The other day I was at my local Wal Mart doing some quick shopping when I noticed something different about the store. At the very front the section that was previously the “Fast Checkout” lanes, reserved for customers with 20 items or less, had been replaced with several “Self-Checkout” lanes.
In fact, I didn’t actually see any more “Fast Checkout” lanes anywhere. When I needed to check out, I was expected to either check myself out, or go wait in the mile-long line of people with overflowing carts at one of the only 2 manned checkout lanes all the way at the other end of the store (there were 20 other lanes in the store, but those apparently are strictly reserved for Black Friday, and are never manned any other day of the year).
I didn’t have a whole lot, but I had several small items that would have to be individually scanned, and one of my arms was occupied holding a 3 month old that would scream bloody murder if I tried to put her down, and I had a two year old in the cart that would start to eat the merchandise if I didn’t pay close attention to him. Not terribly practical to try and go through the Self-Checkout.
So I made the journey to the other end of the store, and I waited in line.
And I waited.
Okay, so I was probably only in line for 10 minutes or so, but when you’re trying to one-arm hold a 3 month old that seems to be getting heavier by the second, and you have to repeatedly explain to your 2 year old that he doesn’t need to put the stuffed camel toy brought from home onto the conveyor belt, 10 minutes seems like an eternity. I couldn’t help but curse a little bit under my breath thinking that if only they still had the “Fast Checkout” lanes that it would have gone a lot, well, faster.
I was having this experience shortly after seeing this video (http://www.youngcons.com/neil-cavuto-gets-into-nine-minute-interview-with-student-wanting-free-college-and-its-really-painful/) which shows a news interview between Fox Business host Neil Cavuto and a student, Keely Mullen, an organizer for the “Million Student March” movement. The interview is outright painful to watch. It is a girl that has the very best of motives, best of intentions, admirable passion, but absolutely zero understanding of the nature of reality and is getting torn to shreds in the face of some very basic facts.
The “Million Student March” movement has several ludicrous demands, including (1) forgiveness of all student debt (2) free college tuition, and (3) $15 per hour minimum wage for all college/university employees.
That last item kept replaying through my mind as I waited in line at Wal Mart to checkout. I was also reminded of the “Fight for 15” movement that I always hear about, which is an even bigger movement seeking a $15 per hour minimum wage for the entire country. A pretty hefty demand considering that the current federal minimum wage is $7.25 per hour. $15 per hour would be more than double current minimum standards. Some places around the country, such as Seattle, have already adopted this new minimum wage.
$15 per hour is apparently some magic number which is supposed to bring prosperity and happiness. All of these various “movements” considers this the ideal. To be fair, these movements really do have the very best of intentions. They are fighting for what they believe will bring a better life for millions of people. They are fighting for what they believe is social justice. They are trying to help the lower income workers of America have better lives. I do not fault their motives.
But good intentions alone do not bring out good results. They just don’t understand that what they are fighting for will actually hurt the very people they are seeking to help.
They think that if you pay people more money, they will have more money, and live a better life. End of Story. Everyone wins, except the greedy corporations that can afford to take a hit to their outrageously huge profit margins.
But things are never that simple, especially when it comes to economics.
The most basic driving forces behind our economy are the law of supply and demand. This is what defines values of goods and services, as well as other facets for how the economy runs. Under these basic principles, wages are set. Wages for a particular job are not defined by what the worker feels they need or want, but by the value that they bring to the employer. It depends on a host of factors including difficulty of the job, any specialized skills necessary, and the revenue that can be generated as the result of it. The wage has to be set by those factors; otherwise the business could never balance costs in order to make a profit. Sure, everyone wants to make more money, but some jobs just aren’t worth that much money to perform, either they are so basic that anyone can do them, or their contribution to total revenue is so small that it just isn’t worth paying more for them. If paying everyone working at a McDonald’s $15 an hour means you have to charge $13 for a “value meal” just to break even, then that McDonald’s won’t be in business very long. The job just isn’t worth that much.
If the worker does not feel that wage is sufficient to meet their needs, then they need to do something to make their labor more valuable in the marketplace, either through education or developing some more valuable skill. Forcing the employer to pay more money than the job is worth with high minimum wages throws the whole system off, and businesses will be forced to resort to extraordinary measures to make it all balance.
Ignoring these most basic concepts of economics and enacting a nationwide $15 per hour minimum wage will be one tidal wave after another of unintended consequences.
Assuming the “Fight for 15” movement, and similar movements, get what they want, they won’t even be done with their celebration party, and there will be business executives in their offices doing the math. Their lower level labor costs will suddenly double and they will come to the conclusion that at least half of their lower level labor force will have to be let go. The math isn’t hard, if you double the costs, they will somehow find a way to manage with only half the workers.
In actuality though, it will likely go beyond that. Raising the minimum wage will not only impact the wage of those who are currently earning minimum wage. It will impact what virtually everyone gets paid.
Consider the stock boy in the warehouse who used to make $7.25; but now, under new minimum wage laws, he makes $15. What about the office manager up front who already made $15? Do you think she will be satisfied to now be earning the same amount as the boy who unloads the trucks out back? No, she will say, and rightly so, that her job has much higher level of responsibility and that she deserves to make more than him. Her salary might have to be raised to $20, or even more, to make her happy. But then what about her manager at the corporate offices who was making $20? Will he be satisfied to now be earning the same as all of his lower level office managers? No, he will likely demand that his pay be raised as well.
You can’t just raise the wages of the lowest level and call it a day. There will be a ripple effect that rolls all the way up chain. Jobs that are considered higher level, either because of responsibility, difficulty, or overall value impact to the company, must pay more money, otherwise the incentive to work hard, be productive, and advance will be gone. Business cannot grow like that. That’s how corporations, and countries, go bankrupt.
So really, when you think about it, cutting the lower level work force in half will not be anywhere near sufficient to make up for it. They may need to cut 60%, 70%, perhaps even up to 90% of the lower level workforce. You may say that those jobs are still going to be necessary components to the company, but I would argue that they are not. As mentioned above, those low level jobs are “low level” for a reason. As unpleasant as they may be, they require very little skill. With our currently level of technological advancement, most of those jobs could very easily be mechanized. That’s why they pay so little, because they are easy jobs that anyone, even a well programmed robot can do it. I’m not trying to sound mean or belittling when I say that, but it’s a cold hard reality that must be faced.
You may think that I am exaggerating, or just plain wrong, about what will happen; but look around. Is Wal Mart getting rid of cashiers in favor of Self-Checkout lanes really just a ploy for them to make more money? They aren’t stupid, they have to realize it will make customers like me frustrated, and might even have a negative impact on their sales. But they can see the writing on the walls and they are pre-emptively preparing themselves for if and when $15 per hour minimum wage becomes law.
This trend is not limited to Wal Mart. Grocery stores, movie theaters, airport check-ins, all of these places are slowly but surely moving to automated machines to replace human beings behind a desk. Even some select McDonalds locations have started trials with Self-Service machines which can process your order and your payment. Customer service centers are notorious for outsourcing their jobs to lower cost workers in India. More and more manufacturers are going to places like China to manufacture their products because it’s cheaper. It’s not cheaper because China is really awesome at manufacturing; it’s cheaper because labor costs are so much lower. All of these companies can see what is on the horizon too, and they are getting ready for it.
And it won’t stop there. You don’t think that fast food companies aren’t working on developing automated “burger assembly machines” to replace the human burger flipper? You don’t think that other companies are not funding research and development to create industrial “irobots” to replace janitorial staff?
Not only will the lowest level workers face losing their jobs, but if you eliminate large portions of the lowest level workforce then you don’t really need a management staff to manage them, and you probably don’t need a management staff to manage the managers. Several levels of corporate hierarchy would suddenly be faced with the reality that because all of their direct reports are obsolete, that they are in fact obsolete as well.
And the negative effects will not be limited to those who lose their jobs (though they will bear the brunt of it).
There is no guarantee that cutting so many jobs will be enough to accommodate for the ripple effect of increased wages. At some point, there is a limit to jobs that can be cut. To maintain profitability, the only thing companies can do is raise the prices of their products. This too will have a ripple effect throughout the economy that will likely increase the cost of everything, from a Big Mac, to the price of gas, to apartment rent; even the cost of a gallon of milk will go up. If virtually everyone’s salary goes up, that means that the cost to produce everything goes up.
So sure, you are paying people more, but now the cost of living has also gone up, possibly even more.
So most current minimum wagers will end up losing their job, along with all the staff that manages them, and to add insult to injury the cost of living around them will simultaneously sky rocket, and those who are left earning the new minimum wage are probably worse off than they were before.
But don’t lose hope, I’m sure it’s nothing that a future “Fight for 30” movement couldn’t try and fix.
Like me on facebook at https://www.facebook.com/thefaithfulengineer