Should the minimum wage grow with worker productivity?
During a recent Senate Committee hearing, Senator Elizabeth Warren claimed that the federally mandated minimum wage would be $22 an hour today if it had been pegged to a benchmark that some economists derive from aggregate statistics to estimate worker productivity. Specifically she said:
If we started in 1960 and we said that as productivity goes up, that is as workers are producing more, then the minimum wage is going to go up the same. And if that were the case then the minimum wage today would be about $22 an hour. So my question is. . . with a minimum wage of $7.25 an hour, what happened to the other $14.75? It sure didn’t go to the worker.
I do not need to go into how many malls and fast food chains may need to shut down if the federally-mandated minimum wage was raised to $22—that is, if it was illegal to pay workers anything less than $22 per hour. (Even Senator Warren herself thankfully does not advocate for jacking up the minimum wage this much; she just wants to make it over $10 per hour, which I would still argue is destructive.)
However, there is another important issue raised by her comments. By asking why low-wage workers are not making more money, Senator Warren is insinuating that these dramatic productivity gains were largely caused by the workers themselves. But what about the small minority of innovators who invented new technologies and processes that vastly improved worker productivity? Such advancements include:
- Universal Product Codes. Thanks to the advent of UPCs — those bar codes on all of the items that you purchase in stores — cashiers can rapidly check out customers with a quick scan, rather than carefully punching every price into a calculator.
- Personal Computers. Thanks to personal computers and a bevy of office software, anyone with an entry-level or even temporary office job can now get far more done.
- The Internet. Thanks to the Internet, offices are now globally networked, allowing individuals to rapidly do research and share vital information. With increased information, comes increased productivity.
- Advances in Logistics and Inventory Management. Thanks to advances such as radio frequency identification (RFID) tags and just-in-time supply-chain management techniques, retailers can more effectively keep shelves stocked with the items that consumers want. This allows retail employees to do far more in terms of what they can help sell than they could before all of these advances came into existence.
Where did the other productivity gains go — Senator Warren asks? Hopefully a lot of it went to the forward-thinking innovators and entrepreneurs whose advancements boosted worker productivity.