How to Increase Real Wages

Why is a construction worker in a developed nation paid higher real wages than a construction worker in an underdeveloped nation? Why don’t the governments of poorer nations simply declare a $20 minimum wage to lift all their workers out of poverty? Henry Hazlitt argues that the primary reason why some workers are paid more than others, even though they work in the same industry, is because those who are paid more tend to produce more. One man or woman driving a giant truck or bulldozer can move more earth than a hundred people using pickaxes and carrying earth on their backs. If we want workers in underdeveloped nations to have a higher quality life, their labor needs to be made more productive through greater capital investment, technological innovation, or better education and training. Hazlitt states that “We cannot in the long run pay labor as a whole more than it produces. The best way to raise wages, therefore, is to raise marginal labor productivity…Real wages come out of production, not out of government decrees” (p. 139).

Reference

Henry Hazlitt (1988). Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics. Crown Currency.