The recent push to raise the minimum wage has seen occasional efforts by proponents to relate the minimum wage to increased productivity. For example,

Up to 1968, increases in the minimum wage kept up proportionately with productivity increases. That made sense, as the gains in productivity were in that way equitably shared between employers and employees. Workers could increase their everyday purchases and businesses could increase their investments (or just enjoy greater profits).

Sen. Elizabeth Warren (D-MA) said last fall that tying the wage to productivity would lead to a $22 federal minimum wage.

True enough, there have been substantial productivity gains, primarily in fields where few workers are paid the minimum wage. A report we’ll be releasing next week looks at where minimum wage workers are employed in Washington. Unsurprisingly, most are in hospitality (hotels, restaurants), retail, and agriculture.

A  BLS report examines changes in productivity between 2000 and 2010. First, the BLS definition:

Labor productivity, defined as output per hour of labor input, is a measure of how efficiently labor
is used in the production of goods and services.

The report finds that when productivity increases, compensation also rises.

Most of the industries examined here posted increases in labor productivity and real hourly compensation over the decade.

That makes sense. But, consider this BLS chart showing changes in hours, output and productivity by sector.

As might be expected, the greatest gains came in IT and manufacturing, with a relatively strong gain in retail – all associated with declining hours of work. Accommodation and food services, where most minimum wage workers are employed, posted relatively little productivity growth. It makes no sense to boost the minimum wage to gains in productivity experienced in sectors that have few minimum wage workers.

As Meagan Clark recently wrote in Investors Business Times in an article explaining why raising the minimum wage is relatively ineffective in combating poverty.

…increasing the minimum wage causes some low-wage workers to lose their jobs because the value of their productivity is no longer high enough for employers to gain by hiring them.

Adam Ozimek, reviewing Sen. Warren’s suggestion in Forbes, says the productivity-wage question has been framed wrong.

If the wage that average productivity growth implied was something like $10 then we might wonder if whether the low growth in wages among the  low-skilled was that their productivity gains were being taken by businesses in the form of labor market power. But $22 is simply to high to be credible and so this suggests that productivity growth among low-wage workers lagged average productivity, in which case Warren’s comparison tells us nothing useful about what the minimum wage should be. Instead of asking why wage growth has been so slow for the lowest earning workers, this suggests we should be asking why their productivity growth has been so slow.

What this also tells us is that clearly it would be bad economic policy to tie the minimum wage to average productivity measures.

That’s right.