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Higher Minimum Wages Bring Automation and Job Losses, Study Suggests (axios.com)
An anonymous reader shares a report via email: As of the start of the year, 19 U.S. states had raised minimum wages, dramatizing a long simmering debate: Do minimum wages kill jobs, and make the working class worse off in the end? Or do they simply make them a little richer, with little or no loss to overall employment? In a new paper, economists Grace Lordan of the London School of Economics and David Neumark of UC Irvine parse 35 years of census data and come down on the worse-off side: For lower-skill jobs like bookkeepers and assembly-line workers, they say, higher minimum wages encourage employers to automate -- according to their calculations, a $1 increase can cost tens of thousands of jobs nationally.
Not as duh as you think it is.
Just a few years ago Germany had no minimum wage at all. No jobs were lost since it was introduced even though many conservative politicians and heads of German industry prophesied doom and destruction.
"It's such a fine line between stupid and clever" -- David St. Hubbins, Spinal Tap
In a free market, demand is always a function of price: the higher the price, the lower the demand. What may surprise most politicians is that these rules apply equally to both prices and wages. When employers evaluate their labor and capital needs, cost is a primary factor. When the cost of hiring low-skilled workers moves higher, jobs are lost. Despite this, minimum wage hikes, like the one set to take effect later this month, are always seen as an act of governmental benevolence. Nothing could be further from the truth.
When confronted with a clogged drain, most of us will call several plumbers and hire the one who quotes us the lowest price. If all the quotes are too high, most of us will grab some Drano and a wrench, and have at it. Labor markets work the same way. Before bringing on another worker, an employer must be convinced that the added productivity will exceed the added cost (this includes not just wages, but all payroll taxes and other benefits.) So if an unskilled worker is capable of delivering only $6 per hour of increased productivity, such an individual is legally unemployable with a minimum wage of $7.25 per hour.
Low-skilled workers must compete for employers’ dollars with both skilled workers and capital. For example, if a skilled worker can do a job for $14 per hour that two unskilled workers can do for $6.50 per hour each, then it makes economic sense for the employer to go with the unskilled labor. Increase the minimum wage to $7.25 per hour and the unskilled workers are priced out of their jobs. This dynamic is precisely why labor unions are such big supporters of minimum wage laws. Even though none of their members earn the minimum wage, the law helps protect their members from having to compete with lower-skilled workers.
Employers also have the choice of whether to employ people or machines. For example, an employer can hire a receptionist or invest in an automated answering system. The next time you are screaming obscenities into the phone as you try to have a conversation with a computer, you know what to blame for your frustration.
There are numerous other examples of employers substituting capital for labor simply because the minimum wage has made low-skilled workers uncompetitive. For example, handcarts have replaced skycaps at airports. The main reason fast-food restaurants use paper plates and plastic utensils is to avoid having to hire dishwashers.
As a result, many low-skilled jobs that used to be the first rung on the employment ladder have been priced out of the market. Can you remember the last time an usher showed you to your seat in a dark movie theater? When was the last time someone other than the cashier not only bagged your groceries, but also loaded them into your car? By the way, it won’t be long before the cashiers themselves are priced out of the market, replaced by automated scanners, leaving you to bag your purchases with no help whatsoever.
The disappearance of these jobs has broader economic and societal consequences. First jobs are a means to improve skills so that low skilled workers can offer greater productivity to current or future employers. As their skills grow, so does their ability to earn higher wages. However, remove the bottom rung from the employment ladder and many never have a chance to climb it.
So the next time you are pumping your own gas in the rain, do not just think about the teenager who could have been pumping it for you, think about the auto mechanic he could have become – had the minimum wage not denied him a job. Many auto mechanics used to learn their trade while working as pump jockeys. Between fill-ups, checking tire pressure, and washing windows, they would spend a lot of time helping – and learning from – the mechanics.
Because the minimum wage prevents so many young people (including a disproportionate number of minorities) from getting entry-level jobs, they never develop the skills necessary to command higher paying jobs. As a result, many turn to crime,
What you are suggesting is basically what Milton Friedman suggested decades ago.
There is no getting around the fact that increased automation will eventually require universal basic income. The alternative is to vastly increase the size of the welfare system. Interestingly, as Friedman points out, the universal basic income would actually shrink the welfare system.
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You are welcome on my lawn.