Rising interest rates: good for workers, bad for robots?

March 14, 2015

The U.S. Federal Reserve may look to raise interest rates this summer—a situation that worries investors. However, a rise in rates could be good news for workers, according to Marc Miles, a senior scholar at the American Principles Project. In a Boston Globe article based on a recent presentation he gave to Federal Reserve Chair Janet Yellen, Miles writes, “The pressing social problems of slow growth, sluggish wages, and income inequality are all exacerbated by the Federal Reserve’s continued low interest rate policy.”

Low rates, he writes, reduce the cost of investing in automation, and the relative cost of workers goes up. Further, low rates exacerbate income inequality, as profits accrue to providers of capital, not labor.

He cites as an example the high interest rates of the 1970s, when the amount of capital used per worker plummeted. As interest rates fell in the 1980s and 1990s, he adds, companies became “lean and mean,” investment in technology flourished, and payrolls fell.

Miles concludes, “Note to the Fed: No need for patience. Higher rates would be preferable.”

However, Stephen Gandel in Fortune doesn’t expect the Fed to raise interest rates soon. In fact, he writes, rates could still go lower, into negative territory, as they have in Switzerland, where the central bank has set rates at minus 0.75%. In the U.S., employment remains weak, despite the drop in the unemployment rate to 5.5% in February—the job-finding rate is down, wages are not rising, the workforce participation rate is low, and the number of long-term unemployed is rising. In addition, the global economy is slowing, and the strengthening dollar will depress exports. “Interest rates have been close to zero for nearly seven years,” he concludes. “Don’t expect that to change so fast.”

About the Author

Rick Nelson | Contributing Editor

Rick is currently Contributing Technical Editor. He was Executive Editor for EE in 2011-2018. Previously he served on several publications, including EDN and Vision Systems Design, and has received awards for signed editorials from the American Society of Business Publication Editors. He began as a design engineer at General Electric and Litton Industries and earned a BSEE degree from Penn State.

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