Thinking Out Loud: Raising the Minimum Wage

Given Obamacare’s problems, President Obama has now “pivoted,” and is focusing on the issue of “income inequality,” and he has called for the minimum wage to be raised from $7.25 to $10 an hour.  I’m no economist but I have two problems with this, one theoretical, one observable.

Theoretically, at some point — and I believe $10 an hour goes way beyond that point — raising the minimum wage hurts the unskilled worker trying to enter the job market and gain a skill.  At a reasonable minimum wage, business owners can afford to hire unskilled workers to work entry-level jobs — to become, in effect, apprentices — and if they show talent and industriousness, they will acquire marketable skills, resulting in promotions to more skilled positions within the company, and higher wages.  And the fact that they started from the “bottom-up” means they know the company’s business, its products, even its culture better than outside competition, giving them another competitive edge.

By contrast, especially in today’s economy, a $10 minimum wage will attract skilled workers, who will compete with unskilled workers for the same jobs, and what employer, forced to pay $10 an hour, will choose the unskilled worker over the skilled one?  In other words, a high minimum wage is a job killer for the very people the president wants to put to work — the historically disadvantaged, such as young blacks, Hispanics and the poorly educated.  Further, that group’s one proven employment advantage — a willingness to work for less in order to get the job — is negated by the guaranteed minimum wage. They can’t work for less.

My other, observable problem with a minimum wage hike is that the higher a business’s labor costs, the more incentive that business has to replace labor with machines.  This is nothing new.  The industrial age displaced millions of workers with machines, but with every hike in the cost of labor comes another incentive to reduce that cost with mechanized alternatives, and in today’s super hi-tech world we are discovering all kinds of innovative alternatives.

Two come to mind.  Ironically, the day before President Obama called for a minimum wage hike, the Applebee’s restaurant chain announced that I-Pad “waiters and waitresses” will replace the real thing in its restaurants, meaning customers can order meals and pay their checks without the assistance of a human employee.

And about the same time, Amazon announced that it is experimenting (granted, it’s a ways off) with delivering its packages with drones, rather than FedEx delivery trucks.

According to recent polls, job creation is the number one economic concern of the American voter.  Last I checked, IPad waiters and waitresses, and delivery drones, don’t vote.  Real waiters and waitresses, and delivery truck drivers, do.