Lately, it seems like everyone is talking about the minimum wage. Should we raise it? Should it stay where it is? Should we lower it, or even abolish it? This looks like it will be a major question in the upcoming presidential campaign, as the candidates have already staked positions (with some candidates making it part of their platform).
It seems that everyone has a strong opinion on this. We can all agree that the outcome will have real consequences but no-one agrees on what the outcomes will be.
Smart people, with real data to back up their claim, may predict any of the following:
| Scenario | Effect on the Economy |
|---|---|
| Raise The Minimum Wage (Doom Scenario) | Prices rise, employment falls as businesses stop hiring and even trim their workforce to meet payroll costs. Wide-spread unemployment coupled with higher prices wrecks the economy. |
| Raise the Minimum Wage (Sunny Scenario) | Profits rise as minimum wage workers, now with more money in their pockets, go on a spending spree. Lost profits are made up by increased volume. Some people trade 60+ hour work-weeks for more leisure time, which means there are more jobs to go around just as demand picks up – unemployment falls rapidly and wages generally get a bump – but competition keeps prices down. |
| Keep the Minimum Wage the Same (Doom Scenario) | Stalemate: as the spending power of the dollar slowly falls over time, minimum wage workers slide further into poverty. Demand for welfare services and charity slowly rise alongside. The economy stagnates as a permanent class of have-nots emerges. |
| Keep the Minimum Wage the Same (Don’t Rock the Boat Scenario) | Stalemate: the economy keeps chugging along without major disruption. Nobody is happy, but things remain stable. |
| Keep the Minimum Wage the Same (Sunny Scenario) | With the certainty of stable wages, business are better able to plan ahead. Productivity gains translate to better wages as a reward – for those able to best achieve those gains. |
| Lower or Abolish the Minimum Wage (Doom Scenario) | The average worker desperately agrees to more and more work for less and less pay, in a vicious race to the bottom. Oligarchs take over the country and the middle class disappears. |
| Lower or Abolish the Minimum Wage (Sunny Scenario) | Businesses pay dilettante workers (high school kids, mostly) much lower wages, but adults make significantly more; the money saved by paying unproductive workers less are passed on to consumers, so most people see their dollars go further. |
Every choice has at least two contradictory outcomes. They can’t all be right.
Those arguments are almost beside the point, however. What we’re really arguing about is what happens as we approach, but haven’t quite reached, a post-scarcity economy.
(The wikipedia entry doesn’t do justice to the concept of post-scarcity. It’s not exactly Utopia, and it’s not unlimited wealth. It’s the ability to produce enough material wealth, at near-zero cost, to provide a reasonable standard of living to everyone. It’s like Europe without the taxes.)
Across the economy, per-person productivity is rising at logarithmic rates. Consider cars: they used to take days, literally days, to manufacture. In the early 21st century manufacturers produce a technologically-superior car in about two shifts – 16 hours. One factory, with fewer people, can make over 400% more cars than a century ago.
We’re continually figuring out how to improve our business processes to make them more efficient, and using technology to supplant our workforce as well. Self checkout lines at the supermarket easily come to mind. There are now McDonalds restaurants where you order from a kiosk instead of a cashier. We bank online instead of writing checks.
This is clearly what people want. Technology makes our lives easier and more efficient when we don’t have to drive to the bank, or worry that our food order wasn’t understood correctly.
Technology saves us from the most dreary drudge work, like totalling accounting ledgers or weaving fabric by hand.
As mechanisation progresses, and more of our needs are met with fewer people involved, what happens to the rest of the people? That’s really what the minimum wage argument is about – the lessening demand for labor. As productivity rises, meaning we make more stuff for the same amount of labor, demand for labor (a.k.a. workers) decreases over time. The law of supply and demand tells us that lower demand leads to lower prices (wages).
What do we do when we don’t need much of anybody to feed and clothe us? Our population isn’t growing so demand will not rise, and that means you can’t make up the difference in extra productivity with extra demand. What do you do then?
Author’s Note: My intent is to pose ideas and ask questions, letting the reader answer them. I’m purposely taking an apolitical view of the minimum wage in this article; if you can point out bias on my part I will gladly fix it.
My only assertion is that a post-scarcity economy may be looming. I’m not claiming that the sky is falling. Technological change has changed the labor landscape before and people worried about lost jobs, some even lost their jobs, but somehow new work came along.
We have a long history of upheaval caused by technology, with bouts of low employment followed by booms of full employment. Ask any stable-hand or stone axe maker how their employment prospects are nowadays, and then introduce them to your local programmer or aerospace engineer to make them cry.
New technology replaces old. A century ago a computer had barely been dreamed of by a few – thank you Mr. Babbage – but today that’s how I make my living. That’s technological progress.
I believe that an upcoming cycle in the not-so-distant future may be different, in that afterwards we will have entered a post-scarcity economy – and we probably won’t even realize it until after the fact. We’re not going to live in a utopia yet, but that day may come to pass while some of us are still in living memory.