Today’s Guest Saturday post comes to us from Pat Slattery of The Free Market Project. His article on the merits of raising minimum wage is very timely. It was originally published on March 19, 2013.
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Minimum Wage Should Be $22 Per Hour? Stupidity In Congress.
Elizabeth Warren is an economic idiot… Or a brilliant politician… From Yahoo! news:
Should the minimum wage be $22 an hour? That’s what Sen. Elizabeth Warren (D) of Massachusetts suggested at a recent hearing of the Senate Committee on Health, Education, Labor and Pensions.
Here’s her logic: If you took the minimum wage from 1960 and indexed it for workers’ gains in productivity, it would be $22 an hour today. And why shouldn’t employees reap the benefits of their own improved labor practices?, she asked at the hearing, rhetorically. Today, the actual minimum wage is $7.25 an hour.
“What happened to the other $14.75? It sure didn’t go to the worker,” Senator Warren said.
Those gains went to corporate and top-executive profits, said a witness at the hearing, Arindrajit Dube, an economist from the University of Massachusetts, Amherst. That’s simply more evidence of how income inequality has grown in America, he said.
“It is quite remarkable that had the minimum wage kept up with overall productivity, it would have been $22 per hour in 2011,” Dr. Dube said in his prepared remarks. “Had it kept up with the growth in income going to the top 1 percent, it would have been even higher, at $24 per hour; and the wage would have exceeded $33 per hour at its peak in 2007.”
Ummm… This is so stupid I can’t believe it. First of all, the people who were making minimum wage in 1960 ARE NOT THE SAME PEOPLE making minimum wage today. The wages (for unskilled workers, who are the people making minimum wage) that they made when they were unskilled, less productive workers DID increase greatly. Probably, for one hell of a lot of them, they became the people that are now at the top of the earnings ladder. Do you really think that no one who had a minimum wage job in 1960 is not now a successful 1 percenter?
Elizabeth Warren wants us to think that the SAME PEOPLE who start out at minimum wage are stuck with minimum wage their entire life and the only raise they get is when the government gives them one. Do you think that’s true? Have any of you held minimum wage jobs? Is your current salary closer to your minimum wage salary, or to the $33/hr figure?
Secondly, the really productive people in the economy (since we are talking about productivity increases) are not minimum wage workers. This is particularly true in an information economy. Businesses aren’t built on the productivity of their lowest paid employees. And, when the lowest paid employees prove themselves to be productive, they don’t stay the lowest paid employees.
Third, what about the wealth created? There have been productivity gains, so there should be a rise in minimum wage, Warren seems to argue. So should we tailor it all to the times? What would someone in 1960 have paid for a cell phone? Oh… that’s right… There were no cell phones. How about cable TV, or a flat screen? That’s right… those things didn’t exist. The 1960 equivalent of Bill Gates couldn’t have purchased one at any price. Now, the minimum wage recipient probably lives in a house with a microwave, central air conditioning, and they have a cell phone, iPod, game console, and a big TV to play it on. In 1960 they wouldn’t have had any of that stuff. Perhaps THAT is where the “$14 went”.
Is this the kind of economic thinking we get out of Washington? Or at our universities? My 16 year-old son will get his first job this year, probably for minimum wage. He will NOT be productive. The contribution he will make to whatever business hires him will be that he can learn to do simple things for the business and do them well. Once he proves that, he’ll probably get a raise. Why in the world would he be worth $22 per hour just because productivity has increased overall in the country? He didn’t increase it. He is already benefiting from it, with his cell phone, iPod, X-box, etc. But HIS productivity will not be worth more than minimum wage when he starts. I’m very much hoping that he’ll get a resume’ going (along with an education) and that he’ll put minimum wage jobs far in his review as his knowledge, skill, and work ethic allow him ever higher earning potential… Because he’ll be productive!
I hear things like this and shake my head in wonder. The problem is, many people will hear Elizabeth Warren and say, “Damn right! It isn’t fair!” Of my three simple points on what Elizabeth Warren said, how many do you think the “Damn right” people would have any clue about? How many do you think Elizabeth Warren has any clue about? How many MORE could you give?
Asylum Watch 
Having spent the best years of my life going to school while working at the minimum which was $1.45, I have little patience for those not willing to make an effort. Yes, it required me to ultimately move to where the jobs were.
Keep in mind that Elizabeth Warren is the same person who was saying “You didn’t build that” before Obama said it. She made the argument that businesses didn’t build the roads, sewers, schools etc. that enable them to exist, therefore they can’t take credit for their profits. They belong to the community. Of course, she forgets that it WAS previous businesses AND current businesses that pay the taxes, and employ the people who pay the taxes to actually build all of that infrastructure… but that doesn’t register in her little brain. Apparently she thinks the money to build infrastructure magically appears in government coffers and some brilliant planner puts in all the infrastructure necessary for business to exist (which is the opposite of the truth, which is that the demands of commerce, paid for with money generated by commerce, that cause the infrastructure to be built).
She preys on the economic ignorance of people to say things like she did about the minimum wage or the “you didn’t build that” comment to get the progressive base fired up. And it sounds so intellectual… She’s stating a truth others are too dumb to understand. To us, it all sounds like she’s saying “the moon is made of green cheese”, but to her target audience she’s explaining something that they always knew was unfair, but couldn’t put their finger on why.
I didn’t even bother a crowd who would read The Free Market Project blog, or The Asylum blog with the arguments that Thomas Sowell makes so well about the effect of raising the minimum wage (unemployment, because minimum wage workers are generally non-productive, dispensable employees who are trying to get their first foot on the ladder of employment), or the argument that if the economy benefits by raising the minimum wage to $9 per hour, wouldn’t it benefit even more by raising it to $22, or $33, or $100? If not, why not?
You are right Pat, Elizabeth Warren is really stupid.
If Elizabeth Warren would write her theory of the correlation of minimum wage and productivity for a Master’s thesis, it would not only get an “F”, even from a liberal professor ( are there any other kind?), but it would be laugh out of the class room.
That she can utter such nonsense to the American public it is a testament of how ignorant the American public is; and it is that “American public” who is electing our leaders. We are in big trouble!
Al the points you make, Pat, are valid. Let me just add the following:
To start, her premise is wrong – the increase in labor productivity of the last 50 so years is mostly due to increases in the capital-investments component as per unit of production.
But she also got it backwards. An increase in minimum wage, or any other wage level, increases labor costs which in turn reduces labor productivity. That obliges the entrepreneur to increase capital investment in ways that will reduce the labor participation per unit of production; thus creating higher unemployment, if all other factors remain equal. I am sure that comrade Warren has not thought this all the way through.
I am for an Amendment to the Constitution that would read: “One cannot become Senator of the United States without al least a Master in Economics from a reputable and recognized institution of learning”.
John, I read somewhere (can’t remember where) that the unspoken reason behind politicians wanting to raise the minimum wage, despite all of the evidence that it increases unemployment, is because union contracts are often (probably when dealing with government) tied to minimum wage. In other words, union workers will be paid X times minimum wage. So, if minimum wage is $7 and the multiplier three times, a union worker is paid $21. But you goose the minimum wage to $9 and suddenly the union workers are getting $27. A nice raise. Do you have any information on that? It would certainly go a long way to explaining why the “always do the right thing for unions” Dems, who are also the “talk a good game about helping the poor while screwing them at every turn” Dems, would just love raising the minimum wage.
Pat, I always assumed that the interest of the Democrats to always raise the minimum wage was a simple vote-buying exercise. I don’t have direct knowledge of whether it is a common practice to link all wage levels in most union contracts to the minimum wage – but it wouldn’t surprise me. It is well worth researching the issue a little further.