Nobody should work fulltime and not be able to have food on their table, shelter over their head and water to drink. But what kind of policy implementation works best in order for people to get by on a fulltime job while simultaneously ensuring that businesses and organization are not disincentivized from hiring? This article will discuss the current metapolitical ideas taking place in the US surrounding a federal (national) $15/hour minimum wage and a Universal Basic Income (UBI) of $1000/month.

First, let’s dive into what these two mean.

The idea of a federally implemented $15/hour minimum wage has been part of the US political debate for a long time but gained significant media coverage and public attention during Bernie Sanders’ (D.) run for President in 2016. The policy would become part of US law and thus make it illegal to pay anyone less than the $15. On the other hand, UBI is universal and unconditional. Regardless of your employment status or income, everyone would get the same $1000 a month simply for being born in a given country (in this case a very economically prosperous country). The only variable that needs to be determined is the minimum age of the recipient, where 18 years old is widely agreed upon.

“So, is one better than the other?”

Well, there are obviously two sides of every coin. On the face of it, a minimum wage of $15/hour looks to be the more easily manageable and sounds fairer. Why should someone earning $200,000 yearly get the same $1000/month as someone earning $20,000? This is a valid point. In my opinion, however, the implications of federally implemented $15/hour minimum wage does more harm than good, especially when looking at the impact on the intended population: low-skilled workers.

“Why is that? Wouldn’t increasing the minimum wage help the low-skilled, low-wage workers?”

Hmmm, not really. There are several things to remember. First of all, 99.7% of businesses in the US are ‘small’[1]. That is, businesses that employ less than 500 people. Not all of these businesses can afford to pay $15/hour, and that is certainly increasingly the case when we move close to 0 rather than 500 employees. So, if the employer is met with a new law that requires them to pay, say, a total increase of 15% on wages, they will in most cases either have to fire people or divest money to more productive technologies, leading to more unemployment and the speeding up of automation. And what about future candidates for the job? Well, if the business owner seeks to employ workers whose hourly output/productivity is greater than their hourly wage, it seems the most logical to hire high skilled workers. This would disproportionately hurt the teenager looking for a simple summer job, the young adult looking to kickstart their career, and the loyal elderly person who after 45 years at the company is just looking to stay active and be part of a community.

Fast-food workers in Los Angeles march to raise the minimum wage to $15 an hour.

From my perspective, though, the more pressing impact will be the aforementioned speeding up of automation.

The top 3 most common jobs in the US are retail clerk (4.3m), fast food and counter workers (3.9m), and cashiers (3.5m)[2] . Take a second to think about what is happening to these jobs at the moment, before a federal implementation of a $15/hour minimum wage.

  • Retail: online shopping is becoming more popular fast, especially at the time of writing (COVID-19). Amazon is expanding by the minute while adopting technologies that require fewer people to keep the machine going. In 2019 it was announced that 9,302 retail stores had closed that year, up nearly 60% from 2018. Note that this was before the coronavirus outbreak.
  • Fast food and counter workers: how many self-use kiosks do you now see in McDonald’s? The increase is staggering giving the short period of time they have existed, and it is at the expense of very common entry-level jobs. Of course, if you want human interaction, there’s always the drive-thru… until artificial intelligence (AI) is developed to take orders via voice communications and takes over human interaction. This is similar to the trends that bank call lines and phone operators are following nowadays. I agree, it is a much better experience communicating with an actual human, but it is only a question of time before the AI is indistinguishable from a person. Not only that, there are serious advancements in developing robots capable of operating in a fast food kitchen. Just ask “Flippy”[3].
  • Cashiers: we’ve already gone through this in the fast food section. Self-checkouts are increasingly present everywhere, with a single person overseeing 10 registers rather than one. When I was 15, I was hired as a cashier, operating one of two registers. I’m fairly certain that if my employer, to whom I’m grateful for my first job, had to pay me $15/hour by law, I would not have been hired in the first place.
Sainsbury’s UK. A common sight in most grocery stores.

Here we’re talking about almost 12 million jobs. My fear is that if they are all required by law to pay everyone $15/hour, the automation process will increase even quicker. And it’s not like we’ve been able to follow the pre-pandemic trend. Finally, $15/hour is not even enough to live most places in New York, D.C., or California, so what good does it do those people? I think that we are talking about 20th century solutions to 21st century problems.

“So, what do you propose? Too many people in the US cannot get by on one fulltime job. Is that okay with you?”

Of course not. And the fact that 78%(!!!) of people in one of the most prosperous countries in history live paycheck to paycheck[4] is a devastating statistic. 63% can’t afford and unexpected $500 bill[5]. However, I don’t believe that a federal minimum wage of $15/hour is the right way to approach eradicating poverty. I think the most effective way of doing so is giving people monthly cash, no questions asked.

I believe in equality of opportunity, but not in its current form. I think people in the US have a tremendously hard time taking that first step needed to start climbing the latter towards success. Here I don’t necessarily mean economic success, but rather pursuing the dreams that fulfil the individual. One fundamental obstacle in the current system is that most people don’t even start at 0, they start at -1. How can we ever expect people to take risks, start businesses, create jobs, volunteer, get married or become parents when life seems so extremely stressful and impossible to live?

For starters, the current system does not value some of the most important things in life: getting married and having children. This is particularly visible in the stats, where it can be found that working-class adults who get married has dramatically decreased from 70% in 1970 to 45% in 2015[6]. This also contributes to the fact that the percentage of unmarried women having a baby went from below 15% in 1970 to about 40% in 2015[7], which is in most cases not a good sign since a key statistical factor in terms of the future success of kids (incl. level of education etc.) is determined by the presence of two parents. Why aren’t people paid for being parents? Being a mom or a dad is arguably the two most important jobs in the world, yet the current system does not value the two professions at all. Imagine the difference it would make to a single mom if she was to receive an extra $12,000/year unconditionally. She could quit her second low-wage job. She could hire a nanny to look out for the children while she goes out to have fun or pursue a hobby, perhaps for the first time in years. The same could be said for the honorable people around the world who voluntarily take care of the elderly and sick. Why in the world is this work not recognized in the market?

An unconditional UBI would completely change the psychology of what work needs to be done and what constitutes success. The market does brilliant things, but it is also very bad at maintaining a human-centered economy. If someone wants to volunteer at Amnesty or Red Cross, they most often can do so only if they are part of the 22% of the population that does not live paycheck to paycheck. If people’s basic needs were met with a UBI, I believe we would see a stark increase in per capita volunteering rates, since people have more time and freedom. We’d see more musicians and artists. More nursing and home caring. More small businesses created, and risks taken. Better educational outcomes[8]. More focus on long term issues like climate change. And climate change is a big one. How can we expect the average person to care about climate change, if they work two jobs or their current job is automated away?

“What about inflation? Surely prices will increase!”

  • With $12,000/year, people would not be able to do more than scrape by. And that is pushing it if we’re talking about NYC or LA.
  • Technological advancements are continuously suppressing prices. Indeed, the places where most inflation has taken place over the years are in sectors where technological advancements and automation has not been applied: housing, education, healthcare.
  • The printing of $4 trillion after the 2008 recession didn’t cause meaningful inflation[9].

“But how could you possibly pay for this? $1000/month for every adult is $3 trillion yearly!”

  • Consolidating welfare programs. There exist 126 different welfare programs, all with their different forms of disincentivizing conditions and regulations. Give people the choice between their welfare benefits or the UBI, and the cost would effectively lower the price by between $500 and $600 billion[10]. $2.4 trillion.
  • A healthier and more psychologically stable population. The US would save an estimated $100-$200 billion on homelessness services, incarcerations and healthcare expenditures simply because of fewer bad decisions and fewer people starting at -1[11]. $2.2 trillion.
  • Introducing a Value Added Tax (VAT) (in this case, a VAT of 10%, which is half the common European level). Would create $800 billion in revenue and is increasingly important in the US considering automation; robots and software don’t pay income tax[12]. $1.4 trillion.
  • A vibrant economy. The Roosevelt Institute examined the $12,000/year proposal and found that it would grow the economy by 12.56-13.10% ($800-$900 billion now, about $2.5 trillion by 2025) and would increase the labor force by almost 5m workers[13]. $500 billion.

Those are the big numbers. The remaining ≈$500 billion can be found a myriad of places. Climate oriented taxes for big corporations is a big one. Another one would be the improved educational outcomes for the families where parents will have more time to spend reading and doing homework with their children. A third is the massive savings there will be in automated sectors, an example being the truck driving sector, where Morgan Stanley estimated a total $168 billion yearly[14].

The future is uncertain, and while UBI experiments have been very successful around the world, it is a dark horse in terms of its implementation in the entire United States. All I ask is that politicians stop looking at 20th century solutions to 21st century problems and instead try to plan ahead.

“Flippy”

[1] https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf?utm_source=Gingrich+Productions+List.

[2] https://www.bls.gov/oes/current/area_emp_chart/area_emp_chart.htm. I believe there has been an omission of truck drivers, which according to most other sources stood at 3.5m as of 2019.

[3] https://www.forbes.com/sites/edrensi/2018/07/11/mcdonalds-says-goodbye-cashiers-hello-kiosks/#3cab3f9b6f14.

[4] https://www.forbes.com/sites/zackfriedman/2019/01/11/live-paycheck-to-paycheck-government-shutdown/#75ce14014f10.

[5] https://www.forbes.com/sites/maggiemcgrath/2016/01/06/63-of-americans-dont-have-enough-savings-to-cover-a-500-emergency/#f3136264e0d9.

[6] Yang, A. The War on Normal People (2018), p. 126

[7] Yang, A. The War on Normal People (2018), p. 128

[8] https://www.washingtonpost.com/washington-post-live/2019/10/22/transcript-candidates-andrew-yang/.

[9] Yang, A. The War on Normal People (2018), pp. 183-184

[10] https://www.yang2020.com/what-is-freedom-dividend-faq/.

[11] Ibid.

[12] Ibid.

[13] Ibid.

[14] Yang, A. The War on Normal People (2018), p. 44

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2 Comments

  1. One place to start is placing higher taxes on the yearly bonuses given to upper and middle management which in reality is wages stolen from low level employees.

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