The Left Will Tell You That Raising the Minimum Wage Will Boost Productivity – Don’t Let That Fallacy Fool You
Posted by M. C. on June 28, 2021
In any case, if this Ford fable were true, as per The New York Times, it would undercut its support for minimum wage laws and organized labor. These would not be needed if we could rely on employers voluntarily paying increased wages so as to boost productivity.
According to this fallacy, Henry Ford raised wages so as to increase productivity
The “newspaper of record” trots out this economic fallacy: “Perhaps the most famous illustration of the benefits [of higher wages stoking the sputtering engine of economic growth] is the story of Henry Ford’s decision in 1914 to pay $5 a day to workers on his Model T assembly lines. He did it to increase production — he was paying a premium to maintain a reliable work force. The unexpected benefit was that Ford’s factory workers became Ford customers, too.”
Who says so? What is the evidence that he did this so as to increase productivity? His own claim? Why believe him?
Were his workers starving and feeble before this great generosity of his? Of course not. And, even if this were true, it by no means follows that this is the royal road to profits.
From an economic point of view, even if this were the result, it would have been in spite of this “decision” of his, not due to it.
The best estimate of productivity, indeed the only one, is actual wages paid.
Of course, there are always errors in any market comprised of flesh and blood human beings. But the incessant hunt for profits and to avoid losses ensures that there is a continually operating tendency for productivity and wages not to diverge too greatly.
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Walter E. Block is the Harold E. Wirth Endowed Chair and Professor of Economics at the College of Business, Loyola University New Orleans, and senior fellow at the Mises Institute.
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