California’s New Minimum Wage and the Fear Based Freak Out (Part 2)

So I wrote a post yesterday regarding the complaints I’ve been seeing about California’s new minimum wage increase.  I’ll admit that that post was largely a knee-jerk, irritation, based write-up, so today I’ll attempt to correct that by calmly addressing some of the more common arguments against raising the minimum wage.  

1) Inflation:  One of the most common arguments I’ve seen against raising the minimum wage is that it will cause rapid inflation.  Let’s ignore the fact that inflation happens regardless of a minimum wage increase, and pretend for now that it doesn’t.  While much higher prices would most certainly happen in an environment where a business is the only provider for a specific product, it ignores the fact that competition will not cease to exist simply because the minimum wage is increased.  Sure, prices may go up, but because competition still exists, they won’t go up so drastically that it will cause serious problems.  To use an example a friend of mine gave, if McDonald’s decides to raise the prices of their hamburgers from $5.00 to $12.00 overnight… Well, guess what?  People will go and buy a Whopper from Burger King instead.  

A more likely scenario than businesses jacking their prices up by exorbitant amounts is that the wage increase will come out of their profits.  And let’s get real here… When McDonald’s is making profits of $1.31 billion (that is billion, not million…)  while at the same time advising their employees to apply for Food Stamps, is that really such a bad thing? Besides that, the average pay for a Costco employee is $21 an hour and their prices aren’t substantially higher than Wal-Mart’s, who pays minimum wage.  It seems logical to assume that if raising the minimum wage to $15 an hour will cause rapid inflation, then surely Costco’s already high wages would show the same effect on their prices, right?  Strangely, however, Costco only marks up their prices by 15% while other retailers typically mark them up by 25%.  So not only does Costco pay their employees more, they also have lower prices.  Funny how that works isn’t it?

As with my last post, I would argue that increasing the minimum wage would increase the spending power of the general public.  Increasing the spending power of the general public would lead to increased business.  Increased business would lead to lower prices, not higher prices.  While there may be an initial system shock of slightly higher prices (if the wage were increased to $15 overnight), in time, the increase in the spending power of the general public would only help the economy and businesses at large, not harm them.  

(Thank you Jesse Marlin for bringing the competition point to my attention.)

2) Unemployment: The next most common argument is that unemployment will lead to mass layoffs and high unemployment rates.  But again… This doesn’t hold up to the historical or current effects of minimum wage increases here, or in other states.  In fact, the Economic Policy Institute had the following to say on this subject:

In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.”  

In addition, as I pointed out in part 1, Seattle recently raised their minimum wage and they haven’t seen an increase in unemployment as the naysayers predict.  In fact, they’ve seen the exact opposite effect.

3) Automation:  One of the more strange arguments I’ve been seeing is that increasing the minimum wage will cause employers to replace their human employees with machines.  An idea that seems to be perpetuated by the following meme (and many like it):

15-minimum-wage-replacement

What these memes seem to ignore is the fact that these machines already exist and businesses like McDonald’s began using them before any increase in the minimum wage occurred.  The invention of automated kiosks had nothing to do with the minimum wage.  It’s just the nature of technology.  If humans can, they will come up with ways to make life easier, and that includes inventing machines that can accomplish menial tasks for us.  Kiosks like this have existed for years now in a variety of different businesses.  At movie theaters and airports they have automated ticket kiosks, at grocery stores and department stores they have self-checkout lines.  At my own job, the airlines are more and more often using a system called CPDLC which allows them to send messages to air traffic control via text, without the involvement of a radio operator like myself.  Heck, the planes even have autopilot.  In spite of automation, what do all of these businesses have in common?  They still have human employees selling tickets, taking your money at the checkout line, radio operators that take information from flights and deliver it to air traffic control, and human pilots that fly the planes. 

Why is that?  If a machine can do the job just as well, why have humans there also?  There are a couple of different answers that I can think of… The first, and I feel, the most important… Humans like interacting with other human beings more than they do machines, especially when they’re out in the world.  Secondly, machines break down! Who will take peoples orders if all of the employees have been replaced by  machines that have broken down?  I know from experience, machines aren’t always reliable, even with multiple redundancies in place.  Even if, some day in the distant future, all minimum wage workers are replaced by machines, you will still need human beings to service those machines when they have problems (and they will have problems).  

In summary, my point is that all of the fear-based talking points that come from the right, while not without any merit, are just that… Fear-based.  It’s reasonable to have uncertainties, but these fears do not stand up to history, research, or consensus from economists, so we cannot allow them to direct policy.  Especially when it comes to the livelihood of the American people.  In reality, these same talking points have been used nearly every single time the minimum wage has increased (including when it was first instituted).  I would even go so far as to argue that these predictions are nothing more than attempts by greedy corporatists who don’t want their profit margins to decrease because of mandatory wage increases for employees that they have taken advantage of for far too long.  The American economy has bolstered corporate profits for long enough.  It’s time for the economy to once again start working for the American people, and raising the minimum wage is a great place to start.  

James Garcia – April 7, 2016

2 thoughts on “California’s New Minimum Wage and the Fear Based Freak Out (Part 2)

  1. Thanks for this blog post regarding the $15 minimum wage in California; I really enjoyed it and am definitely recommending this blog to my friends and family. I’m a 15 year old with a blog on finance and economics at shreysfinanceblog.com, and would really appreciate it if you could read and comment on some of my articles, and perhaps follow, reblog and share some of my posts on social media. Thanks again for this fantastic post.

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