Flashback – Does Luck Have a Half-life?

This takes us back almost seven years to the minimum wage protests at fast food restaurants. The question is whether people learn to change behavior when they are bailed out from predictable consequences. I have long argued that the reason you can’t raise a family on the minimum wage is that no one should start a family if they can only get a minimum wage job. Bad luck is not forever.

 

People who caught a bad break certainly should be helped, but behavior rewarded is behavior repeated. Irresponsibility rewarded breeds more. Over the past seven years a lot of irresponsibility has been rewarded. Here are my 2013 comments:

[More protests are breaking out around the plight of fast food workers unable to survive on the minimum wage. They are demanding a wage increase to $15 an hour. The news has presented the arguments pro and con, but have usually given more time to the protesters, sometimes, as in this CBS piece, picking out one as a kind of “poster child” for the cause. The hidden problem is that minimum wage, unemployment extensions, food stamps and other proposed government solutions ignore behavioral factors.

A primary argument in favor of this issue tells us that all these people are less fortunate, that they need a helping hand to get back on their feet, that "there, but for the grace of God,” go we. They completely ignore well-known wisdom that behavior has consequences. We are presented with the argument that every one of these fast food workers is merely down on his luck or a victim of a bad economy, and that the situation has nothing to do with consequences of behavior. This unbelievable scenario is widely accepted by otherwise rational people. The media and many politicians never challenge it.

This leads to an interesting comparison: In other circumstances, how do caring people really act? If your teenage son sits on the sofa all day playing videogames, ignoring homework and refusing to do his chores, do good parents excuse the behavior and cover for him? Do they pass it off with, “That’s OK; he’s going through a tough time”? Even non-parents know the answer. Good parents will institute consequences for this poor behavior, knowing that if they don’t, life and reality will later institute much harsher consequences. Teenage sons can be very difficult, but good parents anticipate with a pattern of similar, consistent reactions to deal with natural childhood resistance and laxness. That’s how caring people act. They don’t always come to the rescue – behavior that makes the rescuer feel powerful, but often causes long-term harm to the one rescued. When the bad situation is a bad break, sympathy and a leg up are appropriate. If the son is mugged and loses money, parents may reimburse him for the loss. If he loses it gambling, that’s the consequence of bad behavior. Bailing him out is inappropriate, dulls the impact of the consequence and no learning occurs. (For an extreme example see the recent case of "affluenza" in Texas.)

Returning to the case of minimum wage employees, especially those presented by the media and never challenged, we must ask if it was bad luck or consequences that contributed to the situation. If it’s luck, then some temporary help is appropriate, because bad luck does have a kind of half-life or statute of limitations. A little help can turn things around, but caring people do not bail out from consequences. That only fosters more problematic behavior.

Even in these seemingly innocent human-interest stories the determination requires only a few simple questions. Where did those two or three children come from? Where is the father (or fathers)? What contribution is he making? If none, why not? Did the workers finish high school; were drugs ever involved; are they applying for better jobs, are they looking for ways to increase skills, etc., etc.? What is the long-term plan, if any? (CBS later reported that their "poster-child" example turned down promotions more than once because it didn’t fit her preferred personal schedule. Another news story told of a kind social worker repairing at minimum cost the car of a woman who hasn't been able to work in 5 years due to a neck injury. She can't work, but she can drive?!)  

Looking at the situation through the behavioral lens would probably determine that many of these people are not victims. Many are living with the consequences of earlier choices. Should caring people run to bail them out, labeling them all as “less fortunate,” as the compassionistas would have us believe? Not only do they not learn and grow, but the next generation, poised to make the same mistakes, sees no example to discourage them from following the same path. So, the current, non-behavioral approaches, which lump them all into the same category, lead not to solutions but to perpetual problems.]

The Robots are Coming!

Picking strawberries is hard work. Pickers spend a lot of time on their hands and knees peeking under leaves and straw to find and pick the ripe ones. I know first hand. A few years ago a small team of Master Gardeners at my local Demonstration Garden picked and donated over 500 pounds of strawberries to local food banks in a matter of about three weeks. We spent a couple of hours, three days a week, working our way down the rows. (The following year about half of the older rows were plowed under and not replaced with strawberries! It was too hard to find interested volunteers.)

Picking strawberries is also exacting work. Each picker must determine which strawberries are ready and which to wait on. Unlike bananas and many other fruits and vegetables, strawberries will not continue to ripen after harvesting. And if you don’t get them at the right time, they will rot on the plant. That’s why coming back day after day is necessary.

Besides being difficult and exacting, picking strawberries is delicate work. No one wants to eat a squished strawberry. People who buy them in the stores are usually even fussier than people getting them for free at a food bank.

Why all this discussion of strawberries? A robot is coming to do this difficult, exacting and delicate work and may be in limited operation on strawberry farms within three years. As the article points out “a robot that can pick strawberries may ease the industry’s labor problem and revolutionize the way crops are harvested.” It’s getting harder to find workers, and the ones that show up often move on to other crops before the job is complete.

Some machines are pictured in the article, but a search on “strawberry harvesting robot” yields a number of YouTube videos. Once in operation they will run for about 20 hours a day with the ability to pick up to 8.5 acres in that time. If there is an abundance of fruit, they automatically slow down to get them all. The robots will be able to do the job with more precision than humans; and will be able to pick at night, when cooler fruits are more resistant to bruising and when lower temperatures at picking time increase shelf life and reduce cooling costs. In addition, the “machine is going to know exactly where each plant is in the field” and “be able to have yield data at the plant level.”

Based on personal experience, I was fascinated by the idea of machines harvesting strawberries. Seeing pictures and videos of the huge robotic arms working in auto assembly where hard work and precision are so important is one thing, but having robots do the delicate work of harvesting fruit and vegetables adds another dimension. As one spokesperson for the robot designer says, “We’re not going to stop with strawberries.” 

Fewer jobs are safe anymore from automation. It’s something to keep in mind as the minimum wage debate rages on. As labor becomes more expensive, the option to substitute machines becomes more attractive – especially if they can do the job with more precision while simultaneously collecting meaningful data. Economic understanding reminds us that every day we are selling our skills in competition against others worldwide with those same skills, and more and more in competition against the threat of substitution by machines.

Kids can no longer bank on the idea of working the same low skill job as their parents and retiring after thirty years with a union pension and healthcare. More skilled robots are coming, and they are coming fast.

The Rising Minimum Wage

As an increase in the minimum wage in 20 states and more than 20 individual cities takes effect, according to the AP, this is an excellent time to review economic understanding.

My two primary rules of thumb about economics are: only people really have money and there is no magic money tree.

The idea that only people have money helps trace the flow of dollars back to our own wallets and helps to anticipate unexpected consequences of changes. Most people think the government and businesses also have money, but where do they get their money? They collect from people, their taxpayers and customers. Then they hold the money and eventually spend it. Governments have budgets for spending on employee pay and their various services and grants. Companies pay employees, buy raw materials or otherwise spend it to keep the business functioning. If they need more, they either borrow or raise taxes or raise prices or try to be more efficient. Except for the government printing more money, which affects people by lowering the value of the money they hold; the needed money always comes from people.

The second idea is related: there is no magic money tree. Money must come from somewhere. It doesn’t materialize out of thin air.

So the AP piece about the minimum wage starts with a story of a small restaurant in Missouri anticipating the need to raise prices slightly to account for the minimum wage increase. As the owner rightly says, “For us it’s very simple. There’s no big pot of money out there to get the money out of.” The companies that sell them food or napkins will not decide to just charge them less. The utilities will not lower water and electricity rates. It must come from the customers as 5 cents here and 10 cents there. The wait staff worries that patrons will notice, and compensate with lower tips or stop in less often. 

That is typically the way it works, prices go up or businesses make other changes. Again from the AP article, “Economic studies on minimum wage increases have shown that some workers do benefit, while others might see their work hours reduced. Businesses may place a higher value on experienced workers, making it more challenging for entry-level employees to find jobs.”

Some studies focusing on Seattle, an early adopter of minimum wage increases, have shown mixed results. There was little effect from a 2015 increase to $11 and conflicting reports on subsequent increases. Defenders of the increase rely on a later study showing only a modest reduction in hours and a small increase in take-home pay. In this case economic understanding urges us not to pass off any increase as harmless, but instead to ask what other factors may have been at work, and will these other factors be able to similarly moderate future increases or will there be a tipping point? It can't go on indefinitely with no effect unless everyone is already earning above the minimum wage.

We know there is no magic money tree. Only people have money. And when the prices go up (or the portion sizes go down like they do on many grocery store items) to cover the increased cost of business, the customers will make decisions – pay more or patronize less. If they pay more, they will have less money to spend elsewhere. If they patronize less the workers will feel the effects of less business. It’s a pretty simple choice.

Thoughts On Tipping

Interesting legal maneuvering has been going on in Michigan over something called the tip credit. It began with a ballot initiative that was challenged but upheld in court, but later was taken off the ballot after it was passed by the legislature instead.

Formerly, restaurants that employ servers, bartenders or delivery drivers were “obliged to pay those staff members only $3.52 an hour if the employees take in the rest of the minimum wage they’re due in tips.” Since the minimum wage was $9.25 per hour, if they received at least $5.73 an hour in tips, the restaurants did not owe them any further pay.

Under the new law, minimum wage would increase in annual increments to $12 an hour over the next three years, and the tip credit would be phased out. This is a big victory for labor advocacy groups, but the Michigan Restaurant Association (MRA) fears that it will drive up a full-service restaurant’s labor costs by 241% for their tipped employees. A survey of members by the MRA found that many restaurant owners plan to deal with this with a combination of cutting jobs and raising menu prices.

Despite the 30% increase from $9.25 to $12.00 per hour, it seems that the restaurant association could cope by adopting the European model where tipping is less common. Rick Steves, the travel guy, points out that “tipping in Europe isn't as automatic nor as generous as it is in the United States, and in many countries, they're not expected at all.” Often service is included in the bill, as it is in the US when serving large groups. According to this website, the default tip in the US should be 20%. Following this service-included philosophy, the restaurants could remain whole by gradually raising menu prices by only 10% and eliminating tips.

Note: A no-tipping policy would also eliminate a lot of intricate paperwork for the owners as the tip credit is phased out. It would also move the responsibility of training, rewarding and disciplining wait-staff from the customers to management where it belongs.

Surprisingly, the fear of this very thing, undermining the “existing tipping culture,” motivated many tipped workers in Michigan to organize a protest at the state capital earlier this year. They were very concerned that proposed changes would actually decrease their income. So those well meaning (out-or-state) labor advocates should have consulted with the Michigan restaurant workers that they were trying to protect before pressing for the changes.

One thing is for sure, when outside forces, either lawmakers or advocates or as in this case both, feel the need to tinker with an economic system; there will be unintended consequences. Enforced wage increases, unrelated to normal supply and demand, pushes up prices and may cost jobs. That’s economic understanding.

Side comment: For similar well meaning reasons, some people on social media have been speaking out against self-service checkouts at grocery stores, saying that they are taking away jobs. Last week my grocery store had signs posted at the self-service stations encouraging customers to apply for cashier jobs. Apparently with the current labor shortage, they can’t find enough cashiers and figure that people who have already been checking themselves out have acquired some of the skills needed!

Economic Understanding

Everyday we see on the news some reference to economic results or statistics. These should be of interest to everyone, not just those Wall Street tycoons and rich investors. Whether shopping at the grocery store, filling the car with gas or looking for a new job, economics affects our lives in so many ways.

One basic tenet of economics is the law of supply and demand. 

In a free market, the relationship between supply and demand determines the price of goods and services. Things that are scarce cost more because people who own them can wait to get the best offer from the highest bidder. Things that are common cost less because people who need them have a choice of sources; they can take their time to shop around for the best deal. As the supply of a product increases, the price goes down, simply because there is more of it. The opposite is also true.

This idea of supply and demand is behind many price changes, but it hits close to home when it affects jobs and wages. 

A couple of weeks ago the Business Insider ran a headline that made the point clearly: “The US unemployment rate fell to 3.7%, a 48-year low, in September.  What should be good news is bad news for the fast food and retail industry.” Why would it be bad news for the likes of McDonalds and Wal-Mart? The answer is supply and demand.

When the unemployment rate drops to today’s historic lows, the supply of available workers has decreased. That pushes up the cost of hiring people, that is, buying their services. Many of those jobs typically do not require a high level of education. Needed skills can be learned on the job. But with openings at many potential employers, workers would wisely look to where they could get the best deal – selling their skills to the highest bidder as fast-food locations and retail outlets compete for their time and loyalty.

But there is a downside to this as well. As I have written often before, there is no magic money tree.

The Business Insider continues: “Companies are giving workers higher pay and better benefits to compete – and trying to figure out how to cut labor hours by replacing employees with robots.” The higher wages and benefits must be paid for somehow. Do they pass along the added costs to their customers by raising prices? Do they try to absorb the added costs by making their operation more efficient? In the first case, it would be illegal to collude with their competition to get everyone to raise prices. They must continue to compete honestly. In the second case, using robots is one answer. Fast-food restaurants, grocery stores, banks and others have already increased the amount of self-service they expect from their customers.

Neither of these options is evil. People have raised prices and used automation for years. They are just trying to stay in business. Long distance phone calls used to be very expensive until they replaced operators with computers. Now distance is not even a consideration.

But what happens when the controlling factor is not supply and demand, when instead the government forces or coerces companies to pay more? For example when Senator Bernie Sanders wants McDonald's to raise its minimum wage to $15 an hour, they have the same options, raise prices or find ways to reduce overall labor costs. 

Notice that when Amazon came under the same pressure, they did promise all workers a $15 minimum wage. But according to CNBC, “the company is getting rid of incentive pay and stock option awards.” Although Amazon denies it, many workers complained that they will make less with the pay raise than they did before with the other benefits.

With a little economic understanding, none of this comes as a surprise, but people continue to act like there really is some magic money tree and that any well intentioned changes just make the world a better place with no ramifications whatsoever. Then, when the robots fire up and companies are only willing to hire people with $15-an-hour skills to fill the few jobs that are left, where do young people go for a first job experience? Where do today's fast-food workers find other employment?

This and That

Critical thinking leads to some interesting questions and observations.

A friend recently asked me why he has to pay for syringes for his wife’s diabetes injections while drug addicts on the street can get them for free, funded by taxpayers like him.

How can people plan to pay for their children’s education or their own retirement when they can’t even plan for an annual vacation?  “According to a survey by financial planning company LearnVest, 74 percent of Americans have taken on debt to go on vacation.  The study surveyed 1,000 adults. It showed that, on average, Americans take on about $1,100 in debt for each vacation.”

The article adds:  “Around 55 percent of Americans forget to plan ahead for vacations when setting their budget for the year, according to the survey. It also shows that one-third of Americans would rather save money for a vacation than for a house or retirement.”  (See my earlier comments on vacation planning and gasoline price.)

People are puzzling about the drastic increase in overweight pets.  An analysis from veterinary clinics across the country of about 2.5 million dogs and 500,000 cats treated last year found an increase of more than 150% in overweight dogs and cats over the last 10 years.  About 1 in 3 are either overweight or obese.  The only surprise here is that they are still doing better than their owners.  (Can I say owners or do I have to call them pet parents for fear of offending someone?)

What is the city council of Minneapolis thinking?  They want to “require stores to charge a fee for any type of bag — paper or plastic — they give out.”  Can’t they see that this will hurt the poor the most?  Don’t they know that more people know about recycling than know that cloth grocery bags should be washed out periodically to avoid cross-contamination?

Two studies, one from University of Washington and the other the University of California, Berkeley, about the effects of the first tier of minimum wage increases in Seattle came to different conclusions.  One says it hurts the workers; the other says the workers benefit.  But Forbes reports there are “potential problems with both studies.”  The jury is still out and many economists do agree that the potential success or failure will be influenced by factors unique to the Seattle economy.  This is why it’s so important to conduct most of these experiments on the state and local level, rather than trying to impose a one-size-fits-all solution from Washington, then wring our hands as flaws later appear.

Here is a link to an informative table.  It shows murder rates by state by year from 2001 to 2015 with highlights showing which states had the death penalty (also by year).  It appears that the death penalty has no effect at all on the murder rates, even looking at data from individual states that banned it during that time period.  But some persist in defending capital punishment despite the fact that besides apparently not deterring crime, those cases are many times more costly than comparable cases.

Also interesting is that, despite what we might hear on the news or from politicians, the overall murder rate in America is half of what it was in 1980.

It’s a strange world we live in.  We all must be critical thinkers and question rather than passively accept any idea just because it sounds good.

Where Are the Jobs Going?

“Daddy, I want to be an elevator operator when I grow up.”  “Daddy, I want to be a gas station attendant when I grow up.”  What is wrong with this picture?  We understand it now, but 50 years ago, though it might not have been an ambitious career choice, it was a possibility.

Today kids might grow up wanting to be an autoworker making $60 an hour including benefits.  Those jobs are disappearing as the older workers retire to be replaced by workers making more modest wages.  Today it takes an extreme combination of patience and luck to actually be able to speak to a human when trying to resolve a billing problem or check on an order.  (“Your business is very important to us, so please stay on the line and your call will be answered in the order in which it was received, or go to our website.”)  A good question to ask is, where are all the jobs going?  Some politicians say they are going overseas and south of the border, but when they come back, if they come back, will people do them?

These thoughts come as I look through a few recent articles.  “Walmart (WMT) has patented a robotic device that would create self-driving shopping carts, giving customers free hands while they shop. While that might benefit shoppers, the robot could lead to cutbacks in staff if it lives up to the potential highlighted in the patent, ranging from retrieving containers and abandoned items to helping with stocking and checking inventory.”  According to CBS News:  “A wave of automation is predicted to take 5.1 million jobs away from humans over the next five years, with low-paying, low-skill jobs considered those most at risk.”

In another instance, Zume Pizza, a Silicon Valley company, is using robots to prepare and cook their pizzas. This article calls it “the latest in a new trend within the food industry…to increasingly depend upon machines rather than human labor.”  The management says they are doing it for the employees, as they “eliminate boring, repetitive, dangerous jobs.”  Workers are still needed to prep the dough and measure out the cheese and other ingredients but the robots will soon be taking over those tasks too.  Robots will eventually remove pizzas from the oven, slice them, and box them for delivery – in self-driving cars perhaps.

In other related news, Foxconn, an electronics maker, recently cut around “60,000 factory jobs and replaced them with machines. And Wendy’s cited the rising cost of labor and competition among fast food chains as motivation for its own decision to replace some cashiers with kiosks.”

Meanwhile back at Walmart, they are also “eliminating about 7,000 store accounting and invoicing positions over the next several months.”  Mostly long-term employees held these highly sought-after and well paid jobs among Walmart’s hourly workforce.  There is also talk of a trend to cut back on middle management and support jobs in other industries.

Note how many of these changes can be made under the heading of improving customer service or giving the workers more challenging and rewarding jobs.

The question looms:  Will many of those jobs that may come back from Mexico, China and Vietnam only to be taken by robots, machines that can work 24/7 without vacations, require no government mandated health insurance and don’t give a hoot about the minimum wage?  It is something to thing about today instead of waiting 25 years to wonder what happened – both to the jobs themselves and to all those political promises about creating them.

More Dimensions of Mythology

(This is a continuation of a series of postings beginning on July 8.  It would be best to start reading at that point.)

Last time I gave examples of how the personal mythology can lead us astray within the dimension of economic understanding.  Now, we move on to discipline.

Discipline is the dessert dimension.  It focuses on delaying gratification and doing the hard work necessary to reap rewards.  So what if I don’t study, the test isn’t until next week.  So what if I spend all my money as I earn it, retirement is a long way off.  So what if I smoke cigarettes, I can always quit before it gets too serious.  So what if I have a drinking problem, I’ll sober up in time for work.  So what if I don’t finish high school, it’s boring and there are more exciting ways to spend my time.  And so it goes.  The consequences are remote, and people think they can afford to not take them seriously.

There is some mythology at work here, some story people are telling themselves to justify the action, to make themselves the heroes of their life stories.  It’s not cool to diet or save up for a large expenditure or practice moderation or, in some cases, abstain.  That’s hard work, and besides it’s not cool to worry about the future.  Live for today!

These bad habits don’t happen in isolation.  When millions of people buy more house than they can afford, the economy crashes.  When two-thirds of the population is overweight or obese, it has ramifications in health costs for us all.  When people reach retirement age with no savings, they look to the government, that is the rest of the taxpayers, to bail them out.  When people haven’t acquired the skills and education to get more than a minimum wage job, they expect us to help them raise their families, through artificially high pay or government support.  All these supportive actions that count in some mythologies as compassion are, in many cases, crutches for people with self-inflicted wounds.  But those who take this tough-love view are condemned as uncaring.

Responsibility follows discipline because when people fail in discipline, a natural response is to try to blame someone else.  To remain the hero of their personal mythology, they can’t admit weakness or failure, so they claim victimhood.  "It wasn’t something I did; it just happened to me."  This stance makes it easy for others, who also want to be the heroes of their own story, to step in, riding to the rescue with funds, programs, legal defense or new laws. 

Government agencies, private advocates and various programs are a natural spin-off of these pleas for help.  But what many don’t understand is that when we don’t take responsibility, we give up some freedom.  These programs and agencies don’t go away.  They have a mission.  In many cases the irresponsibility of a few results in restrictions on everyone.  When someone is careless and then claims to be a victim, passing on the (financial) liability, it affects all of society.  Every school, club, and organization in the country cannot function today without insurance and hold-harmless agreements signed in advance.  The number and sheer silliness of some product warning labels are not just a source of amusement, but a serious symptom of society gone wrong.

Some consumer protection is needed and the FTC does a good job of catching and prosecuting companies for false advertisements, but we as consumers have a responsibility to research and make reasonable decisions about our own spending and our lives in general.

This whole idea of research and reasonable decisions leads to critical thinking, which is where I’ll pick it up next time.