Tracy Ducharme’s recent op-ed piece, “Small business owner makes the case for higher minimum wage,” attempts to refute The Gazette editorial against a higher minimum wage. Her main arguments are (1) Higher wages lead to higher worker productivity; and (2) Higher wages lead to increased spending. Let’s take them one a time, using economic logic and common sense.

First, Tracy has the cart before the horse. It is true that higher wages are correlated with higher productivity, but her order of causality is inverse to reality. It is higher productivity that leads to higher wages, not vice versa. Every major economics textbook in existence shows in exquisite analytical detail why this is so. The demand for labor is what economists call a “derived demand.” This means the demand for labor is derived from the market for which the labor is used. Carpenters’ wages are derived from the market for what they build. Farmworker wages are derived from the market for agricultural products. Wages for fast-food workers are derived from the market for fast food.

This is true for all goods and services in any economy. When workers become more productive, they add more value to any business. The business can afford to pay them more, and will do so willingly since they contribute more to the bottom line. Nearly every business has some form of incentive pay-for-performance, which is just another way of saying higher wage for higher productivity. Decades of economic data show that wages reflect productivity over time.

I am pleased that Tracy’s employees are so productive that she can afford to pay them higher wages. The government need not stick a gun to her head to make this happen. It is the natural result of supply and demand in her business and industry. But what about employers whose workers only contribute, say $10 per hour, to their bottom line? If government forces those employers to pay $15 per hour, they have to lay off workers to avoid going out of business.

Or, they may substitute capital equipment for labor, as is happening in the fast-food industry. It doesn’t take long to find horror stories of small businesses leaving San Francisco, Portland and Seattle, where government has forced minimum wages to be higher than the productive value contributed by labor. It defies economic logic as well as common sense to believe that a higher price for labor, for any given level of productivity, will cause buyers of labor to purchase more of it. In reality, they will purchase less. It is higher productivity, and higher productivity alone, that leads to higher wages. If it is true, as she asserts, that higher wages lead to higher productivity, there would be no need for the guns of government to be involved.

The economic “law of demand”, is characterized by an inverse relationship between prices and quantities purchased. It is true for purchase of goods and services, as well as for purchase of the labor that is turned into goods and services. If the price of labor increases, other things being equal, people will purchase less labor. Government imposition of a minimum wage above the market wage results in less employment and more unemployment – a labor surplus. One can try to ignore the law of demand, just as one can try to ignore the law of gravity, but one does do so at one’s own peril.

Her second point is more easily refuted. Every dollar a business pays its employees is a dollar it cannot spend elsewhere. Her proposal to force higher minimum wages merely redistributes money from other places in the economy to the low-wage labor market. It does not, indeed it cannot, lead to increased spending in total.

I certainly wish Tracy Ducharme well in her business, and merely ask that she keep her nose out of mine.

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Paul T. Prentice, Ph.D., is a professor of economics at Colorado Technical University.