Bright Red Flag for Entrepreneurs
While most other states are working to improve their economies by making the local business environment more attractive to employers, Connecticut is going a different direction this week. The General Assembly recently passed and Gov. Dannel P. Malloy signed Senate Bill 913, An Act Mandating Employers Provide Paid Sick Leave to Employees. It will serve as a bright red warning flag to entrepreneurs thinking about locating their business in Connecticut.
In a state where the unemployment rate is 9.1% and not one net new job has been created since 1991, the measure should draw a collective gasp from the 172,300 unemployed state residents, the thousands of small businesses that would like to expand and employ them, and anyone who prefers growth to decline.
Undaunted by such facts, the forces of Big Labor have waged a savvy marketing campaign for the issue. Playing on the public fear of a food preparer spitting in their food, radio listeners and web surfers were treated to grotesque sounds and images prodding them to support the bill or suffer the consequences. The effectiveness of such fear mongering was palpable in the 18-17 State Senate vote.
Despite his efforts to convey the message that “the state is open for business” to potential employers, Gov. Malloy signed the measure that he repeatedly characterized as a public health issue.
The real message to cost-conscious small businesses, however, is crystal clear. It does not matter to the state that such employers already battle some of the highest energy costs in the country, an expensive and inefficient transportation system, high labor costs, and a heavy tax burden. The State of Connecticut is enthusiastic about creating new obstacles to growth, rather than tearing down the old ones.
The underlying assumption of the bill is that employers will simply resign themselves to paying employees not to work, accept the higher costs and muddle through as well as is possible. In the reality of the information technology age, the response from business will not be muted submission, at least not in the long run.
Recent news clips from Europe and the U.S. light the way to Connecticut’s likely future. It was recently reported that fast food behemoth McDonald’s ordered 7,000 self-order kiosks for its restaurants in Europe. A whole new group of previously unaffected employees are now one big step closer to being replaced.
The innovations will not stop with at the kiosk, of course. There are already several restaurants in the United States that are implementing iPad-based ordering systems: simply download a free application, choose your meal, and wait for it to arrive. The system is already in place at JFK International Airport in New York City, and it won’t take long for it to migrate to smartphones.
That employers would replace units of labor, wage hours, with units of capital, technology investments, is not only unsurprising to anyone that has been paying attention to the modern economy at any point over the last century but also to any one of the thousands of students who have ever taken a college-level economics course. The marginal rate of technical substitution is defined as the amount of change in inputs, either labor or capital, that are required to maintain the same level of output. Put another way, it demonstrates that as technology makes it easier to produce goods and services, less labor is required. If labor costs are increasing at the same time, the incentive to substitute grows.
These innovations mean that it is not only possible, but also preferable to replace high labor costs with capital investments in technology. As Connecticut artificially drives up those labor costs with mandates like paid sick leave, it hastens the day when more Connecticut workers are replaced by technology and added to the growing ranks of the unemployed.
Heath W. Fahle is the Policy Director of the Yankee Institute for Public Policy, a free market, limited government think tank based on the campus of Trinity College in Hartford, CT. Contact Heath at heath@yankeeinstitute.org. A version of this article originally appeared at CTNewsJunkie.com and is reprinted with permission.
The Waterbury Republican-American published this op-ed on June 2, 2011.
