Minimum wage and productivity

Nick Bunker at Equitable Growth has posted a cryptic piece wondering about the relationship between wages and productivity:

When we think about the relationship between productivity and wages, it’s usually in the sense that productivity determines wages. The arrow of causality points from higher productivity to higher wages. But it’s possible that the arrow can point in the other direction at the same time—higher wages might also increase productivity.

Then he ties in the critical component:

The idea is that the relative prices of the factors of production affect the kind of innovation and productivity growth in an economy. So an economy where wages are higher will have productivity growth biased toward using labor less and using capital more.

The article has a lot of citations, which I did not read.  But it seems pretty simple to me, even though the article never came right out and stated it directly.  If you require paying people $15 per hour to do unskilled labor, the amount of unskilled labor available is going to drop precipitously, and be replaced by technology (capital).  Not only will cashiers be replaced by automation, but so will all the rest of the jobs in the fast food joint.  And every other unskilled job.


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