Monday, October 6, 2014

Here’s What Middle-Class Business Owners, Who Live in the Real World, Will Do When Faced with a Huge Increase in Minimum Wage Laws

Andy Puzder, CEO of CKE Restaurants, writes in WSJ:
The point is simple: The feds can mandate a higher wage, but some jobs don’t produce enough economic value to bear the increase. If government could transform unskilled entry-level positions into middle-income jobs, the Soviet Union would be today’s dominant world economy. Spain and Greece would be thriving.

But here’s what middle-class business owners, who live in the real world, will do when faced with a 40% increase in labor costs. They will cut jobs and rely more on technology. Such changes are already happening in banks, gas stations, grocery stores, airports and, more recently, restaurants. Almost every restaurant chain in the country from Applebee’s to McDonald’s is testing or already implementing automated ordering with tablets or kiosks.

10 comments:

  1. Heard on Tom Woods' podcast from last Friday that many fast food restaurants contracting on military bases are closing or seeking to close now that federal employees are mandated to have a $10 minimum wage. For many, the raise in the minimum wage doesn't mean a few dollars more per hour, it means no dollars per hour.

    ReplyDelete
  2. Good. Because any raises trickle up to property management, utiity companies and others who raise prices immediately in response to a raise in minimum wage. Let's do away with those jobs since human beings aren't needed to perform them.

    ReplyDelete
  3. Technological automation is supposed to be what happened economically as wage bills rise. Yes, it is disruptive but it results in increased productivity and the opportunity for more leisure to work in society. What's not to like about that?

    As far as disruption goes, when has innovation not been disruptive. The society and economy adapt to changing conditions. As more work is automated, less work will be required from humans. Then the issue become distributing the increased capacity for leisure.

    The problems arise from, first, the work ethic, and then income and wealth distribution. Income is required for consumption under existing institutional arrangements, and as productivity increases through technological innovation, incomes will increase for some higher income worker and decrease for the higher skilled workers that are supplanted and for less skilled workers in general. This is an emerging challenge of the digital age, which many forecasters are saying will be as transformative and therefore potentially disruptive as the transition from hunting/gathering to the agricultural age and from the agricultural age to the digital age.

    No point in going Luddite about this, although this is typical the knee-jerk reaction to disruptive technology. But technological innovation is just doing what it is supposed to do and it won't do it until it is economical. Rising wages make technololigcal innovation economically advantageous to adopt and scale.

    The issues are not with technology but distribution. Either labor gets distributed differently, or if then excess labor then leisure can be distributed to address it. The question remains about income distribution to provide demand for the increasing supply capacity. Either prices fall, or income has to be distributed in such a way as to take advantage of the increased prosperity that innovation makes possible. Previous ways of looking at issues may need to change to do this efficiently and effectively.

    So let's not miss the positive aspect wringing hands over the negative. In technological disruption, the positive outweighs the negative in the long run, even through there are short run periods of adjustment.

    BTW, I am a leftie. I would propose an employer of last resort program that guarantees a job for anyone willing and able to work at a living compensation that would set a floor instead of imposing a minimum wage. Firms would then have to offer a better deal to attract workers. If that was less economic than adopting the laxest technology to increase productivity, that is another plus since it moves the ball down the field. (See Wm F. Mitchell and Joan Muysken, Full Employment Abandoned (Elgar 2008), for example. It's got its own Wikipedia page.)

    Of course, that's just one way to approach the looming disruption. There certainly are other options. So let's not hang back from entering the coming digital/information/knowledge age, whatever it comes to be called.

    ReplyDelete
    Replies
    1. "I would propose an employer of last resort program"

      We had a name for such program in the Soviet Union: GULAG.

      Delete
    2. "BTW, I am a leftie." If this statement was meant to shock, or even inform, it was too late.

      Delete
    3. Fallacy of false equivalence. You equate the WPA and the CCC, which were extremely successfully during the Great Depression before there was a safety net and automatic stabilization, subsequently with Soviet Gulags?. They also became the inspiration for creation of the Peace Corps and America Corps.

      Let's not go all ideological. I said there were other options, for example, Milton Friedman's permanent income proposal and now the current discussion of a UBI or BIG that is finding bipartisan support. I think the ELR is the superior proposal for reasons argued by Bill Mitchell, Randall Wray and Pavlina Tcherneva, for instance. What's your approach?

      Delete
    4. "What's your approach?"

      You're going to have a tough time finding debate partners here, because most(not all) here start with the notion that you should get to keep your own money. So all your central planning ideas are a non-starter debate wise because they need other peoples money, taken from them against their will.


      Delete
    5. Trillion dollar platinum coins for everyone. Just send me mine first, ok?

      Delete
  4. My employees are paid way above minimum wage, so the minimum wage debates don't directly affect my business. However every business owner has to consider the value that the employee is bringing to the table versus what they are being paid. Large corporations can afford some amount of disconnect for the sake of, say, The Diversity Show. But in a company with seven people like mine, one major value/cost disconnect can blow the whole thing out of the water. (Then how am I going to buy that second yacht and that third jet?)

    It takes an unusual employee to connect the dots. Most often it comes too late when the business is about to move away, severely downsize, or go belly up. Then some of the smarter ones finally get it

    ReplyDelete
    Replies
    1. In fact an above the minimum wage employer, and its employees, can easily be affected by an increase in the minimum wage. Some employees earning $15 an hour might prefer a less skilled. less stressful, more convenient hours, closer to home job paying $10 an hour. But at $7 an hour they can't afford it. But if the government mandates $10 an hour, they can take what in their view is the better job, even though it's lower paid. Meanwhile the current minimum wage employee is out of a job - if the employer's forced to pay $10 an hour, he may as well hire the higher productivity worker - which is you. And the higher than minimum wage employer needs to look for a new employee. Or machine. It's back to old Bastiat. The first and most obvious effect is not the only effect.

      Delete