Washington, DC, July 4, 2017 --  

Minimum wage hikes won't destroy the low-wage job. Automation will.

Does raising the minimum wage kill jobs? That hot-button question has been debated by economists for decades, and the answer you hear is often driven more by ideological leanings than the facts at hand. Successful traction on four-year-old push for a $15 minimum wage¹ by labor activists has only raised the stakes of the debate.

Last week's study by University of Washington researchers concluded that Seattle's graduated hike in the minimum wage actually hurt workers in the past year.² The study found that as wages went up on an hourly basis, employers cut working hours at a higher percentage rate, leading to an overall income loss. While it's often easy to dismiss a single study, in this case, the study was commissioned by the city itself, and past years' conclusions showing relative working gains were welcomed.

What's different this time? There are lots of factors that prevent any real world city from working as a clean laboratory experiment. But many suspect that Seattle's gradual hikes in wage levels have simply passed the point of maximal returns to workers. In any debate about whether raising wages kills jobs, the size of the wage increase is an important factor.

Obviously a mandated wage increase of an extra $100 per hour would lead to job losses, whereas a mandated increase of $0.05 would have little effect on employers' use of labor. The real question is the point at which you start to see hours reduced by employers offset wage gains by workers. The University of Washington study suggests that in today's Seattle job market, passing the $13 per hour mark, as the city did last year, surpassed the point of maximal income for employees.

Labor activists and supporters of their "Fight for $15" campaign are disputing this theory. But for those who care about fighting inequality in the United States, it's not worth debating the matter. The real problem is not jobs being killed by higher minimum wages, but rather by automation.

Four years ago, organizers led thousands of McDonalds' and other fast-food employees to walk of their jobs to demand higher wages.³ Around the same time, McDonalds started investing in self-ordering kiosks that allow them to sell more meals with fewer cashiers.⁴ Similarly, American pharmacies and grocery stores have invested in self-checkout scanners to cut down on the number of cashiers they need to hire.

The reality is that it doesn't matter whether service employees make $7.50 per hour or $15 per hour. They cannot compete with a self-ordering kiosk or self-checkout scanner that works for $0.00 per hour. Higher minimum wages in places like Seattle, Washington, DC, and New York City might accelerate the march toward automation in those areas. Replacing workers with technology has high initial costs, and higher wages help justify the initial expenditure. Self-ordering and self-checkout machines are now common in big coastal cities where wages are high. But once established, the costs for installing the technologies at each additional site goes down. The job-replacing technologies end up in low-wage areas as well.

Clearly, some low-wage workers are better protected against the trend toward automation. Diners at fast casual restaurants may be content to order with a touchscreen and have food dropped off by a small number of human table runners. But higher-end diners will expect a full-service waiter to recommend a bottle of wine and ask you how you want your meal prepared. These jobs will pay more, but not everybody is cut out for them. Can you really expect folks in the same wage-tier as those working behind the counter at McDonalds to recommend a bottle of wine?

The reality is that it doesn't matter whether the $15 minimum wage kills jobs, because most low-end service jobs will be lost to automation anyway. At worst, the $15 minimum wage will merely be the nail in the coffin. The only debate might bet whether high minimum wages will kill jobs before automation has the chance to do so, or whether it will simply accelerate the trend. These are fine questions for academic debate, but for those of us who actually care about solving the problem of inequality and restoring the American dream, another focus is needed.

The solution to inequality is not mandated wages, but improving worker training and mobility. The focus over the last 25 years over educational standards and improving fundamental reading and math skills has failed to produce an American workforce that meets the needs of today. Not everybody is cut out to be an engineer or lawyer, but the world will always need carpenters, plumbers and mechanics. Skyrocketing labor costs for these trades in prosperous American coastal cities contrasts with high unemployment in the rust belt and small-town America.

Clearly, demonstrating and lobbying for higher mandated wages is easier than investing in worker training and moving workers to areas with higher demand for labor. But however catchy, the "Fight for $15" slogan isn't a long-term solution for inequality. A focus on solutions rather than slogans is long overdue.

Related Web Columns

Things Robots Can't Do, June 20, 2017

Not Quite Cruelty Free, September 17, 2013

Sustaining the Unsustainable, June 2, 2009

Notes:

1. New York Times, Labor, Then and Now, August 31, 2013

2. Los Angeles Times, Minimum Wage Fight May Heat Up After New Study Finds Jobs and Hours Fell in Seattle, June 26, 2017

3. New York Times, Ibid.

4. Forbes, Thanks To 'Fight For $15' Minimum Wage, McDonald's Unveils Job-Replacing Self-Service Kiosks Nationwide, November 29, 2016