Sunday, March 31, 2013

Factual Confusion and a Disregard For Personal Liberty Explain Support For The Minimum Wage

Published in The Tennessean, Sunday, March 31, 2013 and the full version at FORBES with archives.

Richard J. Grant

A reader writes, “The Center for Economic Policy and Research found that the minimum wage would be $21.72 an hour if it kept pace with increases in worker productivity.” Touting data from the same study, in a U.S. Senate committee hearing last week Sen. Elizabeth Warren (D., Mass.) noted that the current federal minimum wage of $7.25 falls short of the productivity indexed estimate of “about $22 an hour.” She asked, “What happened to the other $14.75? It sure didn’t go to the worker.”

Sen. Warren’s question is absurd for the same reason that it would be wrong to assume that all senators share her economic illiteracy. Just as not all senators are equal, not all workers are equal. Each worker’s productivity level differs from others depending on attitudes, skill levels, and the types of tools available to the worker. Productivity is generally higher in jurisdictions with greater economic freedom, which means less government interference.

Labor productivity estimates are statistical averages; but minimum-wage workers are not average. The $21.72 estimate is itself above average because it applies only to non-farm productivity. The CEPR’s productivity estimate for the broader population is $16.54, which is still an average and is well above the marginal productivity of minimum-wage workers.

People often confuse a statistical average for an actual event or entity. While we all laugh when we hear ...



Richard J. Grant is a Professor of Finance and Economics at Lipscomb University and a Senior Fellow at the Beacon Center of Tennessee. His column appears fortnightly on Sundays. E-mail messages received at: rjg@richardjgrant.com

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