Higher Wages v. Higher Incomes

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The closing week of November in the United States saw “National Day of Action to Fight for $15,” meaning an across the board hike in the federal minimum wage of $7.25 to $15.00 per hour throughout the country. Many low-paid workers walked off the job and participated in protests, with a number being arrested in various demonstrations.

Ironically, McDonald’s U.S.A., the poster child for minimum wage jobs, had recently announced a nationwide program to replace human workers with robots. Another restaurant chain, Eatsa, has established five fully automated stores around the U.S., essentially giant vending machines. This is a concept familiar to anyone who has visited Tokyo, where you can buy almost anything in vending machines, even a hotel room.
As a result, people who once had an inadequate income now face the possibility of having no income at all. And replacing human beings with technology is not the worst of it.

Technology is expensive. Some companies may be forced out of business because they can’t afford the investment in technology to replace the labor that they also can’t afford. This also artificially raises labor costs, which increases prices. This hurts the poor and under-employed workers.

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That, however, is not the only drawback to raising wages. If the (former) workers have no income, they cannot buy products. If there are no sales, there are no profits. If there are no profits, why produce anything? As Ronald Reagan related in an anecdote he told when governor of the state of California,

Some years ago a top Ford official was showing the late Walter Reuther through the very automates plant in Cleveland, Ohio and he said to him jokingly, “Walter, you’ll have a hard time collecting union dues from these machines and Walter said, “you are going to have more trouble trying to sell automobiles to them.” Both of them let it stop there. There was a logical answer to that . . . the owners of the machines could buy automobiles and if you increase the number of owners you increase the number of consumers.
Over hundred years ago Abraham Lincoln signed the Homestead Act. There was wide distribution of land and they didn’t confiscate anyone’s privately owned land. . . . We need an industrial Homestead Act.

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“Turning workers into owners would address the current concerns of both workers and business owners”

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The implied lesson was ignored. Unions continued to push for higher fixed wages and benefits . . . and U.S. automakers either installed robots or shipped jobs to lower-wage countries. Detroit, Michigan went from being a prosperous city in the heart of industrial America, to disaster area. Detroit didn’t mere decay. It decomposed.

Contrary to Reagan’s statement, however, Reuther didn’t let it stop there. As he testified before Congress prior to dying in an airplane crash,

Profit sharing in the form of stock distributions to workers would help to democratize the ownership of America’s vast corporate wealth which is today appallingly undemocratic and unhealthy. . . . Profit sharing in a form that would help to correct this shocking maldistribution would be highly desirable for that reason alone. . . . If workers had definite assurance of equitable shares in the profits of the corporations that employ them, they would see less need to seek an equitable balance between their gains and soaring profits through augmented increases in basic wage rates. This would be a desirable result from the standpoint of stabilization policy because profit sharing does not increase costs. Since profits are a residual, after all costs have been met, and since their size is not determinable until after customers have paid the prices charged for the firm’s products, profit sharing as such cannot be said to have any inflationary impact upon costs and prices.

A detailed proposal that would address the concerns of both workers and business owners — by turning workers into owners — can be found in a brief version of the Capital Homesteading proposal of the Center for Economic and Social Justice (CESJ), which can easily be adapted for application in any country.

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Michael D. Greaney is Director of Research at the Centre for Economic and Social Justice. He published recently “So Much Generosity” and “Political Animal”.

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