theatlantic | In the past, the most efficient businesses created lots of middle
class jobs. In 1914, Henry Ford shocked the industrial world by doubling
the pay of assembly line workers to $5 a day. Ford wasn’t merely being
generous. He helped to create the middle class, by reasoning that a higher paid workforce would be able them to buy more cars and thus would grow his business.
Ford’s success trickled down, as other companies followed his lead.
Automotive companies not only employed numerous well paid workers but
they created a large demand for other product and services that employed
millions more—steel, glass, machine tools, auto dealers and
dealerships, gas stations, mechanics, bridges, roads, and construction
equipment. The workers in those industries purchased homes, appliances,
and clothes creating still more jobs.
One reason we are failing to create a vibrant middle class is that
the Internet affects the economy differently than the new businesses of
the past did., forcing businesses and their workers to face increased
global competition. It reduces the barriers for moving jobs overseas. It
has a smaller economic trickle-down effect.
Doing some of the obvious things like raising the minimum wage to
fight the effects of the Internet will probably worsen the problem. For
example, it will make it more difficult for bricks-and-mortar retailers
to compete with online retailers.
Surprisingly, the much-vilified Walmart probably does more to help
middle class families raise their median income than the more productive
Amazon. Walmart hires about one employee for every $200,000 in sales, which translates to roughly three times more jobs per dollar of sales than Amazon.
Raising the minimum wage will also make it more difficult to bring
manufacturing jobs back to the U.S. The Internet is not the sole force
driving income inequality in the U.S. Our languishing education system
is a major contributor to the problem. But two things are certain: the
Internet is creating many of those in the ultra-wealthy 1%; and it
forces businesses to compete with capable international competitors
while providing the tools so that businessmen can squeeze inefficiency
out of the system in order to remain competitive.
If the government is going to be in the business of redistributing
wealth, a better approach would be to raise the earned income tax credit
and increase taxes to pay for it. Not only would this raise the income
of low paid workers, but also it would subsidize businesses so they
would be more competitive in world markets and encourage them to create
jobs. Since the minimum wage would not go up, moving jobs overseas would
be a less attractive alternative.
If policy makers want to attack income inequality, they must pay more
attention to the ways in which the Internet is affecting their
businesses. If we ignore the power of the Internet when making policy
decisions, we are in danger of allowing it to become the greatest legal
facilitator of income inequality in the history of the planet.
