True to form, Elizabeth Warren has proved adept at grabbing a headline for a talking point made at a Senate hearing, and the media is swooning without actually examining the substance.
The talking point is that if the minimum wage kept pace with the increase in worker productivity since the 1960s, it would be $22.
Warren wants to know where the money has gone, as if someone stole it.
Perhaps it went into lower consumer costs, increased employment, summer jobs for teenagers, some spending money for retirees or stay-at-home moms who work part time, or heaven forbid, profits of the struggling retail and restaurant businesses which employ the relatively small percentage of the workforce which makes minimum wage for full time jobs. None of these possibilities entered into Warren’s question.
There is a lot wrong with Warren’s approach, but I wanted to make a quick point.
How do we know that the productivity increases of minimum wage workers kept pace with the productivity increases of the average worker? Intuitively, one would think that minimum wage worker productivity gains lag far behind, which is why they are minimum wage jobs in an increasingly high-tech job market. Think the person serving burgers versus high tech information-based workers, which is more productive due to technology compared to 40 years ago?
Warren did not cite the study she was relying on, but it likely was a study which gained a lot of notoriety in February when HuffPo ran an article Minimum Wage Would Be $21.72 If It Kept Pace With Increases In Productivity: Study. A chart accompanying that post demonstrates that average worker productivity skyrocketed beginning in the 1970s, right in sync with the computerization of the economy:
So is it fair and appropriate to use the $22 figure?
The study, The Minimum Wage Is Too Damn Low, presented several alternatives, and did not argue for the $22 figure.
First, if the minimum wage kept pace with inflation, it only would be $10.52 or $9.22, depending on how inflation is measured:
If the minimum wage in that year had been indexed to the official Consumer Price Index (CPI-U), the minimum wage in 2012 (using the Congressional Budget Office’s estimates for inflation in 2012) would be at $10.52. Even if we applied the current methodology (CPI-U-RS) for calculating inflation – which generally shows a lower rate of inflation than the older measure – to the whole period since 1968, the 2012 value of the minimum wage would be $9.22. (See Figure 1.)
Second, if the minimum wage kept pace with its relative position to other wages, it would be $10.01.
Using wages as a benchmark, in 1968 the federal minimum stood at 53 percent of the average production worker earnings. During much of the 1960s, the minimum wage was close to 50 percent of the same wage benchmark. If the minimum wage were at 50 percent of the production worker wage in 2012 (again, using CBO projections to produce a full-year 2012 estimate), the federal minimum would be $10.01 per hour.
Only if measured against average worker productivity would the minimum wage be substantially higher. The author, however, appears not to have data on the extent to which minimum wage worker productivity had increased, because he presented several alternatives without arguing which should apply. Only the highest value of all the measurements gets to $22 (emphasis added):
A final benchmark for the minimum wage is productivity growth. Figure 2 below compares growth in average labor productivity with the real value of the minimum wage between the late 1940s and the end of the last decade. Between the end of World War II and 1968, the minimum wage tracked average productivity growth fairly closely. Since 1968, however, productivity growth has far outpaced the minimum wage. If the minimum wage had continued to move with average productivity after 1968, it would have reached $21.72 per hour in 2012 – a rate well above the average production worker wage. If minimum-wage workers received only half of the productivity gains over the period, the federal minimum would be $15.34. Even if the minimum wage only grew at one-fourth the rate of productivity, in 2012 it would be set at $12.25.
Three were many possibilities raised in the study: $9.22, $10.01, $10.52, $12.25, $15.34, and $21.72.
Warren picked the absolute highest figure to make her point, a figure which makes no sense because it assumes that minimum wage worker productivity gains kept pace with worker productivity gains in the overall economy.
This is just another example of how the hype for Warren does not match reality.
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