Versus the trimmer and the blower
Reading this post's title, you might think this blog is heading off in a dark, possibly gruesome direction. But no. It's just me thinking about economics while on Spring Break. Quite the avocation, right? And this blog's subtitle – Notes on government, politics, and economics – means no economic theories or models. (I stopped doing the math required for that a long time ago.) Just ideas, observations, anecdotes. Nothing more.
Anyway ... we just got back from a Mexican mega-resort vacation and had a great time. On our last day I noticed two workers trimming bushes with razor-sharp machetes, not electric shears. And throughout our stay workers cleared beach sand from boardwalks with brooms, not powerblowers. For me as a guest, it was pleasant not to hear the roar of gas engines or buzz of electric motors. For the gardeners it is beneficial and comforting not to be replaced by technology.
This is the heart of the minimum wage debate: how much should low-skill workers be paid and at point are they replaced by capital, that is, machines. Now I have no idea how much the resort pays its workers and how much of it is a conscious decision by management to restrain loud machines. (Certainly there was no such concern about muting the booming techno-pop beats emanating from the speakers at the swim-up bar from 10am to 5pm every day.) The trade-off of capital for labor is famously embodied by the Luddites of England and formulated by the Cobb-Douglass production function.
When labor becomes more expensive than the cost of a machine that can perform the same function, capital will displace labor. It's not malicious; it's rational. (Cheaper comparable labor will replace expensive labor, too.) The machine may not completely replace a worker but it may make a single worker sufficiently more efficient that two or more supporting workers lose their jobs. Yet at the same time someone needs to design, build, and service the machine thus providing employment to others who are highly skilled.
Mandated minimum wages make the return on machines greater thus encouraging innovation and substitution. Likewise low wages favor labor thus postponing innovation and substitution. This is why poor countries stay poor and specialize in low-skill, labor-intensive products while rich countries get richer at a continually faster pace. However some low-skill workers get left behind.
What does the future portend for America's low-skill workers? I have no idea, and I realize that's not very helpful. So let me suggest (remember – no grand theories here) that a higher minimum wage will help low-income workers in a roundabout way but only after some pain and some heretofore unseen leadership by legislative bodies and labor groups.
I see it going like this: the wage floor goes up causing substitution of machine for worker which increases worker productivity and general wage level; demand for machines increases along with demand for skilled workers to design, build, and service machines; income disparity grows larger as design skills are highly valued, have few practitioners, and occur before build and service; finally build and service jobs increase, offering wages higher than the jobs lost to mechanization. The key to worker well-being is to shorten this cycle as much as possible.
I think unions can help but not as forced-membership, collective-bargaining monopolies (that is, a single seller of labor services). Instead unions could act as guilds but without restraint of trade and with education and training open to all. (Unions have to balance competing goals of vast membership and restricted access to its members' skills.)
The drive (and loan subsidies) to send everyone to college is misplaced: it drives up costs, increases personal debt, and causes gaps in labor markets. Welders are in short supply and can make over $100,000 a year without a degree. Will the demand for welders dry up? Maybe, maybe not. But unions and trade schools that train welders can help fill the gap. So, too, can companies willing to take on the training expense – as long as they can recoup that expense.
I'm not keen on government getting too involved. Congress itself has a skills gap: it can't see past ideology or bile for the opposition and can't reconcile its biases with readily available labor market information. If anything, Congress could provide Pell grants for technical skills.
The guys wielding the machetes have it pretty good: they have steady jobs from a steady flow of tourist dollars and aren't likely to be replaced by electric hedge trimmers. But they're not likely to "get ahead" anytime soon. By contrast workers losing their jobs to a higher wage floor may realize a blessing in disguise – if only elected officials at every level and unions in all trades break away from their codified interests to help workers break through the glass ceiling.