Noted fabulist and law professor (but, as Mark Twain might have said, I repeat myself) Elizabeth Warren made the news today with her question about labor productivity and the minimum wage. You can watch her in action here, but her point boils down to this: If the minimum wage had risen at the average rate of growth in labor productivity since 1960, it would be $21.72/ hour today. Since the actual minimum wage today is $7.25, the junior senator from Massachusetts wants to know “what happened to the other $14.75?” (Hey, she made a lot of wild claims in her election campaign, but she never claimed to be good at arithmetic.) Her implication, of course, is that it was stolen by labor-exploiting plutocrats like Mitt Romney.
Senator Warren apparently is one of those people who find it preposterous to think that a 6-ft.-tall man could drown in a river with an average depth of 4 ft., because she’s committing precisely that error with respect to labor productivity.
While it’s certainly possible–and occasionally useful–to calculate an economy-wide average value for labor productivity (a.k.a. “output per worker”), it’s essential to keep in mind that labor productivity differs tremendously across industries and among workers of different skill levels. In any discussion of the minimum wage, the average value of labor productivity is utterly irrelevant for the simple reason that the people affected by the minimum wage are those whose productivity is the lowest in the entire economy. So, in the interest of helping Mrs. Warren in her quest for knowledge, I’ve looked up the rates of productivity increase in those industries that most commonly employ minimum-wage workers. These data are the annual average rates of change in output per hour of work since 1987, which is the starting date for which I could easily find the relevant data. Here they are:
Grocery stores 0.3
Department stores 0.3
Limted-service eating places 0.5
By contrast, the average annual growth rate for the entire nonfarm business sector over the same period was 2.0 percent. What difference does that make? Well, if the minimum wage had risen at 2% per year in real terms from its 1987 level of $3.35, it would be about $11.12 in current dollars. If, on the other hand, it had risen at 0.5% per year it would only be about $7.68. today. In short, the current minimum wage of $7.25 pretty accurately reflects the actual, very slow, growth in worker productivity in those industries that typically employ minimum-wage workers. The proposed immediate increase to $9/ hour will raise the cost of a low-skilled worker by almost 25%. Anyone who thinks that won’t have an adverse effect on the employment of those workers hasn’t been paying attention to the recent effects of Obamacare’s implementation.
Senator Warren could have found all this out free of charge by placing a call to the Congressional Research Service. Why, instead, did she rely entirely on a bogus article at HuffPo? I can only presume that her obsession with the “unfairness” of the U.S. economy overrides her interest in the truth. But if she really wants to figure out who’s to blame for the hideously low rates of productivity growth among the least skilled people in the U.S., she would do well to investigate the public school system that has trained them.