Minimum wages will increase in 20 states at the start of 2017, a move that, as we’ve argued many times in the past, will simply speed up the rate at which minimum wage workers are replaced through new capital investments in automation projects. Just another example of misinformed politicians passing legislation that will ultimately crushed the very people they’re trying to help.
According to a study conducted by the Economic Policy Institute, roughly 4.4 million low-wage workers across the country are slated to receive a raise in 2017 given that they currently earn less than the new minimum in their respective states. That said, the real question is how many of those workers will subsequently lose their jobs to automation and/or business failures by company’s that simply can’t survive the incremental costs.
Per the Wall Street Journal, here is a list of states where minimum wages are expected to rise in the new year:
For our political friends that focus more on the narrative of providing a “fair living wage” and not so much on the math, please see below for a very simplified example of why minimum wage hikes ultimately just lead to the permanent unemployment of the people you’re trying to help. In our simple example we assume that a $1mm capital investment, on the purchase of a couple of robots for example, can replace the work of 5 people. Using California’s 50% increase in minimum wage, as an example, (the “Fair Wage Act of 2016″…don’t you just love the branding) would drive the payback period of such an investment down from a “marginally attractive” 10 years to a “no-brainer” 6 years.
And thus, 5 people find themselves out of a job. But that’s ok, just more people to be dependent on the Nanny State who can easily be brainwashed into believing their plight is the direct result of “rich people” not “paying their fair share” rather than the misinformed policies of our math-challenged political elite.
Of course, the Holy Grail for Washington’s liberal elite is a $15 federal minimum wage which Bernie Sanders supported during his 2016 campaign…you know because the cost of living in New York City is fairly similar to that of rural Iowa so why not. While Trump noted in July 2016 that he would be supportive of a $10 federal minimum wage, such legislation has little support from other Republicans in Congress.
The federal minimum wage has remained $7.25 an hour since 2009.
Most Republicans in Congress have resisted a federal minimum-wage increase and have blocked Democrats’ efforts to raise the rate. Republican governors in Oklahoma, Alabama and elsewhere also have acted to prevent pay floors from rising in their states.
The GOP lawmakers and governors argue that making labor more expensive will encourage businesses to invest in automation that eliminates jobs, send work to lower-cost countries and dissuade firms from expanding because higher payroll costs trim profit margins.
“The minimum wage is not a great tool for helping those at the bottom,” said Ben Gitis, director of labor market policy at the American Action Forum, a right-leaning think tank. “The people who end up losing their jobs are the most vulnerable in the labor market.”
But while a $15 federal minimum wage may not garner much support from the incoming administration, we suspect that consumers around the country should go ahead and start getting used to ordering their Big Mac’s on their own.
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