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Not all 'productivity' is created equal: Another case against government-dictated minimum wages

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Contact Colin McNickle (412-320-7836 or cmcnickle@tribweb.com).

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Saturday, May 25, 2013, 9:00 p.m.
 

Governments shouldn't set wage floors; markets should. Wages should be set not by government fiat but by a respective employee's worth to a business, based on skill set and productivity.

Wages by diktat that ignore those factors perversely have the opposite effect of government beneficents' intentions.

Oh, some will see their wages rise. But others, and typically on the lowest rung of the employment ladder and those seeking their first footing on that ladder, pay a steep price. The cost of labor arbitrarily increased by the government for some will mean fewer jobs for others. The government has priced the entry-level and least-skilled worker out of the market.

Minimum-wage aficionados long have argued, usually with faulty data, that such a scenario is unfounded. Economic scholarship says otherwise. And while proponents are not yet ready to concede the point, and likely never will be, they've taken to lifting the area rug and sweeping the point under in pursuit of another, though equally specious, point.

“Ha!” they exhort. “The simple matter of fact is that the minimum wage has not risen by as much as overall worker productivity.” Thus, the minimum wage should be raised to keep pace.

Some refer to this as the “black hole theory of the minimum wage.” Or as liberal blogger Denis Drew defined it recently at allthingsdemocrat.com: “When the minimum wage falls far enough below what the market would bear, the laws of supply and demand break down.” Had the minimum wage kept up with productivity, today's minimum wage should be $22 an hour, goes the argument.

But overall productivity is not the proper measure, reminds Don Boudreaux, the regular Trib columnist and renowned professor of economics at George Mason University in Fairfax, Va.

“The productivity that's relevant ... is marginal productivity,” Mr. Boudreaux told Mr. Drew in a Thursday letter that the professor shared with me. “Namely, the value that ‘the last' worker added to a class of production projects adds to the market value of those projects. But not all workers and not all production projects are alike.”

That is, trends in overall worker productivity should not be confused “with that of the marginal productivity of low-skilled workers,” Boudreaux says.

Theory and gobbledygook, you say? Here's a real-life example from Boudreaux:

“If, all other things unchanged, consumer demand for neurosurgeons rises relative to that for general practitioners (GPs), the wages of neurosurgeons will rise relative to that of GPs. The reason is that the marginal productivity of neurosurgeons will rise relative to that of GPs. The same result will occur if, all other things unchanged, the number of GPs increase relative to that of neurosurgeons.”

Furthermore, “If the average productivity of physicians as a group rises over time, nothing in economic theory says that the productivity or the wages of all physicians must rise by equal amounts — by amounts equal to the rise in average physician productivity and average physician wages. And nothing says that the wages of some kinds of physicians cannot fall even when average physician productivity is rising.”

What's true for physicians is true for workers generally, Boudreaux says.

Thus, the real black hole of the debate is believing that all productivity is created equal.

Colin McNickle is Trib Total Media's director of editorial pages (412-320-7836 or cmcnickle@tribweb.com).

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