Friday, February 28, 2014

The enslavement of the lower class or the unintended consequences of social engineering.

Do government programs meant to help the lower income worker actually make it more difficult for them to rise above government subsidies, thus thwarting their drive?

Conservatives and liberals are at the vocal polar extremes of public opinion. Most of us are moderates and keep our opinions to ourselves. Mostly  because there is no party to stand behind. I do fear that in the governments quest to save the lower class they have unintentionally built an economic system that further enslaves them. I'm a moderate so I give the government the benefit of the doubt. Liberals will say it's not true and conservative will say it is intentional.

Here's the makeup of the story. There are several moves the government has made that individually look like a good thing for the poor, but taken together it creates a spiral down system for their future. 

The government is trying to raise the minimum wage from $7.25 to $9.80 (or $10.10 based on who you are). That's a minimum 35% increase. On the surface that seems like a good idea, the lower income worker would get a substantial increase in income and maybe climbs out of poverty. There are some problems with it. The CBO (Congressional Budget Office) predicts that only 19% of the recipients of this wage increase are actually below the poverty level. 29% of the benefit would go to families already making over three times the poverty level. The projection is that the increase will be a net 3% to those below the poverty level. Add to this the negative real income effect of -.4% for the rest of the wage earners, the projected 500,000 lost jobs and the real net earnings is negligible. But this isn't the real problem. We'll get to that in a moment.

The second great idea for the lower class was subsidized insurance. Again, I am not being facetious, it was a good idea. But it did not address the unintended consequences. Low income people thrive on hourly work that is typically at or less than 40 hours a week. Under the new ACA mandate that limit will lower to 35 hours. The ACA also mandates taxes for employees in place of benefits, further raising the cost of employees that exceed the threshold. There is a lot of evidence that businesses will try to work around the requirement by limiting employment. One way to accomplish that is to hire more full time workers that will work in excess of 50 hours per week (and get compensated for it) and fewer hourly employees that work 30 to 40 hours per week. So the lower middle class or middle class will get higher quality employment and the lower class will be squeezed out. 

The combination of higher wages and higher ACA cost makes automation more appealing. The breakeven to replace employees with systems becomes more appealing. The jobs that will be automated are not the complex jobs that require analytical thinking, they are the repetitive manual jobs mostly populated by the lower class. McDonalds is already testing self serve ordering in California. This automation, much like self server check out and ATM's, further reduces job opportunities for the lower class. 

So where does the lower class find themselves. Well first, the job market for semi-skilled or no skilled employees is shrinking. The 500,000 jobs lost is part of it and automation of repeatable manual tasks is the other part. Add to that the natural limit of hours to avoid taxes and fees and when they do get a job it doesn't pay much. Here is another problem. When they get a job they pay taxes and they lose food stamps, welfare, and insurance subsidies. How much will they have to make to cover all of the lost income to taxes and the loss of government subsidies? Probably a lot more than $350 per week they would make at minimum wage and 35 hours. 

Now this isn't opposition to subsidies. You notice I didn't call them entitlements. In a prosperous civilized society there is a natural need to help other less fortunate.  I do see one of the unintended side effect of all of these programs is that the lower income group does not see a way off of subsidies through work. The inflection point it above their ability to achieve. So they are now locked in the lower class. The divide between a life on government subsidies and the life of the lower middle class is too great.  Society will eventually leave them behind.

No comments: