Re: AltInst: Productivity-indexed minimum wage

From: George L. O'Brien <>
Date: Thu Aug 13 1998 - 16:46:47 PDT

At 04:19 PM 8/11/98 -0700, you wrote:
>"George L. O'Brien" <> writes:
>> 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.
>Playing devil's advocate, some low paying jobs cannot be easily
>substituted. Humans are far more versatile and capable than robots
>in many applications and so it will be a long time before they are
>replaceable. It is also possible (although this is less convincing)
>that demand for some of these low paying jobs is relatively insensitive
>to price and so raising the wage will result in the loss of only a
>small fraction of jobs. Somebody's got to pick lettuce, and if labor
>costs are a small enough fraction of the grower's expenses then he can
>tolerate increases without reducing employment much.
>In cases where all this is true, then raising the minimum wage would
>mean a net increase in income for low paid workers, even taking into
>consideration the loss of employment which results.
>It would appear that raising the minimum wage would be more effective in
>those industries where loss of employment would be small.

In the short run, I am sure that a small increase in labor costs will have
a relatively small impact on employment. However, the short run does not
really last very long.

In 1950, teenage unemployment was only a few percentage points higher than
adult umemployment. The unemployment rate among African Americans was
actually lower than it was for the rest of the labor force. Today, teenage
unemployment is far higher than for the rest of the work force in spite of
fast food and African American unemployment is many times higher.

Let us take the example of lettuce. So far, I am unaware of a fully
mechanized means of picking lettuce. However, I can say that end users seem
to be fairly price sensitive and will switch to other vegitables without
much hesitation. This suggests that full cost passthroughs are unlikely.

So what does the rational lettuce grower do? My guess would be to switch to
other crops that can be more easily mechanized. If this proves impossible,
then I would look for an increase in bankrupsies as the farmers abandon
land that can no longer support their costs.

At some level, every worker is paid for the economic value added to the
customer. If the worker cannot generate sufficient economic value added in
relation to the total cost of employment, then it is hard to sustain that
job. Arbitrarily changing the price being charged won't make the worker
more productive.

George L. O'Brien

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Received on Thu Aug 13 23:59:47 1998

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