Worker Productivity, Not Minimum Wages Increases Lead to Higher Wages.

Kevin Rogers

Despite more than 97 percent of hourly workers earning more than $7.25, the federal minimum wage remains a hot-button topic. Former United States Secretary of Labor Robert Reich is an outspoken advocate of more than doubling the minimum wage up to $15 per hour. To him and many on the left, the only way for low-income workers to receive higher wages is through government intervention. They cannot do it through training and increased productivity. Uncle Sam must come to the rescue.

But is this true? Do workers who need Robert Reich and the federal government raise the minimum wage to ensure that those at the bottom are lifted out of poverty? Well, not if you look at the data. The minimum wage has remained at $7.25 since 2009, but workers’ salaries have not remained stagnant. Since 2009 the median income of workers has increased from $26,261.29 to $34,248.45 in 2019 — an increase of over 25%.

Improved skills lead to higher wages.

As noted, nearly all hourly workers earn more than the federal minimum wage. These higher wages are not due to the generosity of their employer, who is concerned with earning a profit. Workers earn more by acquiring new skills, increasing their productivity, allowing them to demand more for their labor.

Employees also become more productive as their employer invests in capital goods which quickly increases their productivity. In their textbook, Economics Nobel laureate Paul Samuelson and William D. Nordhaus explain why increases in capital goods increasing worker wages:

Because each worker has more capital to work with, his or her marginal product rises. Therefore, the competitive real wage rises as workers become worth more to capitalists and meet with spirited bidding up of their market wage rates.

Due to rapidly increasing capital goods, a worker in 2000 earned as much, adjusted for inflation, in twelve minutes as a worker in 1900 made in an hour.

The free market forces employers to compete for skilled workers. With increased capital goods and newly acquired skills, workers become more productive and can demand higher wages. This increased production allows them to seek pay increase from their current employer or sell their hourly labor to a rival company.

In Human Action, Ludwig Mises explains how the competition for workers increases wages.

Each entrepreneur is in search of workers who are fitted to accomplish those specific tasks which he needs for the execution of his plans. He must withdraw these specialists from the employments in which they happen to work at the moment. The only means he has to achieve this is to offer them higher pay.

While it's true that since 1973 wages have not kept up with productivity, it should be noted the United States went off the Gold Standard in that same year.

Minimum Wage Tradeoffs

For Robert Reich, the case for raising the minimum wage to $15 is based on morality and not purely on economics. He argues that no one should be working full time and remain in poverty. This appeal to emotions, however, does not hold up against basic economics. Murray Rothbard points out that the minimum wage isn't a jobs program, and it hurts those that it is intended to help.

Minimum wage laws tragically generate unemployment, especially so among the poorest and least skilled or educated workers… Because a minimum wage, of course, does not guarantee any worker’s employment; it only prohibits, by force of law, anyone from being hired at the wage which would pay his employer to hire him

Reich acknowledges the trade-off between higher minimum wage and job losses but sees no problem eliminating certain low-paying jobs and forcing those workers on to unemployment.

So we’ve raised standards and lost such jobs. In effect, we’ve decided such jobs aren’t worth keeping. Even if a $15 an hour minimum wage risks job losses, it is still the right thing to do.

Those jobs, which Riech doesn’t believe are worth keeping, are essential to the people who have them and the families that depend on their income. They didn't decide their job wasn't worth having. That decision was made for them by politicians with high-paying taxpayer-funded salaries.

What workers need more than an increase in the minimum wage is an increase in saving and investing in capital goods, improving their skills to offer more to their employers’ bottom line. Doubling the minimum wage is a short-term solution benefiting some workers and at the expense of others.



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