Thursday, March 28, 2013

Minimum Wage: Senator Elizabeth Warren's Perpetual Motion Machine

From Elizabeth Warren's Acquired Economic Stupidity (emphasis added):
The problem with a reductio ad absurdum argument is that sometimes your opponent accepts the absurdity and just runs with it….

Leave it to an academic to be totally ignorant of the workings of the economy. So let’s clue in Senator Warren about where those productivity gains came from and where the profits went to.

If we’re talking about productivity gains across the entire economy, some of those gains came from higher-level skills acquired by workers. But that’s not the case for minimum-wage workers, because they are by definition unskilled. (The possession of a skill is precisely what makes it possible for a worker to command a higher wage.) For minimum-wage workers, productivity gains are the result of investment in new technology that allows businesses to get more value out of the same amount of unskilled labor. Think of a supermarket scanner versus the old system–which people over 40 can still remember–in which all prices had to be pasted manually onto grocery packaging and entered manually into a cash register by the cashier. In that old system, it took a lot more labor for the same unskilled or low-skilled worker to check out a customer.

The profits from these productivity gains went mostly to the people who created them: the businesses who adopted new technologies and the inventors and entrepreneurs who developed them. Put simply, if Senator Warren wants to know “what happened to the other $14.75,” she might start by taking a stroll around Silicon Valley. The money went (among other places) to reward the inventors of productivity-enhancing computers and software. By the same token, if we were to mandate that all productivity gains must go to unskilled workers, we would eliminate all of those profits and kill any incentive to invest in higher productivity.
Hat Tip: Elizabeth Warren’s $22 intellectual Waterloo



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