Re: AltInst: Productivity-indexed minimum wage

From: George L. O'Brien <>
Date: Tue Aug 11 1998 - 10:40:28 PDT

Is there a really strong case for a minimum wage that is substantially
above the market clearing level for low skill, marginal workers?

Currently, the minimum wage is at or below the marketing clearing level for
most jobs. Phoenix, AZ is considered a relatively low wage area, yet fast
food places, convenience stores, and various other low wage places have
signs advertising starting wages well above the minimum wage. Raising it
probably won't hurt very much because it won't help very much.

There are issues created by minimum wage. It can interfere with certain
kinds of apprenticeship programs and work study arrangements where training
costs are already very high in relation to productivity. Minimum wage has
been used to prevent the development of home based "putting out"
arrangements that can be useful alternatives to daycare. (The twin culprit
is the IRS and its war against independent contractor status).

So what exactly is the case for setting the minimum wage substantially
above the market clearing level? Certainly, it will benefit those lucky few
who get those jobs. However, if the minimum wage were set at say, $10 an
hour, we can be certain that the substitution of capital, technology, and
imports would accelerate extremely rapidly.

All we need to do is look at what has happened in the old, unionized
industrial firms that pay subtantially above average wages. The number of
old style steel working jobs has fallen dramatically. The number of people
working in the auto industry has been falling while market share has gone
to firms like Honda.

The rapid expansion of technology has created a world where low skill jobs
are being eliminated at a rapid rate. The industries that can continue to
use low skill people are the same ones that are the most sensitive to minor
changes in labor costs and have the least power to pass those costs on. For
example, the restaurant business has one of the highest bankrupsy rare of
any industry.

Gas station attendents have become virtually an anachronism as computerized
gas pumps have taken over. Raising their pay rate will simply accelerate
the proces.

Personally, I think low income people would benefit more from attempts to
reduce their cost of living than from fruitless efforts to set the minimum
wage above the market clearing level. One place to start would be to
eliminate regressive consumption taxes.

George L. O'Brien

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Received on Tue Aug 11 17:55:21 1998

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