Friday, July 29, 2016

Back to the Minimum Wage: Two Months of Commentary and Doubt

Along with self-driving cars, ride-sharing companies, robots, and guaranteed income, we will remember 2016 for minimum wage raises, both voted-in and proposed, in the jobs news.  Three months ago I addressed what had been written on this subject, along with a few early results, over the previous two-plus years.  There has been more, especially in May.

On the 5th of that month, Fox Business published a piece calling different views between Florida’s and California’s governors an “epic fight over the $15 minimum wage.”  I don’t know if it was either, but it showed some differences between how California’s Jerry Brown and Florida’s Rick Scott saw the issue.  Essentially, Scott said California would lose 700,000 jobs by the time its $15 became effective in 2022, whereas Brown maintained that his state had recently been gaining many positions anyway.  Although California’s first, $1, increase was greeted by an end to 54 consecutive months of seasonally adjusted employment gains, the two are different.  Florida has many significantly populated areas, throughout its panhandle and scattered throughout its peninsula, with low costs of living and modest employment opportunities.  Except for the southeast, most of the state is economically conservative, with residents, the bulk of whom moved in from elsewhere, enjoying the lack of a state income tax and, due mainly to what is now a $50,000 primary-house homestead exemption, generally low property levies as well.  California, though, a perennial Democratic presidential candidate chooser, has its population concentrated in its unusually liberal cities, so its constituents are more likely to support high taxes.  With living expenses higher than almost any other state, that $15 per hour has vastly more appeal than it would in the likes of Gainesville or Panama City. 

Two articles, “Wendy’s Serves Up Kiosks as Wages Rise, Hits Fast-Food Drive” (Investor’s Business Daily, May 11) and “Fast food workers are becoming obsolete” (Yahoo Finance, May 16) describe restaurant ordering touchscreens.  In Hong Kong in January I saw such things at each McDonalds – they were not the only way customers could order, but, maybe since they could be activated by smart phones as well, many younger customers preferred them.  They are now making landfall here, also at Panera Bread and Wendy’s, and are not only cutting labor costs but are proving to be more convenient for customers, who not only use lists of possible ingredients to request custom-made sandwiches but can store and reorder their favorite combinations.  McDonalds and Wendy’s management both named higher minimum wages as reasons for installing these devices, which, even if they are not made mandatory, seem like improvements as well as cost-savers.

If he didn’t do it before, in back-to-back opinion pieces Forbes contributor Tim Worstall established himself as an opponent of any mandated pay floor, let alone an increased one.  In “Sad But True:  A Higher Minimum Wage Means That Some People Will Be Worse Off, Will Get Lower Wages” (May 14), he showed that some British workers lost shift and holiday differentials when their bottom rates were forced up, and other employers had cut perks and other benefits.  The next day, in “The Minimum Wage Kills Jobs Through Automation Bit By Bit, At The Margin,” he made the point that every required pay increase has potential to make machines more cost-effective.  Boosting hourly rates from $7.25 to $8, for example, will not facilitate introducing machines costing $12 for each equivalent hour of labor, but if they work out to $7.75 instead, businesses may have no choice.  Another important thing to realize here is that these job losses are not instantaneous – it may take management months to agree upon the new equipment, and longer for it to be manufactured, to arrive, and to be actually working.  Therefore, early judgments that a higher minimum has not cost jobs may be premature. 

A third Worstall Forbes contribution, July 26th’s “As I Predicted, Seattle’s Minimum Wage Rise Is Reducing Employment,” cited research showing that while that area has done well since its April 2015 increase, that lift could be charged with 1% lower employment than would otherwise have occurred.  He also made a supply-and-demand point I put forth before, that even if we don’t know the extent, it makes no sense to think that minimum wage enhancements do not cause at least some jobs to go away. 

Although raising the lowest pay rate does not eradicate much poverty, not every article pointing that out is on the right track, as shown by “A Minimum Wage Problem or a Lifestyle Problem?” (Tom Gerdy, Huffpost Business, May 16).  Lines such as “we mistakenly believe that the road to happiness is found in things,” and listings of the prices of smartphones, cable TV, and even the likes of “tattoos and piercings” seem equivalent to those that could have been put together any year since 1945 or before.  We need not conflate goods and services priced for those with middle-class or higher income with those needed for survival to critique forced pay raises – we have plenty of good reasons we can use instead.

In Ars Technica on May 24th, Sam Machkovech recapped how former McDonalds CEO Ed Rensi expected higher fast-food minimum wages to open doors to a wide range of machines, some of which, such as “a $35,000 robotic arm” cost less than “to hire an employee who’s inefficient making $15 an hour bagging French fries.”  Rensi’s point is the same as Worstall’s second one, that technology, which can improve given enough incentive provided by increasing the cost of humans, will become more worthwhile. 

Finally, The Economist got into the act, with “Maximin” (June 25th), presenting various data on 15 American cities with minimum wages above the still-current $7.25 national rate.  It made arguments for and against those increases, with perhaps its most salient in the last paragraph:  “The Fight for $15 campaign is often guilty of a bait-and-switch, justifying much higher minimum wages with reference only to food-service giants like McDonalds, but then endorsing them across the whole economy.” 

These points, namely differences in geographic areas, employers cutting benefits and differentials, technological replacements being delayed but permanent, and the gulf between huge national employers and weak local ones, are all valid.  They will all play roles in how our higher minimum wages work out.  Just how, and when, we will see. 

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