“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,” said Senator Elizabeth Warren to University of Massachusetts professor economics Arindrajit Dube in a hearing of the Senate Committee on Health, Education, Labor and Pensions last week. She went on to ask, “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?”
Which is a very dumb question. The better question is, how much would a loaf of bread cost if even the youngest and least skilled workers in America could command $22/hour?
Senator Warren is apparently proud of this exchange, because the video clip above comes from her official YouTube page, but this illustrates perfectly the sort of economic illiteracy which holds sway in Washington DC. And remember, Warren was famous for being an academic before moving to elected office. That’s a little scary.
When you’re talking about wages, you can’t just look at one side of the equation. You can’t just ratchet up the minimum wage workers must be paid and claim that it’s helping based on the simple assumption that making more money is good. Of course an individual making more money is beneficial to that individual, but in the aggregate if you inflate wages for all workers you inflate prices as well.
The money to pay those higher wages doesn’t just magically appear in the economy. Business pay those wages, and businesses get the money to pay wages from the money they charge customers for goods and services.
If you inflate the minimum wage businesses must pay, you inflate the prices businesses must charge lest they face bankruptcy.
In the long run, does that really help the worker? What good does a 203% increase in your wages, which is what an increase from the current minimum wage to $22/hour would be, if the cost of goods and services goes up at a similar rate?