The minimum wage in Connecticut: We need to look elsewhere

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In December I expect that the Low Wage Board will recommend an increase in the state’s minimum wage.  Should that occur, I will not be supporting the board’s decision.  Given how the board was legislatively constituted, it is an outcome that should come as no surprise.

With the increase to $10.10 in January 2017, Connecticut’s ability to attract and retain businesses will continue to fall and the result of any further increase will result in an explosion in our already unsupportable social service costs. Just as tariffs on imported goods and taxes on cigarettes and gasoline are meant to reduce demand, an increase in the minimum wage will guarantee that businesses will simply employ less. There is no reasonable expectation in any other outcome given our inability to retain or attract companies into Connecticut today.

In the past, low-skilled workers were needed to do certain jobs but businesses have already begun to reduce their need for low-skilled workers. The Fight for $15 and the actions of the DOL, NLRB and SEIU have merely accelerated this labor-lite trend.

Proponents of an increase in the minimum wage argue that businesses and consumers will simply absorb these higher costs and that an increase in the minimum wage will reduce turnover and improve efficiency. They argue that a higher minimum wage will result in more spending by low-wage workers in the state that will improve our state’s economy.

Their arguments are unsupportable on many levels and fail in their entirety because many of low-skilled jobs will no longer exist.  What workers are experiencing in Connecticut and in other markets where the minimum wage has been increased is higher wages for a few, the loss of jobs and hours by many, and new job creation going elsewhere.

Disruptive innovation is nothing new and its impact on workers is well known. That is a fact that is being ignored by proponents of an increase in the minimum wage.  Attendants used to fuel our cars, wash our windows and check our tires.  Before ATMs, self-checkout in groceries, on-line purchasing and kiosks at airports, people staffed those positions. Amazon and other on-line merchants require fewer workers than brick-and-mortar stores and the list of companies and jobs lost because of innovation is long.

It took 30 years for the automobile to have commercial impact as the oil industry expanded its distribution network at the turn of the 20th century.  Tesla’s fuel distribution network has been in existence for more than 100 years.  We can order their cars on line and there is no need for dealerships and local repair centers.  How long before legislation and the further advancement in cars enables the rest of the auto industry to follow Tesla’s dealership and labor lite model?

Google and Uber are testing driverless cars and trucks. In addition to eliminating driver jobs, it will lower the operating costs for business, improve highway safety, improve the environmental use of fuel, lower consumer costs and benefit parents, the handicapped and the aged.

Robots are replacing low-skilled workers in quick service restaurants at a predicted cost of around $25,000 per machine.  Robots are depreciable, available 24/7/365, need no vacation, sick day or health insurance, are outside of the regulatory scope and reach of DOL, NLRB, OSHA and SEIU and each robot replaces multiple workers.  The result will be improved quality and consistency standards, the ability for consumers to customize orders, improved speed of service and an improved bottom line. Wait staff in full service restaurants are already being replaced by tablets for ordering.

Telemedicine is lowering medical staff needs; homecare robots are replacing homecare providers; on-line check-in and smartphone keys have reduced the number of workers at hotels; biometrics are being introduced at airports to reduce labor and improve security and, even higher education needs fewer teachers because of accredited on-line universities such as U2. New jobs will be created but they will not be available to those without the needed skills.

According to the recent United Vans’ United National Movers study that tracks state-to-state migration Connecticut is one of the top states (44th out of 50) for outbound migration.  Other than defense, we have already lost substantially all of our manufacturing base; the insurance industry is moving; GE has already left; and, there is no indication that this trend is going to change.

While other states like Washington, California and Texas have seen substantial increases in 21st century job creation, Connecticut continues to advance new regulations and is considering raising its minimum wage again and the governor is forced to offer substantial economic incentives to company’s to offset these embedded negatives on a case-by-case basis.

Increasing the minimum wage will cause the cost of delivering social services to the displaced work force to skyrocket to unsupportable levels in Connecticut. If the minimum wage is increased again it will not be a sustainable solution. To have a sustainable impact, a ready supply of jobs available for low-skilled workers is required, and in Connecticut they are not.  While it will benefit a few in the short term, it will cause significant wage contraction, the loss of hours and jobs for low-skilled workers and in addition will be devastating for many workers now making $15 an hour or more.

In the short term we need to become business friendly and move away from the progressive policies that brought us to this point by rejecting the actions of the DOL, NLRB and SEIU that are advancing new regulations, increasing business costs and preventing the creation of new jobs.  There are solutions available that will benefit low-skilled, low wage workers and begin to create sustainable solutions for increasing the income for low-wage workers, but increasing the minimum wage is both counter intuitive and destructive to those efforts.

The Earned Income Tax Credit (“EITC”) should be expanded to increase the income for low-wage workers without penalizing the job creators, but it must include a path to eliminate its need over time. We need to fix two critical problems that are causing much of the problems for our low skilled workers: the lack of high quality, low-cost day care so people can work and be trained; and the social services cliff that penalizes recipients when they earn more must be restructured.  These problems can be immediately addressed.

We need to prepare our workforce for the 21st century jobs that will become available by revitalizing our apprentice system and expanding the definition of tradesman. Providing initial and continual career counseling will be imperative as the changeover will be difficult for low-skilled workers to accomplish on their own.

K-12 education delivery must be improved.  We need to begin to measure teachers’ output, eliminate tenure, support charter schools and adopt voucher programs to ensure that the children of low-wage workers can have a positive future.

Government needs to partner with business to find ways to reduce the cost of delivery and improve the dismal quality of the social services we now provide.  Adapting the gig economy to government is one method to consider in reducing its overall cost.  We are overstaffed in comparison to other states, even with the job cuts announced by Gov. Dannel Malloy.

Excessive regulation and taxes on businesses must be eliminated in order to change the perception of Connecticut as an anti-business state and stimulate our economy by creating new jobs and retaining the few we have left.  As a representative of business on the Low Wage Board, I can assure you that this is a priority if we are going to turn the Connecticut economy around.

We need to recast unions, as they are the only business guaranteed a steady customer flow because of government regulation that mandates union membership for certain private and public sector jobs.  Only around 6 percent of all current union members have ever voted to certify their unions as most who voted for certification have long ago retired or passed on.

If workers were allowed to annually recertify their unions, we could be assured that unions would continue to evolve to meet their members’ needs and not those of politicians. Union management may reject this idea, but union members will support it.

We are at a tipping point and increasing the minimum wage will bake generational poverty into a significant and important part of our society. It is essential that we put aside partisan views, understand that our progressive policies have not worked and begin to craft sustainable solutions. We are running out of time.

Michael Seid is Managing Director, MSA Worldwide. He is a member of the Connecticut Low Wage Employer Advisory Board and an author.

 

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