A basic contention of reality connected economists is that higher minimum wages will lead to fewer jobs on offer at those now higher wages. We’re told, endlessly, from the progressive side, that this isn’t true.
And yet when we come to discuss other aspects of progressive economics, say the effects upon productivity of higher wages, we’re assured that minimum wage story is in fact true. For, higher wages lead to increases in productivity thought capital investment in machinery. This is the same statement as higher wages lead to fewer jobs. For higher productivity is the use of less labour, that’s the definition of it.
And yes, this really is what we get told:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Plus, higher wage growth creates incentives for companies to upgrade their production processes because higher wage costs motivate firms to modernise machinery. Wage growth speeds up technological progress. A 10% wage increase typically leads to 3-4% higher productivity.[/perfectpullquote]
It’s an exceptionally cute trick, isn’t it? Higher wages don’t cause job losses except higher wages do create job losses. Because higher wages don’t mean substitution away from labour and toward capital except higher wages lead to substitution of capital for labour.
Progressives, if they didn’t have double standards they wouldn’t have any standards at all.[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]This article is part of a short series published in conjunction with the Progressive Economy Forum, in which economists put forward viable alternatives to austerity.[/perfectpullquote]
Hey, maybe they should start just with viable logic?