Tuesday, June 3, 2014

Be careful what you wish for, you just might get it...

$15 minimum wage for fast food workers? Here's what it means for living wages, food prices and jobs

Mike Adams

The City Council of Seattle has just approved an ordinance which would raise the minimum wage of workers in that city to $15 an hour.(1) The phase-in takes seven years to complete, with small business given more time to adopt the new wage minimums than large businesses.

Because emotions run high on this issue, I'm offering a sober, rational look at what this means for employees, businesses and jobs. To begin, let me confess I'm almost always in favor of the People rising up against corporate exploitation and doing something to help level the playing field. In a nation where corporate CEOs of health insurance companies are making as much as $90,000 a day in salary -- it's only reasonable to ask why the very people who buy that health insurance are often just scraping by with barely a living wage.

All this does not mean I'm blind to the economic repercussions of hiking minimum wages, however. The critical error progressives often make in these situations is in thinking that hiking wages among low-wage workers will only have positive repercussions, not negative ones. In the real world, however, rising minimum wages almost always translates into job losses for the very workers who need those jobs the most.

Thin profit margins in the fast food sector

Nowhere is this more true than in the food service industry, where profit margins are razor thin for restaurant owners. The gap in the thinking on this comes from those who see fast food companies as billion-dollar corporations (which is true) but fail to understand that local restaurants are locally owned and operated at very thin profit margins.

Most fast food restaurants pocket less than 2% of their total revenues in profit, and labor costs are a substantial portion of their overall operating costs. If those labor costs are suddenly doubled due to mandatory minimum wages of $15, then one of two things has to take place:

1) The restaurant must raise its prices in order to survive (or go bankrupt).
2) The restaurant must fire some of its workers and ask the remaining workers to do more work.

When fast food restaurants raise their prices, guess who it hurts the most? The very same low-income workers who work there. Minimum-wage employees of one fast food restaurant, it turns out, are often customers of the restaurant next door. If their wages are doubled but the prices of the food they purchase are also doubled, the wage gains are partially nullified.

The cheaper food next door

The real problem with minimum wage hikes emerges when they're rolled out in local geographic regions rather than nationally. A $15 minimum wage in Seattle will have the effect of driving up the prices of food and services in Seattle while neighboring suburbs, cities and towns will offer the same goods and services at more affordable prices.

Because consumers are incessantly price sensitive and seek to save money, many people will drive outside the city of Seattle to save money on food and services. This will suppress the revenues of those businesses in Seattle which are subject to the new minimum wage rules, causing some to go bankrupt, thereby destroying the jobs that once existed there.

Business owners, meanwhile, will seek to move their businesses out of the $15 minimum wage region and relocate to more "business friendly" jurisdictions. This will of course reduce the number of jobs available in Seattle, causing increased unemployment.

The only way Washington State can stop this mass exodus of businesses away from Seattle is to pass a state-wide $15 minimum wage law. Yet even this will have a similar effect along the borders of the state, where people will drive to neighboring states like Oregon or Idaho to acquire goods and services at significantly lower costs.

The answer, you might think, is a national minimum wage hike to $15 nationwide. This would at least "level the playing field" from city to city and state to state. That's why I think minimum wages should be set nationally and not locally -- it avoids economic confusion among workers and employers.

But the USA doesn't exist as a lone economic power in the world, either. There are other nations where workers are far more eager to work than a typical U.S. worker; and they're willing to work for far less money.

For example, a well-educated, English-speaking office worker in the Philippines earns just $300 a month or so, and that's for 40 hours of work each week, doing anything you need them to do with documents, spreadsheets, online research and so on. Similarly, there are highly qualified programmers and computer science engineers in India and Pakistan who will write high-end code and design websites for about one-tenth the cost of a U.S. programmer.

The only reason food service jobs have not yet been off-shored is because they can't be. A physical worker at McDonald's, for example, needs to physically hand over the bag of food to the paying customer. If the job could be outsourced to the Philippines, that would have already happened long ago.

But fast food companies are on the verge of transitioning to another replacement for what they see as expensive U.S. workers: humanoid robots.

The rise of the robot fast food worker

The real impact of the $15-an-hour protests by fast food workers is to motivate corporations to explore how human workers can be entirely replaced in the long term.

We are living in the age of robotics, where Google has already developed a self-driving car that can navigate city streets and highways without any human intervention. Humanoid robots that can independently function in society are still a few years off, but tremendous gains have already been made in motor control systems, vision recognition and mobility. It's only a matter of time before humanoid robots will be able to take over most of the tasks of a typical fast food worker.

Because let's face it: the activities of a fast food worker are not that complicated. Much of the activity is based on repetitive physical motions -- precisely the kinds of things that are easily automated by the new wave of advanced robots arriving soon. And from an employer's perspective, robots have extraordinary "advantages" over human workers:

* They don't get paid hourly wages.
* They don't need or want vacation time.
* They don't require health insurance.
* They don't steal from their employers.
* They don't call in sick.
* They don't join labor unions.
* They don't sue their employers.
* They don't sexually harass other employees.
* They don't suddenly quit and leave you short-handed.

Essentially, all the problems that typify low-wage workers do not exist with robots. The primary drawback with robots is their enormous up-front costs and ongoing maintenance costs. These will be extremely high at first, but they will rapidly plummet as robot manufacturing achieves economies of scale.

Millions of workers will be out of work

The embracing of humanoid robots across the fast food industry will displace millions of U.S. workers. Remaining job options will be extremely limited for unskilled humans, of course, because the same humanoid robots that took their job at the fast food restaurant will also take their job at the grocery store, the dry cleaner and the bank. Robots that can handle fast food tasks can handle all sorts of menial tasks that represent a huge portion of the low-income job base.

When will this happen, exactly? In terms of human history, the robotics era is very nearly upon us. We'll likely see McDonald's being largely run by robots in just two decades. The most likely configuration will be two human managers overseeing a team of a dozen robots or so. Where there used to be 12 jobs for humans, there are now just 2 jobs for humans.

Of course, there are many new jobs created in the robotics industry. Someone needs to design, build, program and maintain all those robots. But these jobs, as you probably already realized, are skilled jobs requiring higher education. They aren't the kind of low-skill, low-wage jobs that the robots are replacing. No one goes straight from frying Chicken McNuggets at McDonald's to designing robotics software, in other words. Not without years of education, at least.

These robotics-related jobs are very likely to be off-shored in any case. Who will be the robot software engineers? Indian engineers. Who will assemble the robots in factories? The Chinese (at first, and then the robots will take over those jobs, too). Who will design the control motors and battery packs? The Japanese.

The only jobs Americans will have in this industry will be sales jobs and hardware maintenance jobs. All the engineering, design and manufacturing will be done somewhere else.

The best solution? Higher education

The future for unskilled, low-wage workers looks bleak. Before long, there will be virtually no jobs left for unskilled humans. Even firefighters, police, cab drivers and landscaping experts will be largely displaced by robots in the foreseeable future (with teams of robots being managed by 1-2 humans).

The solution for low-wage workers is to get out of the trap of having no skills. If you want to be relevant in the future workforce, you need to learn a skill set that cannot be easily replicated by robots. This is accomplished by learning an advanced trade or earning an academic degree.

Robots will probably never be entrepreneurs, graphic designers, psychologists or chemists, for example. Human creativity and ingenuity isn't so easily replicated in firmware. That's why the best economic insurance you can ever have is a solid education backed by solid skills.

Because the harder fast food workers push for higher minimum wages, the more aggressively the food corporations will push for robots that make human workers obsolete. In a sense, even as fast food workers protest for higher wages, they are simultaneously alerting their employers to replace them as quickly as possible.

I would love to live in a world where everybody can earn a living wage even if they have no skills. There is a "human dignity" argument at work here that says even those who did not pursue a higher education still deserve to live a decent life if they are willing to work a job. Unfortunately, the laws of economics and technology don't have compassion for human beings, and those who don't learn valuable skills look likely to be left behind in a generation or so.

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