Two arguments have collided in recent months.
#1: the pace at which robots are placing workers is accelerating;
#2: the historically large minimum wages increases being proposed and implemented in various places will have the unintended consequence of hurting the job prospects of those the increase is meant to help.
Put these together, and you get: increases in the minimum wage, especially large ones, will cause employers to invest in labor-saving technology to avoid the increase in labor costs. This capital/labor substitution will be that much more likely as the pace at which labor-saving technology is entering the workforce is accelerating.
It’s a perfectly logical argument, and Lydia DePillis does a nice job exploring its nooks and crannies in this WaPo article. Focusing on the fast-food industry, she writes:
About 30 percent of the restaurant industry’s costs come from salaries, so burger-flipping robots — or at least super-fast ovens that expedite the process — become that much more cost-competitive if the current federal minimum wage of $7.25 an hour is doubled.
OK, let’s get this out of the way: I salute both cap/labor substitution as a real thing that happens, and that more expensive workers, all else equal, incentivize tapping that shift.
But I don’t find this a particularly compelling argument against minimum wage increases, or any other wage increases, for that matter.
First, one implication of this argument is that we should make sure to keep wages low enough so employers won’t want to bother swapping out workers for machines. That’s a great way to whack productivity growth, not to mention workers’ living standards. I think of it as the let’s-pretend-the-US-is-an-emerging-economy strategy to job preservation. “If we could only pay Mexican-level wages, no employer would ever have a reason to automate!”
Second, argument #1 above is far from substantiated. One look at our quite disturbingly underwhelming productivity-growth statistics should make you think twice about the assertion that the robots are coming ever faster for our jobs.
On the other hand, who are you going to believe, me or your lying eyes? That is, I’ve seen, and DePillis documents, the increase in tablet-based ordering or, in a different part of the food industry, auto-checkouts in supermarkets. But remember, point #1 decidedly does not argue that there’s no cap/labor substitution. It simply says there’s no evidence that it’s speeding up.
Finally, when it comes to unintended consequences and the minimum wage, if you just go with the theory—or with the anecdotes—you’re going to get it wrong in a big way. You’ve got to look at the evidence of job losses associated with minimum wage increases, and here, recent work by minimum wage scholars (Dube, Lester, Reich) is highly instructive.
Tapping the extensive variation of minimum wages across different localities, they ask: when county X has a higher minimum wage than bordering county Y, what happens to restaurant workers in X compared to those in Y? The nice thing about this research is that by comparing employment outcomes across contiguous borders, you’re controlling for economic factors that influence job growth on both sides of the border, and thus better isolating the differential impact of the higher minimum wage.
Dube explains their results:
Comparing across these neighboring counties, we showed that there was no evidence of job losses for high impact sectors such as restaurants and retail. This was true even considering four or more years after the minimum wage hike. In follow up work, we used the same cross-border methodology to study the effect on teens—a high impact demographic group…Again, we found no discernible impact on employment.
So, based on both the evidence and the idea that it is mistake for economies to avoid pay increases in the interest of dis-incentivizing capital investment, I don’t think we should worry too much about the impact of moderate minimum wage increases on labor substitution. Or, perhaps a better way to put it: we should worry a lot about the impact of falling real minimum wages on low-wage workers, many of whom are adults, minorities, parents with kids, and so on.
Large minimum wage increases, like going to $15 in places with low wages, are another story. There, we must consider the local wage and price levels and the length of the phase-in. While we shouldn’t focus on keeping wages low enough to avoid the use of productive technology, we obviously should be mindful of potential tradeoffs when we’re going “out-of-sample” as regards the magnitude of the wage increase.