There are more economic fallacies than you can shake a stick at in this New York Times editorial: “Let’s talk about higher wages.”

The writers start off by criticizing “The conventional wisdom (which) held that productivity growth was the only route to higher wages. Through that lens, efforts to negotiate or require higher wages were counterproductive. Minimum-wage law would raise unemployment because there was only so much money in the wages pool, and if some people got more, others would get none. Collective bargaining similarly was derided as a scheme by some workers to take money from others.”

True, all true. Not only is productivity growth a necessary and sufficient condition for rising wages, it also accounts for their present levels. LeBron James takes home a hefty paycheck because he adds magnificently to the bottom line of the Los Angeles Lakers. I garner a middle-class wage because I offer my employer an intermediate level of productivity. And the guy pushing a broom around is paid less since his contribution, in terms of value added, is even more modest.

Suppose workers can produce at the rate of $20 per hour. If they are paid more than that, their employer loses money on them, and bankruptcy beckons. But suppose they are compensated, only, to the tune of $12 hourly. Then their company earns a pure profit from them of $8 per hour. Is this a tenable situation? Is this likely to last? Have we here reached an economic equilibrium? Of course not. These employees then become a target for competing firms. One of them, at least theoretically, will offer $12.01; another $12.02, and then we are off to the races. Where will it end? In equilibrium at $20, since at any lower wage there will still be profits to be made from continuing to lure laborers away from their present employer. As the market abhors profits, just as nature abhors a vacuum, this process will continue to that point, ignoring transactions costs. Yes, artificial wage boosts such as the minimum wage, or threats from organized labor lead only to unemployment for the unskilled and to rust belts.

But the New York Times is having none of this. Here is their critique of what I consider to be the correct “conventional wisdom”:

“In the real world, things are more complicated. Wages are influenced by a tug of war between employers and workers, and employers have been winning. One clear piece of evidence is the yawning divergence between productivity growth and wage growth since roughly 1970. Productivity has more than doubled; wages have lagged far behind.”

Tug of war- bologna! One side prefers infinite remuneration; the other zero. Do market wages reflect a halfway point between the two?

There is absolutely no warrant for maintaining that “power” is determinative. Rather, what the top athlete or movie star has vis a vis the floor sweeper is the ability to garner revenue for his employer; that is, productivity. This is not at all obvious because it is exceedingly difficult to assess this attribute. A case in point is the failure of experts to accurately measure that of Jeremy Lin. No the best measure of productivity is the market wage. If wages have not risen, then, neither has productivity, on average.

What evidence of the divergence between compensation and productivity is offered by these editorialists? It amounts to no more than pontifications from a bunch of pointy-headed professors with brief-cases. If entrepreneurs guess wrong, they lose money and/or cannot keep their work force away from competitors. What did those academic intellectuals lose when they mis-assessed productivity? Nothing much. It beggars belief to think that productivity has “more than doubled” while wages hardly budged. In our numerical example, this would be akin to saying that productivity rose from $20 to $30 per hour and wages only increased to, say, $23. This would leave a profit gap of $7. Is it seriously contended that market forces would leave matters at that point?  That no employer would try to “steal”, aka, “attract” labor from this firm by offering $24? Or $25?

But what with the advent of computers, the web, Google, Facebook, et al.? Isn’t it obvious that productivity has risen, while real wages have indeed, lagged? Yes, true. But regulations have also increased. As have wokeism, cancel culture, and political correctness, increased, and this too would have the very opposite effect. So would increasingly pervasive affirmative action, which continually promotes people to positions for which they are not qualified. Employees get promoted to their level of incompetence; there is even a name for this sort of thing: “The Peter Principle.” This alone might have more than offset technological gains in productivity.


Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans