low-wage workers..

by Larry Lawver
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! 


Larry Lawver is an industrial automation consultant and entrepreneur in central Florida.


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Consider this policy aimed to help workers at the bottom of the income distribution:
1. A wage subsidy for unskilled workers, paid for by
2. A tax on employers who hire unskilled workers.
Now ...  you might wonder about the logic of part 2 of this proposal. ...  Haven't heard of it? It is called an increase in the minimum wage.-- Greg Mankiw, HERE
So-called "minimum wage laws" are shown to be a curse by Walter Williams HERE, by Thomas Sowell HERE and HERE, by Don Luskin HERE, by Larry Lawver HERE, by Mark Tier HERE, by W. J. Rayment HERE, by Dale Amon HERE and by Jim Cox HERE.
"When the price of anything, including labor, goes up, the quantity demanded goes down, other things constant.... Workers cannot be paid what they havenít first produced." -- James A. Dorn, HERE    
 "Outlawing teenagers in the work force ... That's what 'minimum wage laws' do. By means of these laws, politicians say to the marginally employable, like teenagers: 'It's ILLEGAL for you to work -- even if you want to, and an employer is willing to hire you -- unless your employer can afford to pay you the wage rate that WE, the politicians, have set for your hiring.' " -- Robert Bidinotto
Find 5 charts correlating minimum wage laws with minority employment HERE.
"Only after the minimum wage began to be raised, beginning in 1950, and escalating repeatedly in the years thereafter, did black teenage unemployment skyrocket." -- Dr. Thomas Sowell, HERE
"Minimum-wage laws are one of the most powerful tools in the arsenal of racists." -- Dr. Walter E. Williams, June 13, 2002
Scroll down this page or this page to find "The Best Kind of Training."
"The only way you can raise wages is by increasing productivity per man .... It doesnít matter how much you increase wages, prices go up, too, unless productivity increases also."
-- Alfred Sloan, CEO of GM, before Congress, 1939

"Productivity is expandable.  In fact, productivity is fabulously expandable."-- P.J. O'Rourke in Eat the Rich

"One effect of minimum wages is that of discriminating against the employment of low-skilled workers."
-- Dr. Walter E. Williams, March 23, 2005
The New York Times Magazine tries running a puff piece on the minimum wage -- and gets its butt skewered big time here.
"In reality, data from the Bureau of Labor Statistics show that only about 2 percent of workers who are 25 years old or older have minimum wage jobs.  But you would never guess this, judging by media hype.
"In general, people earning the minimum wage have been a declining proportion of the population during the past quarter century. In absolute numbers, they have declined from 7.8 million to just over 2 million, even though the population as a whole has been growing." -- Dr. Thomas Sowell, May 30, 2006
                           A short book,

long on insights:

Just 5 bucks HERE.

As union and other contracts are indexed to the minimum wage, when the minimum wage is raised, so do many other wages and prices, feeding inflation.  See this.
Also see: Books on Basic Economics,   Minimum Wage Myth,   Price Controls,
Plain Facts' Page on the Minimum Wage and Price Controls in Health Care
Prof. Bryan Caplan's lecture on labor markets and regulation - outline
Minimum Wage and Immigration

The Link Between Productivity, Jobs, and Wages

The "Selfish Altruism" of "Nice guy" Fascist Businessmen
"Think about it: What the busybodies are saying is that third parties like themselves -- who are paying nothing to anybody -- should be determining how much somebody else should be paying those who work for them." -- Thomas Sowell
"If the defenders of the minimum wage really believe their own propaganda, then why are they being so stingy? ... If wealth can be commanded into existence by the legislature, then why stop at a measly $7.15 per hour? Why not $25 per hour? Why not $100? Think about it." -- Paul Blair
Oprah lies about the minimum wage 
"The purchasing power of minimum wage is at an historic low. Coupled with the relatively high cost of living in New Jersey, the state's lower income workers are being pushed to the brink. Acting Governor [Richard] Codey believes all New Jerseyans deserve the fair proposition that an honest day's work should garner a living wage. Moreover, there is strong evidence that increasing the minimum wage also significantly improves quality of life--reducing hunger and increasing healthcare."--"State of the State Highlights," New Jersey government Web site, Jan. 11, 2005

"Several senior citizens working in non-profit and public organizations in Salem, Cumberland and Gloucester counties will face layoffs in December. Chris Davenport, executive director of Salem Main Street program, said the federally funded non-profit company Experience Works, which assists low-income senior citizens with job training and placement, has been forced to lay off seniors due to the increase in minimum wage."-- Today's Sunbeam (Salem, N.J.), Nov. 17, 2005

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