Saturday, October 6, 2018

Jobs, Automation, And Raising The Minimum Wage

Now that the latest jobs data has been released it might be a good time to take a look at jobs, automation, and issues related to raising the minimum wage. These issues often become most evident during times of high unemployment, however, today data shows America is probably at or near full employment and recently even higher pay has failed to bring more workers into the workforce. Still, because so many people are struggling economically many people are calling for the minimum wage to be raised to $15 an hour. It is important to remember that hard times have a way of returning and that is when bad policies stand out like a sore thumb. Below is an argument that raising the minimum wage is not the best way to attack inequality because it reduces opportunity.

Have A Good Day You Unemployed Human!
Recently Amazon has been under a great deal of criticism for low pay and the harsh treatment of its workers so it should not come as a surprise that Bezos a proven master of hype and re-framing issues has announced his company will be increasing wages. Amazon also said it will start lobbying for an increase in the federal minimum wage, currently at $7.25 an hour. This translates into "while we move towards automation and utilizing more robots we will try to raise cost for our smaller competitors to put them out of business." Not only would this put pressure on many small businesses but we should all be prepared to see inflation or more likely stagflation soar when wages begin to ratchet higher.

While raising wages is seen by many as a solution and viewed as an "easy answer" to push back against growing inequality it will fail to address the real pain being inflicted on society as a smaller and smaller percentage of our wealth goes to those languishing on the lower rungs of the economic ladder. Simply raising the minimum wage without a corresponding rise in productivity does not work. The fact is higher wages would roll through the economy affecting the prices we pay for everything and send inflation soaring which is particularly damaging to the poor. States such as New York and California have taken steps to increase the minimum wage but many economists point out it will make America less competitive, slow job growth, and may increase the divide between the poor and middle-class. 

The real problem is that mandating a higher minimum wage to address growing inequality sidesteps the core issues we face and in doing so creates more problems than it addresses.  Those advocating we increase the minimum wage are often oblivious or are unaware of the unintended consequences it will usher in. We cannot circumvent economic reality, nothing is free and as wages move up we should expect prices will go in tandem  This means those on fixed incomes and savers in our current super low-interest rate environment will be directly impacted by the inflation caused by these wage increases. Still, this debate is destined to continue until it is raised and without a doubt, the minimum wage will go up because polls show a majority of Americans support such a move thinking it will put more money into the consumers pocket and thus create economic growth.

Higher Wages Stand To Devastate Small Business
What these people fail to recognize is that it will also spark inflation and reduce opportunity. Unfortunately, much of the impact and pain from raising the minimum wage falls upon small business, the chief creator of jobs, and directly upon the heads of the very workers it is intended to help. Note big business will almost certainly benefit from such a move in that they can afford to replace workers with labor-saving machines and robots. This means people at the lower end of the pay spectrum will soon find employers are simply doing away with many of the positions they hold as raising wages make entry-level jobs even more scarce and in many cases cause them to be eliminated or disappear.

In many ways the minimum wage is more of a psychological benchmark than a tool for solving issues of inequality. While the idea is considered politically popular raising it without considering the negative consequences that accompany it would be a mistake but that is often the way Washington works and this issue has been framed in a way that makes saying no difficult. No politician standing for re-election want to be the person to say "no" to "giving poor downtrodden hard working" Americans a raise. The fact is politicians pandering to the masses has contributed greatly towards getting us in the bind we find ourselves in today and the reality is as long as people in other parts of the world can produce the same goods for less we are shooting ourselves in the foot.

A major issue that many Americans and our government continue to ignore is how much the cost of living varies throughout the country. Raising wages in these high-cost areas will only exasperate the problem. It is common knowledge the cost of a house in California or along the coast is far more expensive than the same house in the Midwest, often demand in certain locations reflects a geographical preference. This should be reflected more in government social programs and programs should be configured to encourage people to locate in less expensive areas rather than feed money into local economies already showing high demand. Current payouts from these programs fail to incentivize those receiving "generous" government payments to relocate to lower-cost areas of the country where it is much easier to make ends meet.

Do Not Underestimate Value Of Entry Level Jobs
To some workers, a salary may represent what they as a person are worth, but in many ways, it reflects more on the value of our currency, what it will buy in society and whether a person should or needs to work. Few Americans are actually paid the minimum wage so the real reason the minimum wage issue is so important is that mandating one creates a wall for those just entering the workforce by eliminating many entry and low-level jobs. Higher wages act as a barrier to gaining the experience that leads to a better job because it can stop young workers from ever getting their foot in the door. 

Expect a big change in the employment picture throughout America and the world as robots gain new skills and become less expensive.  Through its safety net of social programs and subsidies, the government has done unmeasurable long-term harm to the lower ranks of society by weakening the structures that supported our shrinking middle class. Inequality is not only an issue that separates the poor from being middle class, but much of it centers on how the elite and big business have high-jacked a majority of the economic pie. The fruit of our labor now flows to very few. Raising wages on the low end may make a few people feel better but when it comes to addressing the crux of our problem it is like putting lipstick on a pig as you take the animal to the butcher.

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