More Mistaken Motivated Justifications for Minimum Wages

(Don Boudreaux)

Here’s a letter to the New York Times:

Editor:

Seema Jayachandran reports that “new research shows that raising the minimum wage improves workers’ productivity” – and thus, according to the research, causes no unemployment because the increase in productivity enables employers to afford to pay the higher wages (“How a Raise for Workers Can Be a Win for Everybody,” June 18).

I’m skeptical. If raising wages causes worker productivity to rise by enough to justify the pay hike, each employer would already have raised the wages it pays; there’d be no need for an enforced wage hike in the form of a raised minimum wage.

To her credit, Ms. Jayachandran anticipates this objection by arguing that “What unlocked these gains was government action: All nursing homes in a community had to pay employees more. That eliminated competitive disparities that might have made individual operators reluctant to raise wages unilaterally.”

But this explanation fails. If – as is claimed – raising worker pay increases worker productivity by enough to justify the pay increase, no employer that individually raises workers’ wages would have to raise the prices it charges to customers. The increased worker productivity would cover the higher wage expenses, and the resulting improvement in operating efficiency would push prices lower, not higher.

Sincerely,

Donald J. Boudreaux

Professor of Economics

and

Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center

George Mason University

Fairfax, VA 22030