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Minimum Wage Campaign Highlights Blue Model Contradictions

Walter Russell Mead

San Francisco Bay Area cities seem to be in a race to see which one can jack up its minimum wage the fastest. The Wall Street Journal reports:

California is on track for a $15 minimum wage by 2022, but some Silicon Valley cities are opting to hit that target faster, prodded by a campaign aimed at organizing low-wage workers in the region.

The city of Santa Clara is the latest to propose an accelerated $15 minimum wage, following the lead of San Jose and six other Santa Clara County cities. The City Council plans to vote on a measure that would raise base pay to $15 by 2019 next month.

Mountain View, where Alphabet Inc.’s Google is based, will have a $15 minimum wage next year, as will Sunnyvale. The $15 target will be reached in 2019 by San Jose, the region’s largest city, and home to companies such as PayPal and eBay. Cupertino, hometown to Apple Inc., also will hit the $15 target in 2019, as will Palo Alto, Milpitas and Los Altos.

The push to hike the minimum wage on the San Francisco peninsula, where housing costs are seriously inflated, is not nearly as radical as the push to raise it to $15 per hour nationwide or statewide. Since $85,000 per year is considered low-income for a family of four in San Jose ($106,000 in San Francisco!), it’s reasonable to argue that $15 per hour in Silicon Valley is equal to about $7 per hour in Alabama. The number is not inherently excessive. (Wages are always higher in the middle of a gold rush.)

But there will be fallout nevertheless. For one thing, the higher wage floors will accelerate the destruction of the retail store economy and its replacement by Amazon and internet shopping. That’s going to be bad news for workers in those sectors.

The real damage, though, will come from the automation of low-skilled tasks. High labor costs (especially in Silicon Valley, where people know quite a bit about robots and automation) will accelerate the development of labor-saving technologies that reduce the need for $15 per hour human workers (and that figure doesn’t include the cost of benefits and taxes for those workers, of course).

Just as blue model unionization accelerated the automation of manufacturing, union efforts to impose relatively high minimum wages on low-skill work will accelerate the destruction of these jobs.

The true beneficiaries of Silicon Valley’s new minimum wage laws are going to be found in the corporate offices of the tech giants who create robots and the venture capitalists who invest in them rather than among the growing number of Californians trapped in the low-paid labor market.

Indeed, for the Silicon Valley tech moguls who hunger after liberal plaudits alongside generous returns on their portfolios, supporting dramatic minimum wage increases is a perfect strategy. The same low-wage workers whose jobs are about to be torched will applaud the tech moguls’ philanthropic virtue even as they are pushed out of the labor market.

Hollywood, Wall Street, and Silicon Valley today are the principal supports of the remnant of American liberalism, and they are all, as industries, enormous drivers of economic inequality. They exemplify all the trends that progressives fear, but also produce the wealth that allows their moguls to shape the agenda for the progressive world.

There are places where the old-style progressives rooted in the labor market still contest the domination of the new liberal elite. In education policy, for example, the teachers unions are in a bitter and unrelenting battle with the tech do-gooders. But by and large, as labor unions lose power and the new plutocracy gains it, the nature of left politics continues to shift from blue collar advocacy to gentry liberalism and from populism to elite reform.

The tech moguls aren’t just winning because they have more money than the union bosses. The techies are also better attuned to the nature of economic change. The labor movement is investing an enormous amount of its steadily diminishing political and economic resources in the battle to raise minimum wages around the country. The theory seems to be that, while manufacturing jobs can be outsourced to factories in cheaper countries like Guatemala, jobs that produce non-traded goods—like waiting tables, health care, or UPS delivery—cannot be. So the unions are attempting to build a new labor movement on the basis of these industries.

It’s not a completely futile strategy yet, but it will be soon. Outsourcing is only one of the forces reducing wages. Information technology is also a large and growing factor. And while you can’t outsource retail store clerks to Guatemala, you can replace them with e-commerce.

After years of dissing Walmart and fighting its expansion because it was seen as a threat to retail jobs and wages, the labor movement is now looking on wistfully as it and other big box retailers face a new wave of competition from even less labor intensive competitors like Amazon. And now grocery stores, and all the jobs associated with them, could be next.

The American labor movement seems bent on digging its own grave, but there are things that smarter advocates for working people could focus on. Lowering the costs of the products and especially of the services that ordinary people depend on—housing, health, education—has the effect of increasing the purchasing power of the average American. Reducing the cost of vital government services—from providing infrastructure through streamlining our torturous and expensively dysfunctional legal and regulatory systems—would reduce the cost of goods that Americans need to buy.

The failure of the legacy labor movement to understand the situation of American workers today creates a major opportunity for new era politicians to offer policies that raise living standards by reducing costs and so raising real wages. That will offend the vested interests of the existing blue model coalition, but it will help the American people enjoy better living in the decades ahead.

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