Linking the Minimum Wage to Productivity

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, because 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.