| 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! |
