The Myth of Minimum Wage

One of the lessons that was not learned from the Great Depression of the 1930s was that in a depression wages should decrease and unions not survive.  But what we saw was the interference in the free market by FDR and his executive offices both insure the presence of unions and the boosting of wages.  By making it easier for unions to organize hourly labor and by forcing business to bargain in good faith with unions, wages tended to rise.  The other part of the deal FDR arranged was for businesses to act in concert so that their profits or return on investment could be kept at the same rate before the depression.  The Supreme Court would over turn much of the National Recovery Act but Labor laws remained intact.  What was unforeseen was the lack of labor growth, that is, those who had jobs saw gains in wages but unemployment remains at about twenty five percent.  The economic thought at the time said that if wages went up then the GDP would rise and everyone would be back in business.  GDP did go up but only through more federal government spending, which is why we see GDP today having its improvements.

But the cry for a minimum wage was heard after World War Two and Congress did enact legislation that provided a floor for hourly wages.  Some exemptions were included such as farm work but the idea was that there was a minimum income needed to keep body and soul together.  Over the years we saw increases in that wages as mandated by law.  Those who favor the minimum wage and its increase like to cite the humanity of the law and refer to it as a Living Wage.  But just as there is an Iron Law of Debt there is an Iron Law of Wages.  That law cites the reality of human behavior.  Raise any wage high enough and someone will invent a way to do that particular job by machine, or at least send it out of the country.  We use to have textile factories in the New England area, now there are extremely few and do not employ the hundreds of thousands that once worked in that industry.  Most of the textile factories first moved into the southern states as wages and taxes rose and later as environmental regulations strangled that business.  The most of the remaining industry left the south and went overseas to Asia.  Unemployment is a result of hourly workers, usually through their unions, demanding higher labor rates and inturn being replace by machines and automation.  Today’s textile mills need very few employees to operate the machinery and produce the thread and woven cloth used in all applications, both retail and industrial.

There are two factories in China today that manufacture the same electric shaver.  In the first, one hundred and eleven individuals are employed in assembling the product or managing those who do the assembly.  One must have a good bit of skill to use the small and precise tools to assemble the shaver.  In the other factory there are only ten individuals used in the assembly process.  Robots do all the assembly of that same shaver while the ten individuals are there to supervise or oversee the robots and make sure that nothing goes wrong.  One hundred and one individuals were replaced and another one hundred and one individuals will be replaced vary soon by robots.  But what do those semi skilled individuals do for employment now?  If their specific labor can be replace with robots what does that say about the cost of their wages?  When human labor is cheaper than machinery to replace them, the machinery never gets built.  Productivity is accomplished by two principles: the first is the more efficient use of human labor, its organization of effort and purpose; the second is the capital investment in labor saving machinery.  If a small machine can reduce the number of laborers and perhaps do the work with higher quality and safety, then it will be employed even if a human must be employed to operate it.

So what does this have to do with minimum wage legislation?  That legislation is for unskilled labor.  It takes no skill to say,”Do you want fires with that hamburger?”  In China and Japan we are starting to see the robots used to replace human employment in the fast food industry.  There are robot hamburger flippers.  There are robot servers at the counter.  And now Chilie’s uses an automated menu and ordering device at the table.  The only time you see a server is when someone comes out of the kitchen to place your meal on your table.  And it is foreseeable that the server will be replaced by a robot in the near future.  The bright side is that you won’t have to leave a tip.  The down side is that there will be fewer people working in that restaurant and more unemployed looking for unskilled work.  Thus, the interference in the labor market in the name of providing a Living Wage merely produces more unemployment for unskilled unemployed individuals.  And we see that Lowe’s Hardware stores now have a robot to greet the retail customer at the door, inquire what product they wish, can scan a screw or other object and guide the customer to exactly where that object is located.  Already we have seen the replacement of cashiers in retail stores with automated scanners.  The customer scans each item or presses the screen to identify items that need to be weighed and then added to the tally.  The customer can either pay by cash, debit card or credit card.  The customer also does the bagging.  A cashier is considered a semi skilled position since to do that work well and with a minimum of error it takes training and practice.  Of course instead to the old cash register keys that were required to be pushed, one merely needs to scan the item or press the keys on a keypad when no bar code is available for that item.

The need to raise the minimum wage rate is due to inflation.  And inflation is due mostly an increase in credit.  Credit is both the same as cash and is debt once spent.  I have several credit card accounts where my credit limit is over twenty thousand dollars if I so choose to use.  And the instant I do my debt will increase by like amount.  Minimum wage is a credit that is used against unemployment and must, sooner or later, be repaid with unemployment.  Labor, like a cabbage, is sold to the highest bidder.  And when there is no bidder there is no employed labor.  The American auto workers in the assembly plants of GM, Ford, and Chrysler are all union members and receive very high hourly rates for their semi skilled labor.  But Detroit cannot make the quality of vehicle at the lower cost that Toyota and Honda can.  The Japanese auto makers in America pay their workers less and have a higher rate of productivity, lower cost, and higher quality that the Detroit Big Three.  The UAW has seen more of its members laid off as assembly plants close.  It has organized all of the sub assembly suppliers so that a strike against any one auto manufacturer is severe enough to close down the company and cripple it.  Eventually the Big Three will have to take the initiative to rid themselves of that union if they wish to survive as automakers.  Already the Koreans are nipping at the heels of GM and Ford.  Chrysler is close to going belly up.  High wages and great benefits do not last forever, they borrow against future employment.

So all you fast food workers go on strike, get that legislation passed for doubling your wage, and then watch as robots replace you and your high wage income.  Did you want fires with that?

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