Wednesday, June 25, 2014

A Quick Reaction to More Minimum Wage Nonsense

Danielle Kurtzleben of Vox has an interview with Gap's Vice President of Stores Lynn Albright about the company's decision to phase in higher wages for its lowest paid workers. The claim being made is that this decision is good for the Gap, as it will reduce employee turnover (which is costly) and attract higher skilled workers. I have two reactions.

First, good for the Gap for figuring out that it can raise profits by changing a labor practice. Also, good for the higher skilled workers who now have more opportunities in the labor market.

Second, this policy change at one company has absolutely nothing to do with the case for raising the minimum wage in the economy as specified by law. Such legislation affects the opposite labor practice -- when a company figures out that it can raise profits by offering lower wages, acknowledging that it will suffer higher turnover costs and that it will attract less skilled workers. With that labor practice forbidden by law, companies with that production model and the less skilled workers, who now have fewer opportunities in the labor market, are worse off.

The problem that we should be addressing is that low-skilled workers have low skills, not that there are labor market opportunities that pay them in accordance with their low level of productivity.

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