Do increased wages really lead to a better standard of living?
Quite a few states in America have recently revised their minimum hourly wage rates with the promise of improved standards of living for the people lying at the bottom of the wage pyramid. But I wonder if they really accomplish what they aim to. I have noticed that with increased wages, the first thing that happens is that rental values tend to go up( in a very flat real estate market). This probably negates the benefits that would probably accrue from the wage raise thereby making it futile. In the longer term, I have also seen jobs getting outsourced and more products getting imported from developing countries like Mexico and China. Only services which cannot get outsourced like mechanics, barbers, waiters etc continue to remain here and the influx of people who were earlier making products into this workforce due to outsourcing ensures that the wages there remain under pressure to be low(this is without even taking immigrants into consideration....if immigrants for these jobs are taken into consideration, then probably the pressure on the wages for these jobs increases manifold). While all the capitalists shout hoarse that they are improving America's competitiveness by outsourcing the manufacturing and moving up the value chain by keeping only the creative work in America, they seem oblivious to the fact that they are firing a large number of their workforce which used to form their customer base thereby making even the lower price of the imported product unaffordable since the fired workforce no longer have jobs to support the normal expenditures which they used to incur.
And lets face it......the number of people who can do creative work can only be limited....the vast majority cannot keep reskilling themselves everytime they lose their jobs and hope for the best since most skills are picked up by years of experience on the job and the resulting learning curve...To illustrate, let me give an example:-When Henry Ford paid his workers $5 a day instead of the prevailing $2.94 then, it was definitely not out of altruism or with the intent to create customers out of his employees...he was faced with a very high attrition rate and absenteeism because of which he had to employ much more people than needed to fill in for the people who suddenly left or did not turn up for work which made his production expensive. By paying $5 a day, he effectively gave a golden handcuff to his employees(since they could not get such a high paying job outside Ford) which brought down his attrition rate and as the employees stayed in the company much longer than the 2.5 months which they averaged prior to the new wage they went up the learning curve and managed to improve efficiencies which then resulted in the price of the Ford Model T falling from $780 to $290. So all this talk of reskilling and getting people to move up the value chain is a whole lot of bull since better value chains get created by people working as only the problems faced during real work give insights to problems which would have never been thought of before.
My argument against minimum wage increases is this: if wages increase without any increase in productivity,our cost of living will go up and we will only become more incompetent and jobs will more likely get outsourced. For the sake of a marginal improvement in living standard(for those who remain in jobs), there is no point in making ourselves more incompetent and our jobs more insecure than they already are. I would rather stick to lower standard of living with much higher job security instead of repeatedly getting fired and having to reskill myself with no certainty as to how long my newly acquired skills would serve me. And if we keep thinking that only we are capable of creative work and that the countries to which we are outsourcing our routine work would not touch us there, then we could not be more wrong: I am pretty sure those countries(at least China would definitely be doing something...they are a juggernaut to watch out for) are silently building up their capabilities on that front as well and would probably strike at an appropriate time which will then catch even our creative people by surprise and make them fight a futile battle like the one the Detroit auto cos are fighting against the Japanese, Koreans and the Europeans and in the near future, the Chinese as well(Geely automobile of China has announced plans of entering the American market within the next 18 months and about 4 months back Maytag was about to be taken over by Haier of China which was stopped at the last minute by Whirlpool submitting a higher bid for the company).
Quite a few states in America have recently revised their minimum hourly wage rates with the promise of improved standards of living for the people lying at the bottom of the wage pyramid. But I wonder if they really accomplish what they aim to. I have noticed that with increased wages, the first thing that happens is that rental values tend to go up( in a very flat real estate market). This probably negates the benefits that would probably accrue from the wage raise thereby making it futile. In the longer term, I have also seen jobs getting outsourced and more products getting imported from developing countries like Mexico and China. Only services which cannot get outsourced like mechanics, barbers, waiters etc continue to remain here and the influx of people who were earlier making products into this workforce due to outsourcing ensures that the wages there remain under pressure to be low(this is without even taking immigrants into consideration....if immigrants for these jobs are taken into consideration, then probably the pressure on the wages for these jobs increases manifold). While all the capitalists shout hoarse that they are improving America's competitiveness by outsourcing the manufacturing and moving up the value chain by keeping only the creative work in America, they seem oblivious to the fact that they are firing a large number of their workforce which used to form their customer base thereby making even the lower price of the imported product unaffordable since the fired workforce no longer have jobs to support the normal expenditures which they used to incur.
And lets face it......the number of people who can do creative work can only be limited....the vast majority cannot keep reskilling themselves everytime they lose their jobs and hope for the best since most skills are picked up by years of experience on the job and the resulting learning curve...To illustrate, let me give an example:-When Henry Ford paid his workers $5 a day instead of the prevailing $2.94 then, it was definitely not out of altruism or with the intent to create customers out of his employees...he was faced with a very high attrition rate and absenteeism because of which he had to employ much more people than needed to fill in for the people who suddenly left or did not turn up for work which made his production expensive. By paying $5 a day, he effectively gave a golden handcuff to his employees(since they could not get such a high paying job outside Ford) which brought down his attrition rate and as the employees stayed in the company much longer than the 2.5 months which they averaged prior to the new wage they went up the learning curve and managed to improve efficiencies which then resulted in the price of the Ford Model T falling from $780 to $290. So all this talk of reskilling and getting people to move up the value chain is a whole lot of bull since better value chains get created by people working as only the problems faced during real work give insights to problems which would have never been thought of before.
My argument against minimum wage increases is this: if wages increase without any increase in productivity,our cost of living will go up and we will only become more incompetent and jobs will more likely get outsourced. For the sake of a marginal improvement in living standard(for those who remain in jobs), there is no point in making ourselves more incompetent and our jobs more insecure than they already are. I would rather stick to lower standard of living with much higher job security instead of repeatedly getting fired and having to reskill myself with no certainty as to how long my newly acquired skills would serve me. And if we keep thinking that only we are capable of creative work and that the countries to which we are outsourcing our routine work would not touch us there, then we could not be more wrong: I am pretty sure those countries(at least China would definitely be doing something...they are a juggernaut to watch out for) are silently building up their capabilities on that front as well and would probably strike at an appropriate time which will then catch even our creative people by surprise and make them fight a futile battle like the one the Detroit auto cos are fighting against the Japanese, Koreans and the Europeans and in the near future, the Chinese as well(Geely automobile of China has announced plans of entering the American market within the next 18 months and about 4 months back Maytag was about to be taken over by Haier of China which was stopped at the last minute by Whirlpool submitting a higher bid for the company).
posted by redrajesh at 8:22 AM
1 comments
