| Minimum wage laws cause
unemployment. I see this all the time,
but I realize most people don't. My
perspective comes from dealing with reality
and concerns about productivity every
day. This view of the world is very
simple; it's based on the way the world
actually works, and I hope by sharing it with
you, you can understand why it has to be that
way.
Automation is a capital investment, with
all the cost up front and with the
justification in the ROI (Return on
Investment) on the back end. Most
industrial plants will buy any project with
an ROI of less than two years.
However, since it requires the up front
expense, most plant managers will only start
an automation project if they are kicked
into it. The reason for their
resistance is that manual labor is a
continuous and almost level expense while
investing in new systems is a risky and
visible exercise.
As the labor unions well know, raising
the minimum wage raises all wages by
the same amount, not just the lowest
ones. I've been in automation since
1982, and I've learned that every time they
raise the minimum wage, I get richer and
employment goes down. The key is that
it motivates lousy plant managers to
consider automation projects because their
costs (the usually "continuous and
almost level" expenses) just got jacked
up!
For example, imagine a plant with 20
manual laborers making $8.00/hour, which is
at least $10.00/hour or more to the
employer, i.e., $8K per week and $832K per
two years. Jack up wages by a buck,
and the two-year cost goes to
$915,200. After automating the process
by spending $500K up front and now employing
only three trained technicians for $18/hour
($224,640 over 2 years), the expense for the
first two years is
$500K+$224,640=$724,640. Automation
was already justified, but jacking up the
minimum wage motivates even incompetent
management to look at options.
Clearly, the ROI is far less than two years,
and 17 fewer people are employed.
(Automation has an expected life of 10
years, but I know of automation that has
been in place for 30 years with the cost
reductions holding.)
Thousands of automation people like me
are out there every day making the ROI case,
but the upfront nut and, frankly, poor
management, keeps thousands of plants from
making the automation investment.
Raising the minimum wage forces management
to look at the other options anyway.
In the above, very realistic case,
management saves nearly $200K in reduced
expenses over the first two years by
listening to what I've been trying to tell
them all along. They lay off low wage
workers and I get richer. And so do
they, their customers, their customers'
customers and the consumers of the end
products.
I hope this helps your
understanding!
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