New York & California Just Killed Entrepreneurship

In just 16 years, the minimum wage in the State of California will see a rise of 222% from $6.75 in 2006 to $15 in 2022.  That is an average annual increase of nearly 14%.  In New York, the increase to $15 from, again, $6.75 in 2006 is more complicated as follows:

• For workers in New York City employed by large businesses (those with at least 11 employees), the minimum wage would rise to $11 at the end of 2016, then another $2 each year, reaching $15 on 12/31/2018.
• For workers in New York City employed by small businesses (those with 10 employees or fewer), the minimum wage would rise to $10.50 by the end of 2016, then another $1.50 each year, reaching $15 on 12/31/2019.
• For workers in Nassau, Suffolk and Westchester Counties, the minimum wage would increase to $10 at the end of 2016, then $1 each year, reaching $15 on 12/31/2021.
• For workers in the rest of the state, the minimum wage would increase to $9.70 at the end of 2016, then another .70 each year, until reaching $12.50 on 12/31/2020 – then  continue to increase to $15 on an indexed schedule to be set by the Director of the Division of Budget in consultation with the Department of Labor.

The reality is that no other class of workers has seen that kind of increase.  In fact, assuming a 2% raise a year, it would take the middle class worker an average of 111 years to have a 222% rise in their salaries.

The point is that many people will find themselves less able to afford products and services that are heavily dependent on low wage workers; such as fast food businesses, retail, hospitality, and leisure.  The same goes for this nation's 55 million seniors, who, at best have seen increases of just 1% a year in their Social Security checks.  Additionally, millions more, such as waiters and waitresses, won't be eligible for minimum wage because they earn tips.  And, so too, for the three quarters of 47 million Americans in poverty who aren't even working.

More importantly, the $15 wage will accelerate the death of entrepreneurship and its ability to create jobs.  It will be much more expensive to start new businesses that generally depend heavily on entry level employees.  Entrepreneurship has already been in decline for decades, but now it will become a much higher risk proposition.  Even before instituting this excessive wage, 1-in-4 startup businesses failed in the first year.  50% will be kicked to the curb in just 4 years, and operational costs are one of the 4 main reasons for failure.

I hope I'm wrong, but I think the $15 minimum wage will be a real job creation killer.  And, in fact, a job killer for businesses who must raise prices, and in turn, lose customers who can't afford those price hikes. Also, the $15 minimum wage will bring in automation to replace the humans making that wage.  Already, you can rent a robo-security guard that can hear, smell, and has 360 degree night vision for just $6.25 an hour.  So, if you can already automate a security guard, it only seems logical that other lesser tasks, such as flipping burgers, will follow suit.

References:

Governor Cuomo Signs $15 Minimum Wage Plan and 12 Week Paid Family Leave Policy into Law: https://www.governor.ny.gov/news/governor-cuomo-signs-15-minimum-wage-plan-and-12-week-paid-family-leave-policy-law

California, New York enact $15 minimum wages: http://www.foxnews.com/politics/2016/04/05/california-new-york-enact-15-minimum-wages.html

California Minimum Wage 2006: https://www.google.com/search?q=california+minimum+wage+in+2007&ie=utf-8&oe=utf-8

New York Minimum Wage 2006: https://www.google.com/search?q=minimum+wage+in+new+york+in+2006&ie=utf-8&oe=utf-8

Minimum Wage - United States Department of Labor: Questions and Answers About the Minimum Wage: http://www.dol.gov/whd/minwage/q-a.htm

The Mysterious Death of Entrepreneurship in America: http://www.theatlantic.com/business/archive/2014/05/entrepreneurship-in-america-is-dying-wait-what-does-that-actually-mean/362097/

The Slow Death of American Entrepreneurship: http://fivethirtyeight.com/features/the-slow-death-of-american-entrepreneurship/

Startup Business Failure Rate By Industry: http://www.statisticbrain.com/startup-failure-by-industry/

The Four Major Reasons for New Business Failure: http://smallbusiness.chron.com/four-major-reasons-new-business-failure-51924.html

Rent A Robot Security Guard for $6.25 an Hour: http://www.psfk.com/2014/12/rent-a-silicon-valley-security-bot-for-6-25-per-hour.html

Were Voter's Denied A Vote On The Minimum Wage In California?

Before it was announced that Governor Brown and the California State legislators had come to an agreement with labor unions to raise the minimum wage to $15 an hour by 2022, there was already a ballot initiative set for this Fall to raise the wage to $15 by 2021.  So this begs the question;  is delaying the $15 wage by one year a victory for businesses?  Not hardly.

In my opinion, the agreement between the labor unions and California's liberal Democrat Governor and its liberal state legislators, only makes sure that the ballot initiative is not defeated  by the voters. Thus insuring that the labor union's wish for the highest minimum wage in the nation, and in the world would be guaranteed.

But, why would the labor unions even care about the minimum wage since no union pay scale pays anything near it?  The simple fact is that most union contracts and their embedded pay scales in those contracts are linked to the minimum wage as either some percentage over it, or by hiking union wages equal to the amount of the increase.

So the bottom line is that the Democrats want to maintain their symbiotic relationship with the unions by insuring that they too, get a wage hike when the minimum wage is increased.  In return, Democrats get votes from the union membership; money for their campaigns; and get-out-the-vote activities that only benefit Democrats. It has nothing to do with what they call a living wage. As a result there will be lost jobs through automation; more unemployment; higher costs that affect those, like seniors and others not subject to minimum wage legislation, that won't see their incomes rise; and fewer new businesses due to higher startup costs.

References:

California "Fair Wage Act of 2016" $15 Minimum Wage Initiative (2016): https://ballotpedia.org/California_%22Fair_Wage_Act_of_2016%22_$15_Minimum_Wage_Initiative_%282016%29

California raises minimum wage to $15 an hour: http://www.usatoday.com/story/money/2016/03/28/california-raises-minimum-wage-15-hour/82348622/

Why Unions Want a Higher Minimum Wage - Wall Street Journal: https://www.google.com/search?q=Why+Unions+Want+a+Higher+Minimum+Wage+-+Wall+Street+...&ie=utf-8&oe=utf-8 

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Hillary Clinton: Raising the Minimum Wage Won't Kill Jobs

At a recent campaign rally, Hillary Clinton said this: “Don’t let anybody tell you that raising the minimum wage will kill jobs, they always say that.”

That comment is sheer stupidity. Forcing higher wages always puts jobs at risk.  It is why union jobs have declined from a peak of 35% of the workforce in 1954 to today's meager 9%.  The same is true for minimum wage jobs.

Millions of minimum wage jobs have already been lost to automation. Raising it will only hasten that trend.

One of the most plentiful minimum wage jobs before the introduction of the fast food restaurant was that of the gas station attendant at a full-service gas station.  Millions of these jobs have been eliminated by the broad application of automated self-service pumps. ATM's have replaced the need for millions of teller jobs.  Self-checkout lanes in grocery stores and stores like Home Depot are also killing  jobs.  Many hotels and motels have abandoned sit-down breakfast, lunch and dinner restaurants in favor of a complimentary self-serve breakfast that is easily handled by only one or two members of the normal housekeeping staff; thus eliminating minimum wage waitresses, busboys, and dishwashers.  

I guarantee, that if there is another 40% increase in the minimum wage to $10.25 an hour in the next year or so, there will be an eventual blood bath of these jobs being lost.

First, small businesses that are heavily labor intensive and already marginally profitable will have to shutter their doors because, to raise prices in order to cover the higher cost of labor, would make them non-competitive to other, more labor-efficient competitors.  Others will raise prices but, as a result, may see a loss of foot traffic because some of their customers will no longer be able to afford the new higher prices.  As a result, this could cause layoffs or, worst case, bankruptcy.  This would be especially true for businesses who are operating in blighted and economically depressed areas of our major metropolitan cities such as Detroit.  Areas that can ill afford any more job losses.

Secondly, automation will become more cost effective.  I could easily see robotic arms, hanging from  ceilings, in retrofitted fast food restaurants, that are able to cook and bag fries, cook and assemble sandwiches, or do whatever.  Kiosks could easily replace order takers and cashiers. All the while killing jobs.  The technology is already here.  After all, look at all the manufacturing jobs that have already succumbed to robotics.  And, artificial intelligence has advanced to the point where we already have self-driving and self-parking cars.  So, cooking and assembling a burger can't be that impossible for a machine to do. In fact it isn't impossible.  A company by the name of Momentum Machines will soon start introducing gourmet burger operations that are fully robotic.  Some hotels are already introducing robotic butlers that would replace traditional bell hops.  Then, too, there is already a robot, called the Vigilant MCP, that is able to replace your average low-paid security guard.

So, go ahead and believe Hillary.  But, don't say you weren't warned when the inevitable loss of jobs begins happening. To me, pushing a higher minimum wage will only hasten to push those kinds of jobs out of existence.

One last thing.  In that very same speech, Hillary made another remarkable claim: “Don’t let anybody tell you that it’s corporations and businesses that create jobs...”  Well, every month, when the government reports job gains, it's from the private sector.  Typically, 64% of those jobs are from small businesses with the rest from larger businesses and corporations.

She wants to be our next President?  Sometimes, even the idiot Joe Biden makes more sense.  At least he's honest about not being rich!

References:

“Don’t let anybody tell you that raising the minimum wage will kill jobs, they always say that.”: http://www.foxnews.com/politics/2014/10/26/hillary-clinton-corporations-and-businesses-dont-create-jobs/

Labor unions in the United States: http://en.wikipedia.org/wiki/Labor_unions_in_the_United_States

AI, Robotics, and the Future of Jobs: http://www.pewinternet.org/2014/08/06/future-of-jobs/

The ‘Fight for $15’ Suffers A Setback As McDonald’s Flirts With Automation: http://dailycaller.com/2014/10/25/the-fight-for-15-suffers-a-setback-as-mcdonalds-flirts-with-automation/

Here's The Burger-Flipping Robot That Could Put Fast-Food Workers Out Of A Job: http://www.businessinsider.com/momentum-machines-burger-robot-2014-8

Panera Bread Will Replace Cashiers With Robots By 2016: http://dailycaller.com/2014/05/14/panera-bread-will-replace-cashiers-with-robots-by-2016/

McDonald's orders 7,000 touchscreen kiosks to replace cashiers: http://www.neowin.net/news/mcdonalds-orders-7000-touchscreen-kiosks-to-replace-cashiers

Nextep Systems: Self Order Kiosks for Restaurants: http://nextepsystems.com/who-we-serve/restaurants/13?gclid=Cj0KEQjwt7KiBRD9lOePpe_BhrgBEiQAHaS_1yFKWq6AEfaYRemW_3C8rXA2vU2-R5MTDdcYbbpSRu4aAnf48P8HAQ

Robot Butlers: Automated Room Service at Aloft Hotels!: http://www.travelandtourworld.com/news/article/robot-butlers-automated-room-service-aloft-hotels/

Mass Produced Security Robots Introduced in U.S.: http://www.activistpost.com/2014/08/mass-produced-security-robots.html

Employment Report: Table A: http://www.bls.gov/news.release/empsit.a.htm

Small Business Administration: Job Creation: http://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf

Joe Biden: I'm not rich: http://www.delawareonline.com/story/firststatepolitics/2014/06/23/biden-not-rich/11265209/

ObamaCare, The Minimum Wage, and Automation

In 2011, Obama blamed people-replacing machines like ATMs and airport check-in kiosks for causing the slow economic recovery.  What he fails to realize is that increased automation is a direct result of  his own policies.  Higher costs for labor -- such as increasing the minimum wage by 41% from 2007 to 2009 or mandated employee benefits such as health insurance coverage under ObamaCare -- only forces businesses to find alternatives to increasingly costly humans.  That is one of the primary reasons why, today, many companies have off-shore call and customer service centers or, why so many retailers have incorporated self-checkout lanes in their stores.

According to the Bureau of Labor Statistics, three-fifths of all minimum wage earners are in the fast food industry; an industry that employs 4 million.  But, another round of raising the minimum wage by a proposed 25% just might be the tipping point at which fast food companies like McDonald's start automating their stores.  After all, they are already facing hefty penalties or insurance costs under ObamaCare in 2015, and its not much of a stretch to think these people could easily be replaced with the current technology.

That drive-up order taker/cashier could simply be replaced by a touch-screen and an integrated credit card reader.  This would be especially true if customers are given a discount for paying by credit card and, thus, avoiding costly human interaction in accepting cash payments.  The same is true for cashiers inside the store. In fact, that is exactly what McDonald's did in France by installing 7000 touch-screen order and credit card acceptance machines.  Those machines also had the additional benefit of instantly displaying calorie information; another requirement of ObamaCare in this country.

Further,  there is no reason why any of the rest of the jobs at a fast food restaurant couldn't be replaced.  In fact, a company by the name of Momentum Machines has already built a hands-free unit that can crank out and dispense 360 gourmet burgers per hour.  The company already claims that, by replacing humans, their machine will pay for itself in a year.   Of course, the payback would be slashed to 9 months if the minimum wage is raised by another 25%.

Lastly and more importantly, if one fast food company, like McDonald's, starts rolling out automation, eventually, they will all follow suit.  When that happens, a source of 60% of all minimum wage jobs will disappear, and, the damage may well be higher than 60% if businesses outside the fast food industry also find ways to replace the costly humans.


References:

Obama, ATMs And Rage Against The Rise Of Machines: http://www.forbes.com/sites/mattkibbe/2011/06/21/obama-atms-and-rage-against-the-rise-of-machines/

Characteristics of Minimum Wage Workers: 2012: http://www.bls.gov/cps/minwage2012.htm

C/Net:  McDonald's hires 7,000 touch-screen cashiers: http://news.cnet.com/mcdonalds-hires-7000-touch-screen-cashiers/8301-17938_105-20063732-1.html

Robot Serves Up 360 Hamburgers Per Hour: http://singularityhub.com/2013/01/22/robot-serves-up-340-hamburgers-per-hour/

Elizabeth Warren's $22 Minimum Wage Pitch?

Whether or not Elizabeth Warren, the liberal Senator from Massachusetts, will jump into the race for the Democratic nomination is anyone's guess.  But, if she does, expect to hear a wide range of far left and progressive ideas during her campaign. I can say that with certainty since she has already demonstrated this with such comments like the following in her attempt to justify higher debilitating taxes on businesses:

"Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."

Of course, that comment completely ignores the primary and "underlying social contract" for  businesses -- if there is such a thing -- which is to create jobs for most Americans so they can feed themselves and not depend on government handouts. 

However, the most far left idea she has presented to date, is the belief that the minimum wage shouldn't just be $10.10 or even $15 an hour.  Instead, it should be $22 an hour based on the assumption that, by now, it should have been indexed to productivity gains.  In arguing that point, she presented this chart sourced from a progressive think tank known as the Center for Economic Policy and Research:

Graphic Shown Without Seeking Author's Approval On The Basis of Fair Use For Commentary and Criticism

What the above graphic fails to explain is "why," starting in 1968, the minimum wage and, for that matter, all wages, started to diverge from productivity increases.  Oddly enough, the simple answer to that is actually World War II, which ended more than two decades earlier.

At the end of the war, many of today's industrial powers such as Japan, Germany, England and France suffered devastating damage to their industrial infrastructure.  Unemployment was high, wages were low; and, their currencies were weak.  Only by the 1960's did their industrial activity recover enough to start exporting products.  Because of this, the United States businesses found themselves unable to compete with cheaper imported goods.  Cheaper because of lower wages in Europe and Japan and because our currency was stronger than many others. As a result, the U.S., starting in the late 1960's, went from being a net positive exporter to a net negative importer of foreign goods (see the balance of trade report referenced below).

In order to compete, businesses had to find ways to lower costs. This entailed eliminating jobs by increasing the productivity levels through automation and, in many cases, moving their manufacturing operations overseas.  And, it has been the fear of losing more jobs that has, in the past, kept politicians from raising the minimum wage in the face of increasing productivity.  Yet, politicians like Warren are willing to tempt fate by pushing it even higher.  A fact that could result in increasing job losses through automation in the form of artificially intelligent robotics.  Already, experts are predicting that 30% of American jobs could be replaced by robots within 10 years.


References:

Elizabeth Warren: "There is nobody in this country who got rich on his own": http://www.cbsnews.com/news/elizabeth-warren-there-is-nobody-in-this-country-who-got-rich-on-his-own/

Elizabeth Warren: Minimum Wage Would Be $22 An Hour If It Had Kept Up With Productivity: http://www.huffingtonpost.com/2013/03/18/elizabeth-warren-minimum-wage_n_2900984.html

Seattle's $15 Minimum Wage Is Still Far From What It Should Be: http://www.huffingtonpost.com/2014/06/03/seattle-minimum-wage_n_5437916.html

The Center for Economic and Policy Research (CEPR) is an economic policy think-tank that was founded in 1999 by economists Dean Baker and Mark Weisbrot. It has been described as both progressive and left-leaning: http://en.wikipedia.org/wiki/Center_for_Economic_and_Policy_Research

Trade Balances: https://www.census.gov/foreign-trade/statistics/historical/gands.pdf

Experts predict robots will take over 30% of our jobs by 2025 — and white-collar jobs aren't immune: http://www.businessinsider.com/experts-predict-that-one-third-of-jobs-will-be-replaced-by-robots-2015-5

The 'Fair Use' Rule: When Use of Copyrighted Material is Acceptable: http://www.nolo.com/legal-encyclopedia/fair-use-rule-copyright-material-30100.html 

Obama Meets The Future of the Minimum Wage Worker

 

Reference: ObamaCare, The Minimum Wage, and Automation: http://cuttingthroughthefog.blogspot.com/search?q=minimum+wage+automation

A Sea Change For Retail in America

Last Friday, the March jobs report was released and it was abysmal.  Only 98,000 jobs were created even though the unemployment rate fell to 4.5%. Dragging that job's number down was the fact that 30,000 retail jobs were lost in that month.  Thus, in the last two months, 60,000 workers in retail have been let go.

The reality is that traditional brick-and-mortar stores are dying, while digital commerce takes a bigger and bigger slice of America's spending money.  Payless, the discount shoe company, just filed for bankruptcy protection and is now closing 400 stores.  J. C. Penney's will close 138 stores.  Macy's 68.  Sears and Kmart 150.  And, the list just goes on and on.  In fact, over the last 3 years, thousands of retail stores have been shuttered.

Now, I know I've written about this before in this blog, but 60,000 jobs lost in just two months is rather dramatic.  Many of these jobs were non-college or non-high school degree level work.   Many minimum wage.  These workers already have difficulty finding jobs.  For example, the unemployment rate for people without a high school diploma is 7.4%.  High school but no college is 5.2%.  Compare that to the current overall unemployment rate of 4.5% or the rate of 2.6% for those with a bachelor's degree or higher. 

If this trend continues and accelerates, we are going to have a serious employment problem with possibly a permanent underclass of unemployable low-skilled workers.  Something that I don't think Trump understands when he says he will be the job's President.  Retail purchases on the Internet are a form of job replacing automation and the key to Amazon's success and profitability.  Certainly, this is a sea change that should worry all of us.

References:

March Employment Report: https://www.bls.gov/news.release/pdf/empsit.pdf

Today’s Jobs Report Masks a Huge Employment Problem: http://fortune.com/2017/04/07/bls-todays-jobs-report-employment-problem/

60,000 Retail Jobs Lost in Past Two Months, According to Latest Employment Report: http://ktla.com/2017/04/07/60000-retail-jobs-lost-in-past-two-months-according-to-latest-jobs-report/

These major retailers are closing nearly 3,000 stores this year: http://clark.com/shopping-retail/major-retailers-closing-2017/

March 2016: Number of store closures already set to outpace last year: http://nypost.com/2016/03/19/number-of-store-closures-already-set-to-outpace-last-year/