“And then He said, ‘Let there be Higher Wages'”

by Don Boudreaux on July 6, 2010

in Myths and Fallacies, Prices, Reality Is Not Optional, Seen and Unseen, Work

Here’s a letter to the Los Angeles Times:

Searching for policies to “create the good jobs our economy needs,” UC Berkeley Law Dean Christopher Edley, Jr. advises Pres. Obama to stop federal-government contracts from being awarded “to companies that create poverty-wage jobs” (“The economic power of Obama’s pen,” July 6).  The idea is that firms seeking Uncle Sam’s business will then raise the wages they pay to their low-skilled workers.

If Mr. Obama follows Dean Edley’s advice, low-skilled workers’ wages will indeed change – specifically, the wages for many of these workers will fall from their current levels (say, $7.25 per hour) to $0 per hour.  Firms seeking government contracts will replace low-skilled workers with machines; hire fewer such workers and work them harder; or use a smaller number of higher-skilled workers to perform tasks previously performed by a larger number of low-skilled workers.

Low wages are not the result of arbitrary company decisions; they are the result of low worker productivity.  A pen even as mighty as that of Pres. Obama cannot miraculously invest low-skilled workers with greater skills.

Donald J. Boudreaux


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