Supply and Demand in the Land of Potatoes and Lobster

A couple of weeks ago, I had the opportunity to visit the rural farmland and majestic forests of northern Maine in a quaint town named Fort Fairfield.  Permeated with beautiful natural scenery and smiling, congenial personalities, the town seemed to be the epitome of the traditional American small town.

As I explored the remote little village, however, it became eminently clear that this modest community had undergone remarkable changes over the past couple of decades.  Talking points and sound bites spewed from pundits across the political spectrum came to life in Fort Fairfield, where farmers and small business-owners have been experiencing the economic ramifications of urbanization for years.  And it is no wonder the "forgotten men of women of America" rallied behind President Trump as their champion in 2016.  For once, someone had stood up for them.  Finally, they were being heard.

Concerns in the Fort Fairfield community center on the issues presented by rural flight, when mainly young people leave rural communities for metropolitan hubs.  Northern Maine is not the only victim.  Pew Research Center reported in 2015 that "[a]lthough 759 rural counties in 42 states lost population between 1994 and 2010, more than 1,300 rural counties in 46 states have lost population since 2010."  Such conditions are the natural economic progression in an industrialized, post-agrarian society.  As with any economic evolution, some will be left behind.  Many more will find prosperity.

Broccoli farmers in northern Maine rely heavily on what the locals referred to as "migrant labor."  In other words, immigrants from central America traveled to one of the most homogenous areas of the country to find work and, accompanying it, their American Dream.  For the farmers in the area, cheaper labor fills the void left by the exodus of young people.  For the immigrants, it is an opportunity to provide a life for themselves and their families which had been previously unavailable to them.

Despite claims made by a plethora of political leaders, including the president himself, immigration of low-skilled laborers usually complements, rather than substitutes, native-born workers.  In other words, they can produce more goods at a lower price due to the influx of labor supply.  Even more productive for the economy is the addition of new customers to many American markets.  For these reasons, economists generally agree that immigration is nothing but beneficial – not just for economic growth, but for the vast majority of Americans, as well.

During a comprehensive tour of a 300-acre, multi-generational Maine potato farm, I was intrigued by a topic that has surfaced to the forefront of public dialogue, particularly incessant so far during the 2018 midterm cycle.  That topic is the minimum wage and its impact on employment.

As we made our way to the packaging and distribution portion of the tour, the owner of the farming property brandished one of the most recent additions to the complex.  The new processing machine, he explained, was brought onto the premises as a replacement for two previous employees. The addition of this new machinery expedited the packaging process and accelerated the retail distribution.

I asked whether it was cheaper for his business to automate this process than to pay the labor costs for a lengthier duration of packaging.  While the initial fixed cost of such a purchase was significant, the state's new $10 minimum wage (which will be raised to $11 next year) proved too costly for his operation.  From a business perspective, the automation of such jobs was simply the most economical decision.

Public discourse has long misunderstood the real impact of minimum wages on economic efficiency: setting a floor on the price of labor causes unemployment due to higher total costs to employers.  While there is some disagreement among economists on the severity of such an effect on employment, neoclassical theorists generally acknowledge the existence of minimum wage-induced unemployment.

Economists have studied this question copiously, and their findings typically suggest that an increased minimum wage incentivizes automation of low-skilled labor.  More specifically, job loss results from a minimum wage fixed above the market wage, which would be determined based on local supply-and-demand forces, such as cost of living.  The national "Fight for $15" would render innumerable losses on American employment and economic growth.

It should be pointed out that automation is a healthy and advantageous aspect of economic development.  True, existing industries and their employees often lose out.  But if protectionist policies descended from Washington every time an innovation occurred, perhaps we'd still be riding in carriages in order to protect carriage-producers.  Automation, however, will occur only when economic conditions allow for it; minimum wages create such conditions prematurely by raising labor costs for companies.

The above lessons that I learned during my time in agrarian Maine transcend any theory that may be learned in a classroom.  They are stark realities that may seem difficult to digest to many on both sides of the aisle.  It is important, however, to understand the miracles wrought by free-market policies that enable the entrepreneurial spirit embodied in what we call the American Dream.

Immigrants and native-born Americans, factory workers and businessmen, small business-owners and artists – all of these groups are empowered to realize their American dream due to the individualistic and innovative spirit of this country.  By restricting immigration, raising minimum wage above market levels, placing tariffs on domestic consumption of foreign goods, and subsidizing certain industries at the expense of others, governments of all sizes place a barrier on the efficiency of their economies and happiness of their people.

While there is substantial evidence to support these statements based on years of economic studies, there are those in our society who feel the real impacts of economic advancement.  The historic election of Donald Trump was the result of years of marginalization of blue-collar workers and rural voters.  Their concerns should never be disregarded, and they should never be condescended to or marginalized.

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