19 Mar 2013 Elizabeth Warren’s Efforts At Spreading Ignorance Very Productive

Massachusetts continues its proud tradition of electing quality candidates to the U.S. Senate.  At a hearing the other day, Sen. Elizabeth Warren blurted out this little gem:

If we started in 1960, and we said that, as productivity goes up — that is, as workers are producing more — then the minimum wage is going to go up the same. And, if that were the case, the minimum wage today would be about $22 an hour. So, my question, Mr. Dube, is what happened to the other $14.75?

Oh dear.  The correct answer to Warren’s question is that the other $14.75 probably didn’t exist.  The reason can be found in Warren’s belief that productivity is solely a function of workers’ skills (not a total surprise, given some of the other things she believes.)  Well, it’s not.

Increases in productivity come from a wide variety of factors, improvement in workers’ skills being only one.  Innovation, investment and competition are some others.  However, it is only improvements in workers’ skills that lead to wage increases.

Wages are based on the value that an employee has to his employer.  Now, if an employee takes a class on how to operate his computer more efficiently, that will likely improve his productivity.  It also increases his value to his employer, who may pay him a higher wage.  And if he doesn’t, well, the market will eventually recognize the employee’s value—that is, another employer will see his value and hire him away by offering to pay him more.

But the computer itself has been a major factor in the increase in productivity.  Computers make information travel faster, make organizing files easier, make doing research easier, etc, etc.  Yet the creation and improvement of the computer was an innovation—by itself, it had little to do with worker’s gaining skills.

Then there were the employers who decided to buy the computers to improve their businesses.  That, of course, is investment.  It also improves productivity, but it doesn’t do much to improve employee skills and thus doesn’t do much to increase their wages.

There are other problems with Warren’s—ahem—reasoning that other bloggers have pointed out, and so I’ll only briefly mention them here.  Erika Johnson at Hot Air points out that if increases in productivity were linked directly to wages, then the massive increases we’ve seen in productivity in farming should lead to enormous wage gains for farmers.  Of course to pay those wages would mean that the prices we pay for groceries would be much, much higher than they are now—not a desirable result.

Robert Wenzel notes that Warren apparently makes the erroneous assumption that productivity gains are uniform across the economy:

Warren is using a macro number that averages productivity over the entire jobs population. This should be viewed with even greater skepticism than her productivity claims. There is simply no basis for the view that productivity gains increase at the same rate over the entire jobs population. A hamburger flipper and a floor sweeper may see no productivity gains, while someone designing new cars may see a huge gain in productivity because of new software that makes design much easier.

Data from the Bureau of Labor Statistics backs that up.  From 2002 to 2011, the food services industry, which has a lot of minimum wage workers, has seen productivity improve by just under 6%.  But computers and electronic products, an industry not known for lots of minimum wage workers, has seen a 72% increase in productivity in that same time.

And if ignorance is the output, then the U.S. Senate had a productivity increase of 10,347% last Thursday.