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Low-wage workers can't advance without better skills

Tuesday, February 26, 2013 - 12:01 am

Hidden within the unserious politics of the minimum-wage debate lies an important discussion of why many workers have not seen their wages grow over the past generation. The answers take some digging.

It is useful to reiterate that a $9 minimum wage would increase wages for some workers and cause others to lose their jobs. Those who get higher pay will credit the folks who pushed for the law. Those who lose their jobs (or more likely just don't get hired) will blame someone else. This is how political theater works, but it begs the question, “Just who cares about low-wage workers?”

There still is one good nonpolitical argument for raising the minimum wage: It sends a signal to low-wage workers. You see, if you are an adult and cannot command more than $9 an hour in labor markets, you face a dire problem. Your job skills are inadequate to the goal of becoming an independent adult. The loss of a job is a clear way to signal that you need more schooling. While this might sound like harsh medicine, it is simply a louder version of what every school teacher trumpets from kindergarten on down the line.

Today, the plight of low-wage workers is a real and growing concern. It won't disappear with ill-considered minimum wage laws. Sadly, it just ain't that easy.

The prime reason low-wage workers are having a more difficult time over the past few decades is that their wages are not keeping up with overall productivity growth. If they had, then wages for lower-skilled workers would also have risen substantially. It would be most convenient if this were due to something with an easy policy remedy. Instead, it is due to technological change that is biased towards more skilled workers. A fast food restaurant provides a common example.

For about a century, we muddled along with cash registers that required math skills at the elementary level. About a generation ago, these registers were replaced by computers with cute little pictures of sandwiches and fries instead of numbers. This and similar technologies increased productivity by allowing a very low-skilled worker to perform the job. The productivity gains from this process weren't caused by better workers at McDonald's. It was a smart software engineer and manager who boosted productivity.

Like it or not, higher wages accrue to the source of the productivity growth. That is how any economy works. So, wages for the engineers and managers rose while wages for the fella pushing the Big Mac button stagnated. This continues to play out all over the economy.

The fix is straightforward. These workers need more and better education and training, some of it embarrassingly basic. The quickest fix would be to shrink the share of low-skilled workers, which would force higher wages in low-skilled occupations. Raising the minimum wage will only reduce job opportunities for low-skilled workers and increase the demand for skill-biased technologies. Maybe that is the goal?

Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University.