Don’t give them any ideas!

After President Obama spoke about raising the minimum wage, economists and pundits dryly asked why we wouldn’t raise the minimum wage to $20 or $100 per hour.

Now Elizabeth Warren has taken this to heart and suggests raising the minimum wage to $22 per hour.  (For the record, that would mean that people would make more flipping burgers than I made as an engineering intern.)   Warren explains her madness here:

“If we started in 1960, and we said [that] as productivity goes up … then the minimum wage was going to go up the same … if that were the case, the minimum wage today would be about $22 an hour,” the senator said, at a recent Education, Labor and Pensions Committee hearing on “Keeping up with a Changing Economy: Indexing the Minimum Wage.”

Option 1: increases in productivity mean higher wages for the worker.  Option 2: increases in productivity mean lower prices for consumers.  Option 3: some hybrid version, perhaps half of each.  NOT an option: giving workers 100% of the benefits of increased productivity, and also giving consumers 100% of the benefits.

The current minimum wage is $7.25 per hour. Ms. Warren wondered, in a YouTube video of the hearing posted by her staff: “What happened to the other $14.75?”

She answered her own question: “It sure didn’t go to the worker.”

It did go to the worker – in the form of lower prices.  Once upon a time, almost all banks charged fees; the increases in technology enabled them to give banking services away for free.  Increases in production technology enables people to pay less for better cars.  Everyone who is reading this is benefiting from the increases in computer technology that enable them to buy a WiFi enabled tablet for about a tenth of the price of a late 1980s Apple IIE. As Thomas Sowell repeatedly points out, more houses were connected to the internet at the end of the twentieth century than were connected to running water at the beginning. But if we were legally required to pay inflation-adjusted salaries to plumbers to install water pipes into our house, to account for the increased ease of doing so, it’s likely that fewer people would have running water, let alone internet.

We, as “workers,” may not be getting the dollar value of our increased productivity, but we can purchase people’s more productive time at the same price as their less productive time.  To use an example that may be familiar to Senator Warren, lawyers used to keep a team of secretaries for each attorney.  Now, each attorney needs a smaller, albeit much more productive, support staff.  The one lone remaining secretary isn’t making four times as much money, but the clients are no longer paying for four secretaries, so their bills are lower.  Likewise, the secretary can now go out and buy a refrigerator for less money than she would have paid back in the ’60s, because it takes fewer people to build it, and she can open up a free checking account, since the bank is passing on cost savings to her.  Ultimately, she gets more for her salary, just like everyone else does – which is far better than getting more salary to buy the same amount of stuff (i.e. the Warren plan).

Delivering the same, or a better, product at a lower cost is not a corporate conspiracy; it’s how society provides a higher standard of living to people at a lower cost.

1 Comment

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One response to “Don’t give them any ideas!

  1. Pingback: House of Eratosthenes

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