Thursday, April 24, 2014
FAIRFIELD-SUISUN, CALIFORNIA
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2 side to minimum wage coin

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By
From page B7 | January 19, 2014 | 10 Comments

The controversy over the minimum wage has taken center stage recently.

As usual there is more here than appears at first glance. The basic argument for the increase includes points such as: the wage should be enough to serve as a living wage and therefore be “fair”; the increase in wages will be spent and therefore improve consumption in the economy.

The arguments against the increase include points such as: employers will be less willing to hire staff if the cost is higher; wages for entry-level positions are not living wages because people should progress above that level in their career; an increase for the employee is a reduction for the employer who could spend it elsewhere, so this is a zero sum calculation.

There is a second level to consider, which is less apparent.

Increasing minimum wages lessens the difference to the next higher wage level, a result called compaction. Thus pushing up wages at the bottom will eventually push up wages throughout the organization, increasing its costs. Often this cost increase leads to a price increase for the company’s goods or services. This contributes to the overall level of inflation and soon the minimum wage seems inadequate again.

Now let’s address a third level of possible consequence.

One possibility is that the business cannot raise its prices in a competitive environment so the company has less money to spend to improve or to pay the owner, often a small business person. Limits on upgrades to technology and equipment, including maintenance and repair, can cause the business to offer a less-desirable product and then begin to slip until it goes out of business. Or the owner simply accepts less income, realizing that owners of small businesses get the residual, whether a large or small amount, and by definition are the last to be paid.

Another possibility is that the business makes a drastic change in its technology that requires fewer employees, especially at the minimum wage. History provides numerous such examples, but an interesting new one is worth considering.

Much of the wage controversy has occurred in the fast food industry so let them be the example. A company in the Bay Area has developed a totally automated machine that makes custom hamburgers. It grinds the meat and slices the vegetables at the moment of order. You could have beef or half pork and half buffalo with custom toppings without anything growing stale waiting. The machine, which can produce 360 burgers per hour, could be far more responsive to specific orders and deliver a fresher product rapidly.

With such a machine, the fast food store would need fewer, if any, minimum wage folks working the prep line. Those jobs would simply disappear to be replaced by jobs requiring more skill and sophistication to operate and maintain the machine.

The machine would eliminate low wage jobs often called “dull and boring” and replace them with more interesting and skillful jobs, most likely at much higher wages. This would be the argument for using such a machine, while the argument against would be the lament that some jobs were eliminated.

I would offer two lessons to learn from this brief discussion.

First is that the economy at both local and global levels is astonishingly complex. You cannot make any change without a cascade of results, many of which may not be apparent or anticipated.

The second lesson is that society should be very attentive to preparing people to be well-qualified to work in a competitive environment where technology is bringing change at an astounding pace.

Mark Sievers, president of Epsilon Financial Group, is a certified financial planner with a master’s in business administration from the University of California, Berkeley. Contact him at mark@wealthmatters.com.

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Discussion | 10 comments

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  • The MisterJanuary 19, 2014 - 8:16 am

    Did you know that the main beneficiaries of an increased minimum wage are unions? Many of their pay scales are exponentially tied to the minimum wage. If minimum wage goes up a little, union wages got up a lot. Do you supposed it's any wonder that unions lobby and give generous campaign contributions to politicians and conduction propaganda efforts to get increased minimum wage laws? I would have thought Mr Seivers would have mentioned that.

    Reply | Report abusive comment
  • Teach5thJanuary 19, 2014 - 9:13 am

    What a great article which clearly spells out the arguments for and against raising the minimum wage. Unfortunately, those pushing raising the min. wage stopped reading after the 2nd paragraph. In the last paragraph, the author writes that society should be attentive to preparing people to be well-qualified to work in a competitive environment. To prepare "people" it's important to teach kids/"people" to think. Unfortunately, most people don't/can't think through differing opinions and ideas because they're so busy just trying to make it in this lousy economy. If they did think, they' realize that we currently have a president, together with his White House staff/cabinet that have lied to us about Obamacare, Benghazi, and the IRS scandal and they would be outraged.

    Reply | Report abusive comment
  • CD BrooksJanuary 19, 2014 - 9:30 am

    Teach5th, you were going along nicely until you imploded at the end. You can't teach without proper information. Maybe you should go find some.

    Reply | Report abusive comment
  • Teach5thJanuary 19, 2014 - 9:40 am

    Really, and where would you suggest I do that? Maybe the New York Times? We're you not paying attention when Obama said you could keep your doctor/insurance if you liked them? Was that the truth? Or how about his administration saying for weeks that Benghazi was attacked because of a video? The Senate came out this week with a report saying that hours after the attack, his administration was told the truth. Me - imploding? No, I'm furious that there are people who make fun of others and tell them to go find "proper" information when the ones making the suggestion don't mind being lied to. CD - I suggest you follow your own advice:)

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  • Teach5thJanuary 19, 2014 - 9:42 am

    I didn't spell "we're" we're. My computer program made that correction. I didn't want you going off on a tangent about me being a lousy speller who teaches kids instead of focusing on what followed the misspelling:)

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  • CD BrooksJanuary 19, 2014 - 10:31 am

    Teach5th, we have a policy here where we don't worry about typos, misspellings and punctuation. I'm rock-solid in my place and I've learned plenty, thanks! Pornac will bury you in his sarcasm, get ready for it! :)

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  • Teach5thJanuary 19, 2014 - 10:46 am

    CD- Pornac will use sarcasm in place of facts to counter what I wrote. That's what liberals do. If you don't believe me, watch MSNBC. They mock folks on the right (look who's been fired recently) or the read a written-for-them apology, throwing in phony tears to make the apology seem real. If they were truly what they were trying to make the non-thinkers believe them to be, they wouldn't have spent the minutes before the mocking began trying to rev it up. So, let PORNAC begin. It'll just prove my point:)

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  • CD BrooksJanuary 19, 2014 - 11:01 am

    Teach5th, yeah, you're a sorry mess. Good luck with yourself! :)

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  • Rich GiddensJanuary 19, 2014 - 3:40 pm

    The higher the minimum wage, the higher the black unemployment rate and the higher the cruelist tax for all---inflation, which I believe will be arriving about now. The minimum wage was never intended to be a CEO or even a craftman's wages or salary. All of the liberal / socialist banter and illogical emotional appeals regarding ''income inequality'' is rubbish, garbage and trash for your average dumb Californian or New Yorker low information voter ---''the rent is too darn high'' nonsense! You dummies are going to reap the economic whirlwind.

    Reply | Report abusive comment
  • PornacJanuary 19, 2014 - 7:07 pm

    Rock-solid points make Pornac teary eyed. I skipped 5th grade.

    Reply | Report abusive comment
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