There is a campaign to raise the federal minimum hourly wage from $7.25 to $10.10 or $20 living wage. The argument is that any wage paid to a worker should be sufficient to afford independent living expenses. The counter argument is often that many making minimum wage are entry level and in circumstances that have lower living expenses. Many such jobs provide supplemental income or an entry opportunity to later move up to a better paying job. Certainly there are examples of this occurring but the Department of Labor disputes these claims. By calling these claims as all myths, the DoL appears more like an political advocacy for higher minimum rather than an impartial and objective source, but for sake of argument I’ll defer to their authority as an organ of the state.
Arguments against the increased minimum wage is that it will force many small businesses to close such as this case, but even in that case he may need to close due for similar financial reasons if rents increase. In any event, half of small businesses fail after 5 years, so they may fail even if wages remain the same.
Studies generally fail to show increased business failures as a result of raised minimum wages. Even very significant increases in minimum wage do not seem to have a big impact on businesses. I suspect minimum wage does put pressure on a business but that pressure is minor in comparison to broader issues such as rents, changing cultural appetites for the offered services, or changing demographics of the business location. A successful business in a good location with a growing market will probably not see much impact by raising its minimum wage.
Another line of argument is that the increasing cost of labor will drive businesses to replace jobs with automation. There is an appearance that rising minimum wages are encouraging automation of previously minimum wage jobs such as in this posting:
I thought about all this last month when I saw “Boyhood” at a theater in San Francisco. I bought the tickets from a machine that took my credit card and spit out a piece of paper with a bar code on it. I walked inside, and fed the paper into another machine, which beeped twice, welcomed me in a mechanical voice, and lowered a steel bar that let me into the lobby. No usher, no cashier. I found the concession stand and bought a bushel of popcorn from another machine, and a gallon of Diet Coke that I poured myself. On the way out, I saw an actual employee, who turned out to be the manager. I asked him how much a projectionist was making these days, and he just laughed.
“There’s no such position,” he said. I just put the film in the slot myself and press a button. Easy breezy.”
And this article describes automation taking over the floor associates at Lowe’s hardware stores:
As customers follow OSHbot to the correct aisle, they will see ads for in-store specials on its back screen as they pass various departments, communicated through in-store beacons. Customers who need help with, say, a specific type of plumbing project can initiate a video conference on OSHbot’s front screen with available experts at any Orchard store.
I am not convinced that minimum wage is driving the trend to automation. In the examples of these two articles, the automation appears to be adapting to the take advantage of lessons learned from online-shopping experiences and apply them to the business. The online shopping approach includes providing effective incentives to direct customers to other products or services that may interest them, or to direct them to upgrade their intentions to a higher quantity or a higher quality.
While some sales people are able to do this, I think even they will have trouble competing with the big-data driven analytics to direct customer-specific marketing during the shopping experience. This article makes this point concerning self-service ordering kiosks:
The move to kiosk and mobile ordering, said Tristano, is happening because it will improve order accuracy, speed up service and has the potential of reducing labor cost, which can account for about 30% of costs. But automated self-service is a convenience that’s now expected, particularly among younger customers, he said.
I do not belong to the younger customer group, but I prefer ordering from a kiosk rather than at a counter. The kiosk provides an up close video display that is easy to read. The ordering involves touch-panel inputs instead of talking and risking being misunderstood. The ordering shows the images of the order as it is being built and then immediately provides images of options to add to the order, including sides and drinks. Although the screen will include attempts to get one to order a larger size or more items, this is obvious and easy to ignore but sometimes it is welcome. At the end of the process, the order is transmitted electronically and I get a paper receipt of the order details. The benefits of the kiosk go far beyond avoiding paying someone a salary. The kiosk is providing a service that is nearly impossible for a hired person to do: increasing sales through an online experience of point-of-sale marketing.
Another reason that these businesses are seeing automation is that their business models are very well established and stable over time. The movie-going experience or the shopping or food-ordering scenarios are very stable situations that are easy to automate. Automation is inevitable for such predictable business operations.
In the above discussion, I do not see a convincing case against raising the minimum wage. On the contrary, the evidence is that there are strong business incentives to provide a natural floor for minimum wages. Higher wages reduces staff turn-over and subsequent retraining costs. The market will support marginally higher prices to cover increased labor costs and if the business subsequently suffers the reasons are more likely the result of changing business climate issues than due to higher minimum wages.
From the available evidence, I do not see a need for a minimum wage at all. If we removed all minimum wage laws, the existing businesses are unlikely to cut the wages of their current staff or offer new workers substantially lower wages of their more senior peers. If a business does attempt to steeply cut existing wages (or new hire wages), the abundant historical evidence indicates that it will suffer as a result. This would not be a good business decision. If the justification is to cut operating costs to remain profitable, then the business is likely in trouble for issues having nothing to do with wages. Alternatively, if the justification is for higher profits, the increased turn-over and retraining costs will make those additional profits harder to realize.
If this were a dedomenocracy, it may have legitimately implemented a minimum wage law at a time when it was needed. Part of that justification was to convince businesses that they can make higher profits despite higher wages. In a dedomenocracy, all rules have expiration dates. The rule should be in effect long enough to change attitudes (in this case concerning wages) so that these attitudes will persist in the subsequent absence of the rule.
I think we are at that point with minimum wage laws. The laws made their point. Businesses can be profitable with higher wages, and may be even more profitable due to benefits of higher wages. Businesses also know that excessively low wages will not be tolerated. If minimum wage laws were removed today, the new business climate will provide a natural floor for wages. Wages will not collapse in established businesses. Or if they do collapse, the business is more than likely to fail soon any way.
My concept of a dedomenocracy is to have a high frequency of making new rules. If the problem of excessive low wages does reappear, then the new rules can restore the previously expired minimum wage. Until that happens, there is no justification for continuing the renewal of this rule. A key part of dedomenocracy is to rely on the natural tendency for culture to continue following practices that were previously coerced by a rule. Rules must be temporary to make room for new rules on other urgent issues that arrive later.
A dedomenocracy operates by automated rule-making based on data. One justification for expiring rules is to make possible the collection of fresh data to characterize the current environment without interference of the rule. This data may be of very different observations about wage economics than was previously observed because the rule has changed the culture. These new observations may suggest new approaches to dealing with the problem. If a new rule becomes needed, the rule may involve a different approach than setting a minimum wage.
The temporary rules of dedomenocracy is necessary to allow automated rule based on observation data alone, ideally without any human preconceptions (models or theories). An active rule distorts reality by imposing its theory on the world. While the rule is in place the observations are biased by this preconceived theory. By expiring a rule, we can observe the new reality free of our cognitive biases and this would allow the data algorithms to find new solutions if those solutions later become necessary.
I think we are at the point where we should try this for minimum wages. Because minimum wage laws are in effect, we can not observe what will happen in businesses when there is no minimum wage at all. Given that minimum wage laws have been in effect for so long, there must be a cultural understanding in business of a floor for wages where that floor is somewhere around the current minimum wage. Retiring the minimum wage law will provide the opportunity to see what happens in the current business climate as a result.
The problem with long lasting laws passed during a different era is that the laws mask the changes in culture that now rejects the practices that justified the laws in the first place. In the case of minimum wage laws, there is now an acceptance that wages should meet a worker’s living expenses if he works full time (40 hours per week). In addition, the job market has changed dramatically where automation and changes in economy have eliminated the type of jobs that previously would have resulted in very low wages. Today, most jobs have a need for significant skills that restricts the labor pool enough to demand a higher wage (around today’s minimum wage, at least). Compared to the time when minimum wages were first passed (1938), there now are not as many opportunities that would trap workers for long times in very low paying positions. Many of the industrial jobs that existed then no longer exist either due to automation or the transformation toward a more of a service economy. There may not be as much risk for exploitative labor as there was before.
In a dedomenocracy, a rule like the minimum wage law would have had an expiration date. The rule be be renewed but each time there would be a new expiration date. The valid period for a rule would be a short period, usually less than a decade. A dedomenocracy renews rules based solely on data because all rule making would be automated. The data would have to support that the rule is still needed and that it remains a priority compared to other issues facing the government. After nearly 80 years, it seems likely that the rule would be allowed to expire without a renewal rule to replace it.
We do not live in a dedomenocracy. I proposed a political party that acts within the democracy but follows the rule-making concepts I presented for a dedomenocracy. I called this the Dedomenocratic party and its platform would be based on evidence-based rule making where rules are minimized in duration and in number based on available data. The fundamental difference between a dedomenocracy and a Dedomenocratic party acting within a democracy is that the dedomenocracy always default to the natural state of no laws. When the rules expire in a dedomenocracy, society experiences a full restoral of the original liberties. The expectation is that society would have acquired some new behaviors as a result of the prior rule so that they do not revert to the conditions that justified the rule previously. Democracies, in contrast, accumulate perpetual laws that can only be removed by new legislation.
For minimum wage laws, the default for a dedomenocracy would be no restriction on wages at all, but for a democracy the default is the prior unrepealed minimum wage law. I can’t imagine a scenario that will permit the democracy to repeal the minimum wage law, and attempts to rule it unconstitutional have failed.
The Dedomenocratic Party’s platform can support a short-term increase or decrease of the rate in order to see how that will affect the labor market. The party’s platform gives it the option of renewing these rules after they expire so it can be perpetual, but if they don’t renew the rule, the minimum wage law would revert to the rates set by the existing perpetual law. The Dedomenocratic party would argue its case based on data and the data presented earlier seems to suggest a rate increase is reasonable but it will be in effect only temporarily. A later renewal could increase it or allow the rate to return to the current rate. The persuasive benefit of the Dedomenocratic proposal would be that when the rule expires, the situation returns to the law that would have been in place if no action was made on minimum wage. This gives an option of a trial period to gather data to quantify the actual positive and negative impact of the change. That new data will support future rule-making and the eventual expiration of the rule forces the future legislature to confront this data.
Again, my impression is that the minimum wage law has lasted a lot longer than it would have if it were made under a dedomenocracy. The other option to consider is to remove the minimum wage law entirely, as would have happened if the original law were instead a rule in a dedomenocracy.
This is a democracy so that law (or the last revision) remains in effect indefinitely. The Dedomenocratic Party could propose a temporary rule to set the minimum wage to $0 and have this rule in effect for just a few years. There may be a period of a few months or a year before the rule would take effect to allow the labor interests to negotiate contracts to commit to continuation of minimum wages for existing jobs. My suspicion is that these commitments will not be hard to make because everyone is familiar with the concept of a minimum wage related to a livable wage. The temporary rule simply gets the government out of the way and lets the market find the floor wage without government intrusion.
One possibility is that the federal minimum wage presents an artificially low benchmark. Companies trying to set a minimum wage policy for their business or within their market may take the easy route and copy the Federal minimum wage as the standard. Removing this bias will allow companies and markets to evaluate their own standards for minimum wage and those may be higher than the previous federal limits. I don’t expect that this result would occur for most workers but I would not be surprised if it does occur for a significant portion of workers. Unlike in the 1930s, we have a cultural acceptance of the concept of minimum wage and accept its goals for giving people enough money to maintain a minimum living standard. Modern conditions of culture and work are very different than they were in the 1930s and earlier.
However, I accept that if a rule temporarily removed any minimum wage, there would be efforts to cut the wages of low skilled workers. Many companies will attempt to exploit the profit potential from reducing labor costs. I suspect that they will not lower wages by that much for several reasons:
- Labor expenses for minimum wage jobs is a small part of expenses most modern businesses
- We have abundant prior studies that show they can lose money such as from higher staff turn-over and higher retraining costs: it is a bad business decision to reduce wages.
- Their competitors will quickly match any reduction and force the market prices lower and this will limit their profit advantage. Plus a return the same profit margin on a now-lower income would be a net loss for them.
- They are aware that the rule is temporary: when the rule expires the old law comes back into affect and this would likely cause them to go out of business if they lowered wages too low.
A temporary suspension of minimum wage laws probably might not have much effect on the existing labor market. I could be wrong, but the benefit of the rule is that it is temporary. An act of congress would be required to renew it when it expires. Otherwise the old law resumes.
The reason why this suspension would be beneficial is the possible impact on allowing new businesses to start without the need to meet minimum wage standards for a while. These are risky ventures that are prevented from happening now because they are too complex for one person (or immediate family) to implement and there is not enough investment or cash flow to supporting hiring at the old minimum wage. These jobs will be where the sub-minimum wage jobs will appear. These are jobs associated with new ventures that if successful can define new businesses, new markets, or even new industries that once established can support much higher wages.
A suspension of the federal minimum wage is similar to earlier proposals for making enterprise zones that target certain areas of low employment, but in this case the zone includes the entire country. Anyone can start a business and hire people who are willing to help at very low wages with the hope that a successful business start will eventually lead to higher wages.
The problem with the current indefinite minimum wage law is that it robs us of any data of this entrepreneurial potential if people were allowed to operate ventures with much lower start-up labor costs. Unlike established businesses, labor costs for start-ups is much larger portion of their expenses. With current minimum wage laws, the labor costs are prohibitively expensive for most start-up opportunities requiring a team of people. A suspension of the minimum wage law would allow us to collect real data about this potential for new job creation within the country based on opportunities available in this modern age of modern technologies and infrastructure. These innovations can surprise us and lead to new economic growth that can help solve our long-term budgetary crisis.