Dear WSJ: Higher Wages and Productivity

Editor, The Wall Street Journal

200 Liberty Street

New York, NY 10281

To the Editor:

Terence M. O'Sullivan alleges that "voluminous research" shows that legislatively mandated higher construction wages do not raise builders' costs because these higher wages "are generally offset by greater productivity" (Letters, Jan. 30).

Research – and economic logic – do indeed show that mandated higher wages are correlated with higher worker productivity. But contrary to Mr. O'Sullivan's argument, the reason is that firms prevented from paying wages lower than some regulatory minimum hire only workers capable of producing enough to justify the higher wage. The lower-skilled workers who would have been hired in the absence of such regulation never enter the picture. The resulting higher measured productivity is a statistical artifact created by the arbitrary exclusion of lower-skilled workers from construction jobs.


Donald J. Boudreaux

Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.