From
Flintstones to Jetsons: how labor pushes technologic innovation
Ask any employer, employees are expensive. Long gone are the days when a whip, and a few
indentured servants, or slaves could be called upon to toil their lives away in
inhumane conditions. Today’s laborers
demand, through legislation, unionization, and social pressure safe and
reasonable working conditions. Recently
there has been a societal move resulting in an increase in minimum wage in many
states, and a proposed federal minimum wage increase. That is what will be dissected within this
work. A move to increase the minimum
wage in the United states from $7.25 per hour to $15 per hour. This would amount to an increase of 100.68%
in wage expense per hour in some states (www.dol.gov).
The history of minimum wage began in 1938 when the
first federal minimum wage was established at $0.25 per hour. According to CNN
money watch with adjustments to match inflationary CPI markers this would have
been the modern equivalent of $4.19 per hour (money.cnn.com)
follow the link in references for a delightful interactive graph! Before 1938 wages were decided between the
employer and the employee.
Benefits:
Employees: An
increase in wages nationwide would create an undeniable ripple effect. After all, one would be hard pressed to more
than double their income and not notice a change in their financial
situation. At $15,080 (7.25hr x 40 hrs. wk.
x 52wks) a dual earning household would gross about $30,160 per year in the
present system. When the new minimum
wage is instituted the household income will rise dramatically. A single income earner will have a yearly
income of roughly $31,200 ($15hr x 40hrwk x 52wks) per year. This will increase
household income as well yielding $62,400 respectively. This data, though crude is commensurate to
what most statisticians report (www.statisticbrain;
gapminder.org ). For a great graph on
income wealth disparity, see gapminder.com in the references section.
As the work environment becomes more mechanized technology
will become more important in filling the role of unskilled labor. There will be many technical positions
opening up to provide services to these machines. There will be growth in technically skilled maintenance
positions.
Employers: Increased pay will allow
employers to seek out highly talented and experienced individuals to fill
positions, which they may have not considered to be worth their
time before. It will also allow opening of more
part time positions, thus reducing the benefits that usually accompany a standard
full time position. Laborers will be
more likely to take a part time position if they can earn double what they used
to for doing the same work. This example
is readily evident in Wall Mart, who after increasing wages, immediately
reduced their full time work force to save on accompanying liabilities. Their potential labor force increased, even
as hours available to each employee decreased.
Governments:
Revenues: Although each state is different, many states maintain a progressive tax on income. Though some have a regressive tax system, like sales tax, the most popular taxation methods are the progressive ones. Governments will reap a windfall of increased taxable income. Since each state government taxes differently it is easiest to address federal taxation, and for this discussion state tax revenues will be left out. The 2016 IRS tax guidelines would apply to the incomes discussed above and are as follows for those filing single:
Taxable Income
|
Tax Rate
|
$0—$9,275
|
10%
|
$9,276—$37,650
|
$927.50 plus 15% of the amount over $9,275
|
$37,651—$91,150
|
$5,183.75 plus 25% of the amount over $37,650
|
$91,151—$190,150
|
$18,558.75 plus 28% of the amount
over $91,150
|
$190,151—$ 413,350
|
$46,278.75 plus 33% of the amount
over $190,150
|
$413,351—$415,050
|
$119,934.75 plus 35% of the amount
over $413,350
|
$415,051 or more
|
$120,529.75 plus 39.6% of the
amount over $415,050
|
This
results in an income tax deduction of $4,261.25 for most minimum wage
earners, leaving them with a net income of $26,937.75 after federal taxes. This yields a $12,717.75 increase in net
income.
The
most likely bracket for those effected by a minimum wage increase are
highlighted. For those filing jointly at
$62,400, presuming they are both minimum wage earners the IRS table for 2016 is
as follows for those who are Married
Filing Jointly or Qualifying Widow(er):
Taxable Income
|
Tax Rate
|
$0—$18,550
|
10%
|
$18,551—$75,300
|
$1,855 plus 15% of the amount over $18,550
|
$75,301—$151,900
|
$10,367.50 plus 25% of the amount over $75,300
|
$151,901—$231,450
|
$29,517.50 plus 28% of the amount
over $151,900
|
$231,451—$413,350
|
$51,791.50 plus 33% of the amount
over $231,450
|
$413,351—$466,950
|
$111,818.50 plus 35% of the amount
over $413,350
|
$466,951 or more
|
$130,578.50 plus 39.6% of the
amount over $466,950
|
The most likely brackets for those
filling jointly are highlighted above. The
first bracket yields a net income of $53,976.50. This is a net increase of $27,413 in annual income. This is of course presuming both partners are
earning minimum wage, or better. These
tables and more are available at the IRS web site if you follow the clickable
link in references (www.irs.com). It should be noted that rates and brackets
are subject to change.
Liabilities: Many
government agencies will benefit from reduced liabilities with an increase in
wages. With wage increases many people will no longer qualify for government
entitlements. Using the USDA FNS
screening tool this author was informed that as a resident of Washington State and
a parent of 3 children with an income of $15 per hour he would not qualify for
any assistance from the Economic Services Administration. This includes
subsidized housing, food assistance, or child care assistance (dshs.wa.gov; snap-step1.usda.gov). To calculate your own eligibility for these
programs follow the SNAP link below and select your state in the top right menu
bar. Reduction of entitlement payments
will reduce state, and federal liabilities.
Since entitlement estimates vary wildly, depending on the source used,
we will not furnish an estimate in this article.
Foreign markets: The manufacturing industry in foreign
markets will certainly reap a wind fall of low end manufacturing jobs as those
that cannot be mechanized are moved abroad.
It is unlikely that corporate entities will willingly absorb marginal
losses from the increased cost of unskilled laborers. Most employers able to avoid a 100.68%
increase in labor will do so.
Costs:
Workers: The
reduction in entitlements will primarily effect those who, at the present time,
rely on them. Most single people without
children under the age of 24 do not qualify for SNAP benefits or any other type
of gov’t assistance. Those whose
household economy has come to depend on these benefits may face a sobering
reality when the high cost of private healthcare, instead of the gov’t
subsidized health care under which they are now covered, is brought to bear
upon them. Certainly the insurers, who
are not averse to profit taking, will use this as an opportunity to bolster
their earnings. Of all of the first
world economies, private insurance enjoys the highest revenues here in the United
States (theincidentaleconomist.com).
Students: It
should be noted that federally subsidized student loans and grants FASFA
eligibility is heavily weighted on income.
This article will not explore this aspect. The student loan industry, and the collegial
education industry in general is both convoluted and rickety. With practices and laws changing regularly,
it would be foolish to attempt a meaningful analysis. The Pell grant is
designed for low income earning students.
We were unable to find the exact income requirements for the grant which
are listed on the federal web site as “variable by individual.” . The
limited information available indicates that “In the 2009-2010
school year, for example, nearly 80 percent of those students who attended a
community college with the help of a Pell Grant had a family income level of
less than 150 percent of the federal poverty level, according to a report
published by the American Association of Community Colleges. Similarly, of
those students, 60.7 percent had family income levels that were $20,000 or
less, which is below the poverty threshold for a family of four (simpletuition.com).” This would seem to indicate that students
will be more likely to pay tuition and related expenses by using student loans,
or cash as their income base increases. Cash
of course would be the preferred method, presuming the cost of education
remains constant and the student is employed.
The continued, and socially accepted practice of retaining large amounts
of student loan debt in in conjunction with grants and financial aid, could greatly
benefit lending institutions since student loan debt is not escapable via
bankruptcy and is often insured by the federal gov’t.
Small
business: Although larger firms may be able to outsource some or
all of their work, or survive on lobbied means of corporate welfare, like
subsidies. Small businesses will have a
precipitous decline in revenues, secondary to increased labor costs. For many of them this decrease could easily push
them past their break even threshold.
The most obvious industries effected will be those that employ the large
amounts of unskilled and uneducated labor: food service, agriculture, forestry,
and retail sales sectors. Mechanization
will be essential for survival. Large
chain restaurants like Wendy’s, which have the ability to raise capital to
mechanize will lead the way in technological innovation as the work force is re
shaped. Recently the Wendy’s CEO
unveiled a plan to reduce overhead starting in its NYC stores by instituting self-service
ordering kiosks, which will replace clerks in many of their locations (finance.yahoo.com). While not cost effective in years past, with
an increase in its NYC market share of over $5 per hour (amounting to $10,400
per year per worker), Wendy’s has decided that the time to mechanize has
arrived. Smaller restaurants will be unable
to issue the multimillion dollar corporate bonds needed to raise investment
capital for mechanization. Necessity
being the mother of invention, technologic innovation and a reduction in
unskilled labor will likely progress farther and faster as momentum for an
increase in wages continues to grow nationwide, and as business struggles to
maintain thin profit margins in a recovering market.
Seniors:
Although
the evaluation of the CPI (consumer price index) and an accompanying COLI (cost
of living increase) may occur within two years of a minimum wage increase, it
is likely that if hyperinflation (inflation over 100%, which in this case would
be slightly less than the proposed increase) occurs cost of living increases
may be delayed in order to maintain solvency of the SSI fund. This has historically been the case when past
COLI have threatened the solvency of the SSI fund (www.ssa.gov). Though an increase in taxation of wages would
eventually bolster the SSI fund, it is possible that the increase in cost of
goods produced and sold would consume the surplus rapidly after an accompanying
increase in COLI for SSI recipients. This would leave seniors in a precarious
position. With a fixed income, and
increasing prices, tough choices would have to be made *see my article about Puerto
Rico*. This could be bad news for the retirement,
and long term care sectors. Historically
senior retirement homes have had reliable revenues, with guaranteed gov’t
payment of benefits. However, with a
decrease in buying power, this could make profit margins slim.
Stocks
related to this article:
WEN:
Wendy’s Inc.
Senior
living:
HCP (NYSE: HCP); Ensign Group (NASDAQ: ENSG); Almost Family (NASDAQ: AFAM)
Manufacturing
and mechanization:
(NASDAQ:
WEN), that’s right! Wendy’s has its own tech lab to increase mechanization in
the fast food biz!
Lending:
Though I have total confidence in the
market place, it is likely that the 1.3 trillion dollars of student loan debt
will move further towards default in an economy where the student loan interest
rates are greater than the rates of compensation received by most new college
graduates. It would be irresponsible for
this author to recommend purchasing these securities.
Disclosure:
The
writer has no competing interest in these companies, or their subsidiaries, and
has no plan to purchase an interest in the near future, nor does the author recommend
purchase of any security.
References:
