The following article written by Employee Rights Attorney Frank Pray appeared in the Los Angeles Daily Journal Feb. 9, 2015:
The Los Angeles Daily Journal recently hosted writers John Claassen [“Protect the Value of Human Assets” p.1. Col. 1, 02/04/15] and Hon. James P. Gray (ret.) [“Minimum Wages, You Can’t Fake Reality (Forever)” p. 6, Col. 1]. Mr. Claassen is an Oakland-based litigation attorney representing businesses and Judge Gray ran as the Vice Presidential candidate for the Libertarian party in the last national election. Their articles, published on the same date, were kindred if not twins in argument. General philosophical abstractions aside, each argued that the minimum wage distorts the efficiencies of capitalism. Their secondary argument seemed to be that increases in the minimum wage will cause employers to automate production, thereby causing layoffs.
Analyzing the Minimum Wage Debate
First, will a marginal increase in the minimum wage that tracks the cost of living result in automation? As the proponent of the argument, the writers have the burden. Neither cite a concrete example. Judge Gray opines that there could be an automated machine to flip burgers. I don’t doubt a conveyor system that moves hamburgers over a flame, or a device that flips a burger may be installed in major fast food outlets across the country.
But if a waitress can be replaced by a self-ordering iPad device at each table, or if electronic tax filing programs will eliminate tax preparers, for example, those changes and many others will occur over the next 20 years anyway. Will a dollar or two dollar increase in the minimum wage every five years or so result in large-scale automation? We know automation has reduced employment in the auto manufacturing and stevedoring [longshoremen] industries for example, but did increases in the minimum wage cause those economic shifts? And it is important to remember, this is an argument not about wage levels generally, but subsistence wages for the poor.
The economic studies, like so many politically charged investigations, tend to produce conclusions sought by the purveyors of the study. The Congressional Budget Office may have less skin in the game. The CBO in December 2014 presented a more balanced view. The 2013 proposed increase in the minimum wage could cause a .3% decrease in employment. [http://www.cbo.gov/publication/44995] On the other hand, higher paid workers are more likely to work harder and are less likely to leave their employment. Turnover is costly. Everyone involved in training the replacement worker becomes less efficient. A progressive think tank, ThinkProgress.org, [http://thinkprogress.org/economy/2014/02/18/3303201/cbo-minimum-wage/] argues that despite slight job loss, an economic net gain results when workers will have more money to spend. A $10.10 minimum wage would mean a direct raise for 16.7 million workers, according to the Economic Policy Institute. The Federal Reserve Bank of Chicago found that even when potential job losses are taken into account, an increase in the minimum wage to $9, as President Obama proposed in his 2013 State of the Union, would increase household spending by $28 billion dollars or 0.2 percent of GDP. That extra spending stimulates the economy, which can lead to more job growth, which implies a “win-win” for employers and employees.
To use a characterization by Judge Gray, here’s a hard reality that won’t go away: almost 17 billion people in this country must work several jobs at minimum wage to survive in a state of near-constant physical and emotional exhaustion. I don’t doubt Judge Gray and Mr. Claassen care about people, but their “tops down” view is out of touch with the intangible human costs that are seldom factored into the “economic efficiency” equation.
In conclusion, Judge Gray’s and Mr. Claassen’s arguments lack the statistical evidence of either correlation or causation between the proposed federal minimum wage increases and harm to business in. Automation is driven by competition between labor and technology, and technology is on the winning side of that battle inevitably. In the meantime, the poor need to meet their basic needs. The best economic policy would be to prepare low-income workers to be world competitive by training them for the technological shifts ahead.