An Accidental Stimulus

From the November 5th issue of Machine Design comes this eye opening observation about our economy, specifically in regards to the Law of Unintended Consequences.

As the official unemployment rate tops 10% in more than one quarter of all states, the hot topic of the day increasingly moves toward how to stimulate more hiring. This is particularly true in states hit the hardest in the economic downturn.

With this in mind, consider the annual trade show put on by the Packaging Machinery Manufacturers Institute last month. Despite the punk economy, show attendance was healthy. Many exhibitors reported a lot of interest in the packaging and food-processing equipment they had on the show floor.

One might wonder why, with manufacturing companies in such terrible shape, makers of food-processing and food-packaging equipment seemed to be doing relatively well. Part of the answer, according to a longtime PMMI board member, is that makers of automation equipment for the food industry are being helped along by recent legislation, but not in the way you might think.

This board member, who has held management positions in the foodprocessing-
equipment industry for many years, wasn’t referring to stimulus spending. He was alluding to the rise in the minimum wage which took effect this past summer. The food industry is characterized by a significant number of low-wage workers, he points out. In the past, he’d noticed that every increase in the minimum wage resulted in an up-tick of orders for automation equipment designed to eliminate a few more jobs. He figures this past summer’s wage hike is shaping up to be no different. Of course, you’ll likely never read this explanation for economic activity in newspaper headlines. One suspects that machinery manufacturers asked to publicly explain their improving business conditions tend to avoid giving politically incorrect answers. It is generally unwise to point out that your own good fortunes are partly due to missteps by politicians that have brought misery to others.

(emphasis added – ed.)

Of course it was the politicians in Congress that pushed through the raise in the minimum wage, using the excuse that no one could support a family making the minimum wage as it was before they took action. However, it is rare that anyone making minimum wage is also supporting a family. Such jobs are usually entry level positions for people taking their first jobs. But with the increase of the minimum wage over the past couple of years many of those jobs have disappeared. As illustrated above, when the costs go up employers find ways of cutting costs. Whether that means trimming jobs or replacing personnel with machinery, the end result is the number of jobs at minimum wage shrink.

I have no doubt the members of Congress that ramrodded this change will now claim the decrease in the number of minimum wage jobs is solely the fault of the greedy business owners. But the one thing they constantly overlook is that businesses, particularly small businesses, are not charities. If they don't remain profitable they go out of business, and those working for them will be out of jobs. This is something that seems to have escaped the notice of the Congresscritters when they passed the minimum wage increase legislation.