Massachusetts Senator Elizabeth Warren is the current darling of progressives in politics and those in the media pretending to be objective journalists. Warren has this passionate yet soft-spoken tone that sounds like a concerned grandmother comforting a bullied child and reassuring them everything will be all right. This sympathy charade of Warren???s has lulled the nation???s liberal media establishment into an even deeper hypnosis.
The same ???journalists??? who would hike to the top of Mount Everest, twice, to catch a prominent Republican make an unscripted comment they could take completely out of context can???t seem to produce painfully substance-devoid fluff pieces about Warren fast enough. This has lead to pieces like ???Elizabeth Warren was told to stay quiet, but she didn???t ??? and it???s paying off,??? from the Washington Post. That article, written by the prominent newspaper???s ???Policy Editor??? Zachary Goldfarb, is all politics and lacks any hard policy. This trend is undoubtedly good news for Warren, but bad news for the rest of the country.
The reason for the lack of an honest look into Warren???s policy views? It???s probably the fact that exactly none of them withstand economic scrutiny. Enough is enough. If Warren is now going to play an important role in shaping national politics and policy, it’s time we cut up the free-pass that???s been granted by her composure and likability and call her out where she is categorically wrong??? which is just about everywhere.
The minimum wage debate is arguably where Warren first started making waves. Video of her at a Senate committee calmly chastising witnesses over the split in average wage and productivity growth went somewhat viral. She claims that if the minimum wage had kept pace with worker productivity since the 1960s, the minimum wage would be $22 an hour today. Sure did make for a great sound bite, but the economy is infinitely more complicated than anything that can be captured in a couple-second gripe from Warren???s committee pulpit. Warren is a lawyer by training and a rising politician, so she???s inclined to make such quick and convincing remarks with glaring omissions of important details. So what do the economists say when asked about this great ???wage and productivity decoupling????
???This story???is built on an illusion. There is no great decoupling of worker pay from productivity. Nor have workers’ incomes stagnated over the past four decades,??? says Dr. Donald Boudreaux and Ph.D. Fellow Liya Palagashvili, both of George Mason University.
In a Wall Street Journal column, entitled The Myth of the Great Wages ‘Decoupling’, Boudreaux and Palagashvili explain two major factors that have contributed to the observed divergence, according to certain metrics, between worker wages and productivity. The first is that workers are increasingly not being compensated with increased wages. Instead, most workers have seen a huge growth in fringe benefits, like healthcare, since the 1960s. These benefits don???t register as wages in the metrics observed by Senator Warren. Next is the issue of adjusting for inflation over the last several decades.
???Different inflation adjustments give conflicting estimates of just how much the dollar’s purchasing power has fallen. So to accurately compare the real (that is, inflation-adjusted) value of output to the real value of worker pay requires that these values both be calculated using the same price index,??? Boudreaux and Palagashvili explain. They go on, in their piece, to highlight two recent studies that have looked at wages and productivity over the last few decades using consistent adjustments for inflation. Neither study found any decoupling of wages and productivity in the United States since the mid-20th Century.
In fact, if there is a wage and productivity gap problem, it might be moving in the opposite direction. The Bureau of Labor Statistics (BLS) tracks all sorts of statistics related to the labor market, most famously the unemployment rate. They also track something called the Unit Labor Cost. The Unit Labor Cost is calculated as compensation over productivity. From as far back as BLS data goes on this parameter, the Unit Labor Cost for the food service and accommodation industry, where the largest share of minimum wage workers are employed, 47 percent in total, is rising. A rising Unit Labor Cost in this sector that means that wages are actually outpacing productivity! What happened to all the lost productivity, Senator Warren?
Of further note on the minimum wage, more and more data continues to come out that raising the minimum wage is harmful at the margins and disproportionately hurts those it is intended to help the most. Wages are prices. Economics 101 tells us that raising the price of anything decreases the amount of it people will consume or use. No one is going to argue that $4.00 gas didn???t push people to buy hybrids and drive less. The same principle applies to low-skill workers making the minimum wage. If their price goes up, people will hire fewer of them. It???s common sense reflected in the data of a recent study fromUC-San Diego economists Jeffrey Clemens and Michael Wither. Per their study:
???Over the late 2000s, the average effective minimum wage rose by nearly 30 percent across the United States. Our best estimate is that this period???s minimum wage increases reduced working-age adults??? employment-to-population ratio by 0.7 percentage point. This accounts for 14 percent of the total decline over the relevant time period.???
In sum, Senator Warren is championing a minimum wage increase, which will destroy jobs for low-wage and skill workers, in order to combat a wage and productivity decoupling that simply didn???t happen. This tilting at windmills has proven to be classic Elizabeth Warren. The Senator has also pushed legislative action on what is known as the gender wage gap, another economic apparition created by the failure to properly analyze all available data and income statistics.
This will be discussed in Part II of this series.