Senator Warren and the Minimum Wage

May God protect us from politicians who are completely ignorant of economics. Here is video from Foxnews in which Senator Warren wonders why the increase in worker productivity since 1960 hasn’t translated to a corresponding increase in the  minimum wage to $22 per hour.

She actually has a point, however you have to consider that a lot of that increase in productivity has been the result of increasing automation. We simply do not require as many people, whether on a factory floor or in an office, to get a job done. This allows resources,  including human resources to be allocated more efficiently but it doesn’t necessarily mean that each person’s labor is worth more and thus deserving of a higher wage. The other point to consider is beyond the actual numerical amount of a person’s salary is what that salary can actually purchase. A person making minimum wage today is, in many ways, far more prosperous than a comparable person in 1960 if you consider the advances in technology, etc. Consider that the laptop that I am writing this on costs about $300, an amount that is affordable enough to anyone who is in the middle class and even many people considered poor. How much would a computer have cost in 1960? A computer in 1960 was a device that filled a room and cost thousands of dollars. What about televisions? Even someone making minimum wage probably has a color television. I don’t think they even make black and white televisions anymore. Yet, that was all they had in 1960. A television in 2013 is of better quality in almost any way conceivable and yet is cheaper in terms of cost measured by the work needed to earn the amount to buy it (I know there is an economic term for this but I forgot what it is.) compared to a television in 1960. I could go on and on but you get the point.

So, what would happen if we did raise the minimum wage to $22 per hour. To start with, it wouldn’t be only people on minimum wage who would be getting an increase in pay. Normally when the minimum wage is increased, it doesn’t have much of an affect, as the one man noted, simply because not that many people actually make minimum wage. Even so there is a sort of rippling effect on wage scales, especially in unionized labor, which is why unions generally support increasing the minimum wage, even though their members may earn far more than that wage. An increase to $22 per hour would set the minimum wage above that of most hourly workers and the effects of such an increase would be more obvious and profound.

What are the effects of raising the minimum wage? Any increase in wages, whether voluntary or not, is an increase in the cost of labor. the money to pay for that increase has to come from somewhere. Either employers must increase the price of their products, or they may choose to make do with fewer employees, either letting some workers go, or simply not hiring. Either way, the long term result is an increase in prices or unemployment, or both.

As I said, since not many people actually work for minimum wage, these effects may not be noticeable, except perhaps in long term trends. Still, the people most likely to be affected are unskilled laborers and young people just entering the job market. By making their labor more expensive and thus less attractive, any minimum wage tends to increase unemployment among precisely those people it is intended to help. An increase in the minimum wage to $22 per hour would probably increase unemployment to depression levels, and cause a temporary surge in inflation.

I hope that answers Senator Warren’s questions, not that she is ever likely to read this, or pay attention to anything I have to say, even if by chance she stumbles across this blog. I wonder if it would be possible to amend the constitution to require that every member of Congress be required to take Economics 101. But then, no Democrat could ever be elected to Congress.

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