Linking the Minimum Wage to Productivity

Levy Economics Institute Working Paper No. 219

36 Pages Posted: 7 Jul 1998

See all articles by Oren M. Levin-Waldman

Oren M. Levin-Waldman

Bard College - The Levy Economics Institute

Date Written: 1997

Abstract

One of the principal problems with the minimum wage is that adjustments to it must be voted on by Congress. Although recent congressional action solves the immediate problem of restoring value to a wage that has otherwise failed to keep pace with inflation, it has not removed the issue from the political agenda. Every time Congress acts, it does so amidst debate about the legitimacy of the wage. When Congress does act, it is usually too little and too late. Therefore, it might be preferable to create an automatic mechanism for adjusting the minimum wage that would not only assume the value of a wage floor to society, but be tied to levels of productivity. Such an approach would accomplish two objectives. First, it would be in keeping with the economic argument that an artificial wage floor can lead to greater productivity, rather than to the disemployment effect assumed in traditional economic textbooks. Second, increases to the wage would be regular and expected, unlike the shocks attendant to sporadic increases. In the end, such a plan might not only lead to less political opposition, but to greater efficiency.

JEL Classification: J31, J38

Suggested Citation

Levin-Waldman, Oren M., Linking the Minimum Wage to Productivity (1997). Levy Economics Institute Working Paper No. 219. Available at SSRN: https://ssrn.com/abstract=104908 or http://dx.doi.org/10.2139/ssrn.104908

Oren M. Levin-Waldman (Contact Author)

Bard College - The Levy Economics Institute

Blithewood
Annandale-on-Hudson, NY 12504
United States
845-758-7718 (Phone)
845-758-1149 (Fax)

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