March 20 2013
Elizabeth Warren's Magical Thinking
Senator Elizabeth Warren wants to know why the minimum wage isn’t $22 an hour.
Here is how she posed the question in a hearing of the Senate’s Committee on Health, Education, Labor and Pensions:
“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?”
This is the same sort of magical thinking that produced ObamaCare, a vast, likely unworkable system that is designed to fulfill dreams of Democratic legislators. We should be very glad that the minimum wage isn’t $22. People at the lower end of the economic spectrum, the ones on whose behalf Warren purports to be speaking, should be the happiest.
A higher minimum wage would create unemployment. Senator Warren might not like that. The promoters of ObamaCare might not like it that people with pre-existing medical conditions pose special problems for insurers. But both are true. Walter Williams knows more about the effects of the minimum wage than Warren, who operates out of the same faculty lounge sensibility as President Obama.
Poor people are not poor because of low wages. For the most part, they're poor because of low productivity, and wages are connected to productivity. The effect of minimum wages is that of causing unemployment among low-skilled workers. If an employer must pay $5.15 an hour, plus mandated fringes that might bring the employment cost of a worker to $7 an hour, does it pay him to hire a person who is so unfortunate as to have skills that permit him to produce only $4 worth of value per hour? Most employers would view hiring such a person as a losing economic proposition.
Moreover, as Williams points out, the majority of people who make the minimum wage are unmarried workers below the age of 25—in other words people who are just starting out and can expect to earn more as they master skills and move up. If there were a $22 an hour minimum wage, most of these people simply could not find work.
Just to give you some perspective on how out of touch with economic realities Senator Warren is, recall that President Obama proposed raising the minimum wage to $9 an hour in the State of the Union address.