Wednesday, December 18, 2013

Minimum Wage

I have had many discussions with big-government types and regressives about minimum wage laws and I anticipate another round of argument coming with the recent changes to the minimum wage in Seattle-Tacoma, Washington.  Overnight, the minimum wage was jacked up by over 60%.

First of all, anyone who wants to learn about the economic facts about the concept of minimum wage should read Thomas Sowell.  Start with a recent article, "Minimum Wage Madness."

Here's the point I want to make and it is about what Thomas Sowell hammers away at, over and over:  consequences.  The consequence of increasing the price of labour is that those doing the hiring will hire fewer people... owners will hold the line on their labour expenses in order to protect their bottom line.  What big government types will say is that minimum wage laws have no adverse effect on employment.  Without trying to prove that statement is false by citing studies and using statistics, let's look at SeaTac.  The minimum wage went from around $9.19/hr to $15/hr or a 63% increase in that price of labour.  Now, what reasonable person could possibly believe that much of an increase would have no effect on employment?  I think that the ballot vote showed that there are a significant amount of people who won't answer that question honestly.  However, if the cost of your favourite steak were to increase overnight by 60%, virtually everyone's shopping list would change and adapt to that reality.  Substitution.

If you think about it logically (honestly), you would realize that every single business in operation in SeaTac will now look for cost savings.  And, yes, that will involve lowering headcount and raising prices.  It will not involve business owners just agreeing 'to make less money.'  Because owners are a large group of people who aren't protected by any minimum wage law.  For a lot of them, if you take their net profit and divide by all of their hours of work, it will come out below minimum wage.  And for owners it often comes to the point where they are better off financially to sell their assets and put the money in the bank, rather than put in 12 - 14 hour days.  And what minimum wage laws do is push more and more owners into confronting that decision.

Here is a picture to contemplate:

How long has it been since you saw a grocery store with all of the checkouts running?  I don't think I have ever seen it.  What I see in that picture is the owner increasing the number of self checkout aisles and decreasing the number of checkouts that require a person.

And how about Amazon Prime Air?  This is real, despite it feeling just like an April Fools joke.  I'm no economist, so I don't know the exact principle involved, but I see owners eliminating an increasingly expensive input into their business (labour) by investing in robotics and automation.  It's technology destroying jobs.  I don't see that as a good thing or a bad thing, but rather just a thing that people will have to deal with.  It's similar to the introduction of the automobile or the computer.  We shouldn't rage against these things, like so many Luddites.  We should acknowledge that they are happening and react to them in a logical and intelligent way.

Here is what the full-service video rental store became:

It is rare that you find a gas station that pays people to fill your car.  You go to giant gas stations with 20 pumps and one person accepting payment (or not).  It won't be long before that last position is eliminated as well.  So you will go to the giant gas station and there will be no employees.

But as usual, in walks the government, 'here to help,' and ends up speeding up the process of technology destroying jobs.  The question is are the government types really ignorant of these consequences, are they truly 'unintended?'  Or is it intentional?

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