By Mike Willis
Texas Border Business
The issue of the widening income gap between those at the bottom of the economic ladder and those at the top has been the subject of much political debate.
Liberals believe that increasing the minimum wage to $10.10/hr, higher tax rates for those at the top, and more government subsidies, and transfer payments to the poor are the cure for this.
Conservatives argue that the best cure is for the government to quit meddling in the private sector, reduce heavy-handed government regulation, lower corporate tax rates to make us more globally competitive, and let the free market work.
A recent Office of Management and Budget (OMB) report on the impact of raising the minimum wage shows how complicated this is. It projects that raising the minimum wage to $10.10 would increase incomes for some 16.5 million workers. However, it would also result in the loss of jobs by 500,000 other workers. SO, should the government be the one to pick the winners and losers? I am often amazed at the lack of insight into how the business world works by our leaders in Washington DC. They regularly fail to understand a few key points:
All sectors are not created equal.
A minimum wage increase does not hurt companies as much in Law Enforcement, Education, Professional Services, Manufacturing, and Finance, because average wages are reasonably high in those sectors. The retail, hospitality, and other service sectors are a different story.
In the RGV, these are among our largest and fastest-growing sectors. These are also traditionally the types of jobs that young, inexperienced (and thus hard-to-employ) people use to begin their work careers, learn the responsibilities of working, along with basic customer service skills, and begin their upward journey into higher paying career opportunities.
A lot of college students also work in these sectors while they pursue their education. Despite what politicians tell you, there continues to be a great deal of upward mobility from entry-level jobs for those who are willing to work, learn, and to take personal responsibility for their actions.
Technology is part of this problem
As labor costs rose and businesses had to compete globally, companies have invested in technology to increase productivity (and eliminate labor cost/jobs).
I have stated many times that businesses do not exist for the purpose of providing jobs to people; they exist to make a profit.
As the minimum wage increases, companies that must operate at the low end of the economic ladder are more likely to invest in technology to lower their labor costs.
This is why the “Obama-Care” law is having a severe impact on employment in the food service and hospitality industries. EX: Major restaurant chains are now investing in I-Pads to replace some server positions. Others are shifting to mostly part-time employees. In recent years, ATMs have replaced thousands of bank tellers (another entry-level job). Look at how the agricultural industry replaced farm workers with automation over the past 30 years.
The larger questions we need to address are:
What are we going to do with the huge pool of low-skilled or unskilled people who are now unemployed? How can we possibly afford to educate and train them for the future higher-skilled job market? Whose responsibility is it- theirs or the governments?
How can we get the economy growing faster so that more higher-paying jobs are created to absorb some of the high-skilled unemployed?
How do we deal with some individuals who lack the desire or ability to avail themselves of retraining even if it is offered? Whose responsibility is it to manage this, anyway?
How do we handle individuals who abuse drugs, who do not show up for job interviews or who cannot keep a job because of poor personal and work habits?
Should they continue to receive government benefits?
If not, who should referee which individuals remain on government subsidies, and who should be cut off and forced to find work? Applying blanket rules with no discretion hurts people who legitimately need the resources, but saying everyone should receive benefits from the “safety net” no matter what encourages dependency on it for some individuals.
If all of this sounds a bit cold, uncaring, and exaggerated, go talk to a Human Resource Manager from any company, anywhere in the country, and ask them about their experiences filling positions, especially at the entry-level. The sooner we can have a genuine dialogue at the state and national level on these issues, the sooner we can move forward with long-term solutions. It is a shame that both political parties are too busy posturing for the next election to have real conversations about anything meaningful.
Mike Willis has been Executive Director of the South Texas Manufacturers Association since 2003. He also serves as the Vice President of the Office for Business Partnerships at Workforce Solutions, the regional Workforce Development Board serving Willacy, Starr, and Hidalgo Counties in South Texas. You can reach him at MikeW@WFSolutions.org
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