Adam Ozimek eloquently exposes the shallowness of Nick Hanauer’s understanding of economics – and, hence, of Hanauer’s defense of minimum wages. (Had Hanauer taken a decent economics class, he’d have learned within the very first few weeks the vital distinction between changes in demand and changes in quantity demanded – and, likewise, between changes in supply and changes in quantity supplied. He’d have learned, in other words, to distinguish economic phenomena that cause prices to change from economic phenomena that are caused by price changes. Put differently, he would have learned to heed Scott Sumner’s frequent warning to “never reason from a price change,” for no observed price change alone tells the observer what caused that change.) (HT David Henderson)
Do workers enjoy the fruits of their labor? Economic theory predicts that firms pay workers according to their productivity. Some analysts argue this no longer happens in the United States. They contend that workers’ pay has stagnated for the past generation despite large increases in productivity. This belief drives much of the Obama Administration’s regulatory agenda. Labor Secretary Tom Perez explains the newly released salaried overtime regulations are intended ensure that “as we have productivity and profitability in this country, that is shared between business and workers.”
New research from The Heritage Foundation finds that is already happening. Since 1973 average hourly labor productivity has grown 81 percent. Over the same period employees’ average hourly compensation has grown 78 percent. Employee pay closely tracks productivity growth. The studies finding otherwise compare the productivity and pay of different groups of workers, adjust pay and productivity for inflation differently, and contain mathematical errors. These factors cause the apparent gap between pay and productivity reported.