans must really, really hate poor people because there’s no other possible explanation for their opposition (except that, you know, minimum wage hikes are actually counterproductive to an inclusive and prospering economy, but let’s just rid ourselves of any lingering school-girl notions that facts are what matter here, shall we?).

Last week in a hearing of the Senate Committee on Health, Education, Labor, and Pensions, Sen. Elizabeth Warren wondered, “If we started in 1960, and we said that, as productivity goes up — that is, as workers are producing more — then the minimum wage is going to go up the same. And, if that were the case, the minimum wage today would be about $22 an hour. So, my question, Mr. Dube, is what happened to the other $14.75?” National Review picked up on it:

Oof. Last month, HuffPo pointed out a 2012 ‘study’ that concluded pretty much the same thing:

President Obama’s call to increase the federal minimum wage to $9 an hour was one of the more significant proposals he laid out in his State of the Union address Tuesday night. But $9 an hour is still a far cry from what workers really deserve, a 2012 study finds.

The minimum wage should have reached $21.72 an hour in 2012 if it kept up with increases in worker productivity, according to a March study by the Center for Economic and Policy Research. While advancements in technology have increased the amount of goods and services that can be produced in a set amount of time, wages have remained relatively flat, the study points out. …

Between the end of World War II and the late 1960s, productivity and wages grew steadily. Since the minimum wage peaked in 1968, increases in productivity have outpaced the minimum wage growth.

I’m calling shenanigans. That is one wildly flawed premise, because the value of productivity is not a constant. As HuffPo’s writeup cedes, “advancements in technology have increased the amount of goods and services that can be produced in a set amount of time,” not to mention with fewer resources and at a lower cost — should in the increase in crop yield from a farmer using a donkey and plow versus a farmer using a tractor be directly proportional to an increase in those crops’ market worth because of some sort of imagined moral law about productivity and wages? No, because the market value of those crops has diminished as the ease of production has increased, and if that was the way the world worked, we’d all be paying a heck of a lot more for food right now.

Again, raising the minimum wage to some arbitrarily-determined level of ostensible just deserts is just another way of throwing market signals under the bus in exchange for more top-down control, which might benefit a few in the short run, but bogs down the entire economy in the long run. As Christina Romer, former head of President Obama’s Council of Economic Advisers, put it:

Raising the minimum wage, as President Obama proposed in his State of the Union address, tends to be more popular with the general public than with economists. …

First, what’s the argument for having a minimum wage at all? Many of my students assume that government protection is the only thing ensuring decent wages for most American workers. But basic economics shows that competition between employers for workers can be very effective at preventing businesses from misbehaving. If every other store in town is paying workers $9 an hour, one offering $8 will find it hard to hire anyone — perhaps not when unemployment is high, but certainly in normal times. Robust competition is a powerful force helping to ensure that workers are paid what they contribute to their employers’ bottom lines.


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