Does a bad idea become a good one when you pair it with a fancy chart? The labor-backed Economic Policy Institute (EcPI) seems to think so. Recently, it rehashed the discredited idea of a minimum wage tied to economy-wide productivity, complete with a fancy chart to make the concept seem rational. But it’s a comparison that makes zero economic sense, and only demonstrates how far labor-backed groups like EcPI will go in their quest to make new labor-cost mandates seem like a good thing.
Consider the red line in the chart below, which tracks gains in economic productivity over the last 20 years. This includes dramatic gains in technology-related industries like computers, software design, and telecommunications. (Think of the computer or cell phone you used 15 years ago versus the one you use today.) But the chart also shows that the productivity gains in an industry that actually hires people at the minimum wage (e.g. the food service industry) look far different. On net, productivity has increased just seven percent in the industry over the last 20 years. It’s not surprising: You can only bus a table, cook a hamburger, or serve a meal so fast.
What happens when mandated wages outstrip the value that employees provide? One option is to increase prices. But especially in a tight economy, higher prices can mean lower sales. Instead, employers have to provide the same product in a less costly manner—in other words, with less service. At a restaurant, that might mean your server busses your table instead of a bus boy, or it could mean placing your order via a touchscreen computer rather than with a person.
The food industry will adjust to higher mandated labor costs if forced. But those adjustments mean fewer jobs for the very people earning an entry-level wage. To learn more about the flaws with linking the minimum wage to productivity or inflation, click here to read a recent Wall Street Journal op-ed.