On This Episode:
- Master Your World : The G20 Meetings
- Master Your Mind : The Spiritual Path
- Master Your Words: The “T” Word
- Master Your Money : Target Date Funds
- Master Your Life : A Whole New Challenge!
On This Episode:
Oh were it that easy; to establish a minimum wage that all people would be able to earn thus enabling the entry level employees and unskilled employees to earn a “livable wage”. Since the establishment of the Industrial Revolution and even before that going back to King James in 1603, governments have attempted to provide guidance and limits on the minimum amount a person could be paid for their labor, thus negating the law of supply and demand for unskilled labor. This debate as to the economic consequence of minimum wage laws continues even as economists both liberal and conservative agree that in the end, a rising minimum wage does two things; it reduces employment and due to inflationary affects it doesn’t really increase standard of living at all. But that economic effect that has been at the heart of the matter for all of its history will be dwarfed in the new 21st century economy by a new competitor to unskilled labor.
The basic law of supply and demand that sets wages compares the value of one person’s labor to another. So at the core of this economic reality is the competition between individuals for jobs causing them to try and outwork and outsmart the other workers and thus be more productive leading to a higher wage. Minimum wage laws negate some of this and cause there to be a reduced motivation at the low end of the economic scale because, quite frankly, if a minimum wage is guaranteed, why outwork anyone else? With income inequality becoming a political ideology popular with the low-skilled workers, it’s no wonder they cry out for a $15.00 per hour federal minimum wage. In a simplistic sense, they see this as a way to secure an increased income with no increased productivity. But there is a problem… a big problem… we no longer live in a 20th century economy.
Unlike the previous 400+ years, in the 21st century the competition at the low end is not being generated by a person-to-person competition and so the very notion of people banding together in a union or other collective way like the federal minimum wage isn’t an economic reality. In fact, whereas historical economics has simplistically defined economic growth as population growth plus productivity growth, that may be fundamentally changing.
Enter the 21st century of a truly technologically based society. With the ever increasing power of semi-conductors tied to their ever-decreasing price, semi-conductor based tools and materials are becoming standard. This presents the largest economic transformation since the industrial revolution for certain and creates a scenario in which the economy of the future may not look at all like the economy of the past. Historically, productivity has been somewhat limited by the inherent weaknesses of individuals (we need sleep for example and we get sick) and the cost of capital to build tools that could enhance individual’s productivity, the cotton-gin for example. This simple metric however is being redefined as the tools for productivity have developed into fully robotic “partners” in the workplace. With this mega-transition that’s taken place, the competition for the “low-end” of economic activity is no longer between people but is now between people and the technology based tools of productivity. A simple example is airplanes. Going back not too many years ago it took several people to fly an airplane. A captain to fly, a co-pilot to assist, and a navigator to set course. When was the last time you flew on a plane that had a navigator? When was the last time a train had a brakeman?
The scenario being presented is one in which as the cost of technology comes down, any upward pressure on the human competition simply accelerates the pressure to implement the technology to reduce costs and increase productivity. We are seeing this increasingly in food service with table side kiosks, general ordering kiosks and even food production. We are also at the verge of a huge transition in transportation as automated systems take over for human drivers. Can anyone say “Call me an Uber” that needs NO person to drive it!
This is a fundamental transformation taking place and no fix like altering the minimum wage is going to help reduce income inequality. It will, in fact, only make it worse as the pressure to replace people with machines becomes stronger. The only real solution is going to be adapting our education system to teach people how to interact with machines and add value moving themselves off of the low end of the economic spectrum into the higher value spaces. This won’t be easy, but it is inevitable.
A continuing bull market driven by an old story and a look at the unpopularity of self-driving cars.