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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.
We know how many jobs will be lost. Do we know how many workers will benefit from a $1 per hour increase? I think that number will be larger than the number of jobs lost.
Why is this concept so controversial ?
Why do those advocating the $15 hamburger wage not see this ?
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The laws of supply and demand have been well-understood for generations. Both ends of the political spectrum regularly enact legislation based on them (sin taxes, etc.). For some reason certain people feel that this one area "needs" to be exempt from what is basically a law of nature, because it's politically inconvenient to them. Ironically, it's the folks that tend to go around insisting that they are a "reality-based community." The pseudointellectual contortions required to do this are pretty funny to watch, even though they're wrecking the portion of the economy most important to the most financially vulnerable. Maybe the whole "Fight for $15" thing is just a world-class troll by the 0.1%.
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Anything that encourages labor automation is a net benefit to the world. That tech is the only thing that has the potential to fundamentally alter how the economy works.
And a fundamental alteration is exactly what we need, because the status quo is "a tiny group of wealthy at the top, sitting on top of a smallish group of workers living comfortable lives, sitting on top of an enormous mountain (80% of the human population) of people who suffer in abject poverty for their entire lives."
No amount of law, religion, or charity has made this balance budge, and never will. Labor automation is a game-changer. Sure, there is risk that it might make things worse....but it is a risk well worth taking given how shitty things already are.
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,
Right now, the taxpayer is subsidizing these low paying jobs with welfare. If raising the minimum wage encourages companies to automate, society will be better off because it makes the inefficient jobs obsolete.
We know how many jobs will be lost. Do we know how many workers will benefit from a $1 per hour increase? I think that number will be larger than the number of jobs lost.
Be careful of that calculation.
The justification behind Chinese off-shoring was that the benefits of reduced prices outweigh the domestic loss of wages. For example, the damage from losing one worker at $50K is more than compensated if 10 million people spend $1 less on some product. That frees up $10 million to be spent on other things, and the economy gets stronger.
The problem is that the benefits are not linear. You can easily see that by going to the limits of the policy - when all manufacturing is done in China and all workers are out of a job, for instance.
If you assume a fixed or shrinking pool of available jobs, then you quickly come to the point where there are more job-seekers than there are jobs. In this case the economic benefits can still be argued, but the cost of doing so is the loss of the $50K job and the extra burden of having an unemployed person in the labor pool.
It's not a linear function, and you can't rely on past economic studies that were done based on a previous historical situation.
So... be careful with that calculation.
They aren't supposed to be providing a living wage. They are entry-level jobs. They are *supposed* to be filled by college students and people just getting started in the work force.
Once you increase the cost of those jobs, the value proposition changes, and they aren't "entry level" anymore. Most employers won't think twice about hiring someone at $4 to clean up a restaurant. If you have to pay them $15/hour, then they are going to need more value out of them. They are probably going to have the waiters and line cooks start cleaning up during their shift, and eliminate the position of cleaning person. Or they are going to hire a company to come in and clean up at night for $20 instead of paying someone $15 an hour all day.
Know who is going to get hurt the worst? Lousy employees making minimum wage. When it takes ten minutes for someone at McDonald's to get me an iced tea, that person isn't going to have a job at $15/hour. It might be worth it to hire them at $8/hour, but nobody is going to hire someone who performs at that level for $15/hour.
Where I live, $15/hour is still too low to live hear. (A one bedroom shit apartment is over a $1,100 a month) What folks do is commute an hour or more one way from the poor areas. So, two hours a day is just traveling to and from the job. Plus work the 8+ hours and try to do the things that one has to do to live.
That's a shitty life. But they do it because there's just Walmart as an employer and some small businesses that have no job openings.
Yeah yeah yeah, they made "poor life choices" - they should have went to medical school.
See, the trouble with our society is that a person's worth is based upon their economic value. Can't make a living with the intelligence you are stuck with? Well, you're stuck as a poor slob eeking out enough to eat - just a like a Third World country,
I think there is at least some truth to this study. It does make sense that businesses will automate whatever they can and raising the minimum wage may hasten that. But the thing not talked about is that as time goes on these technologies will come down in price and be cheaper than the current minimum wage and businesses will automate then anyway. So yes, it may hasten it a little bit, it certainly isn't the reason businesses are automating. So the choice is basically to keep the minimum wage where it is and have these jobs for an extra couple years while people still make less than they need to live or to raise the minimum wage and hasten the loss of these jobs but get everyone else closer to a wage they can survive on. If we wait, businesses will still save money with automation and will save money by continuing to pay wages people can't live on.
What needs to be addressed is how to help everyone who is pushed out of their job via automation. There needs to be some type of job training or something to help people adjust to the new economy, but that isn't happening. No matter what we do, people are going to lose their job to automation, it is just a matter of when. I think we should at least make sure that the people who don't lose their job to automation make enough money to live on.
"Information wants to be expensive" - Stewart Brand, the same guy who said "Information wants to be free"
Automation is going to supplant a lot of jobs. The only questions are: "Which ones?" and "How fast?"
Higher wages will accelerate the process, but we need to decide what happens as automation takes over regardless of changes to the minimum wage.
The whole article is a bit of a red herring. Whatever we decide for workers displaced by automation, we ought to do with these people. I'm not going to pretend I have a 100% fair solution, and no one seems to agree. So let's focus on the fundamental problem instead of fussing over a bunch of poorly-paid jobs that no one wants, including most of the people who have them.
Because on the whole, I think everyone is perfectly happy to let machines do more work. So we need to figure out how to make it work without FUD about losing jobs.
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I'm not sure that solution scales. As a thought experiment, suppose a sexy genie blinked her eyes and everybody had a PhD education. That still wouldn't mean there's enough openings for advanced jobs. You'd end up with PhD's mopping the floors. (Maybe all the PhD's together would eventually invent true AI, but that's a whole other chapter.)
It reminds me of the joke that I don't have to outrun the bear to survive, only outrun the person next to me.
Table-ized A.I.
If the only job someone can get doesn't make them enough to pay rent, utilities, and buy them sufficient food to eat, then there's a problem. Saying "Well, those people should go find a better job", or "Well, those people should go back to school and get a better education so they can get a better job", and similar comments, just are not helpful at all. Saying "Well, that's why we need Universal Basic Income" is even less helpful, because it just plain won't work on the scale of a country with 300,000,000 people in it, and even if it's only 10% (i.e. 30,000,000 people) who need a big handout from the government in order to actually sustain their lives, the other 90% are going to scream about it being unfair -- and I don't totally blame them. I think the real problem is capitalism; it can work if managed properly, but in it's current state capitalism is totally out of control, and it's creating an ever-widening gap between the poor and rich, destroying the middle class in the process. Whether it's out of control by chance or by design is a matter that should be investigated, but just like the problem of homelessness, this isn't going to go away just by ignoring it. You can't just throw people away, not and continue to call yourself a human being. We're supposed to be better than that.
Why do those advocating the $15 hamburger wage not see this ?
Because you're making a detached economic argument in favor of business interests, and they're making a "I need enough food to survive" argument in favor of community interests and human rights.
In most areas of the country, especially near big cities, the cost of living is approximately $15 if not much higher (I've seen estimates of more like $20-25 in New York City, for example). This is the cost of basic rent, basic utilities like electric and water, food, transportation to a job (whether by owning a small used car or taking the bus - what you think buses are free?), and replacement clothing (nothing fancy, just new pair of jeans every once in a while as old one rips). Basically, inflation is increase in cost of goods and services, and if you took the minimum wage of the '60s and '70s and adjusted it for inflation, it really should be something like $15 per hour now. With the productivity gains of the average American worker due to increased education and technology, it should probably be even higher, but almost all of the profit gains have gone to top executives rather than increased the salaries of those that actually do the work.
So what does this mean? It means any job paying less than approximately $15 per hour is NOT LIVABLE. You will starve, or end up homeless, or some sort of big problem. It's not sustainable. What I don't understand is why people make the argument of the don't "deserve" $15. Who says? Who decided some arbitrary number is the cap? The REAL issue is: does every person deserve enough to meet basic needs in modern society? I think the answer is unequivocally YES. Every American deserves the dignity of basic needs met, especially when they're willing to work full time to do so. No matter what the work is, if it takes up a full week of work, then they deserve to have basic bills covered, end of story. Full time work is opportunity cost -- if you're working full time, it means you don't have free time to take other jobs, attend school or training, etc. IT HAS TO BE WORTHWHILE. It has to be enough to survive.
Having "more jobs" that pay starvation wages is not really an improvement. It makes job numbers reports and corporate profits look better, but those aren't the only metrics of the success of a society. In fact, I think they're bad metrics; a much better one is: do we ensure every American that works hard can take care of themselves, and has opportunity to improve their lives? By that metric we are failing disastrously.
In my view, businesses that cannot budget for and pay living wages are FAILING BUSINESSES. A business that requires its workers to starve for its owner to make a profit is a FAILING BUSINESS and deserves no sympathy or respect. They should have to drastically change their business strategy or go out of business and be replaced in the free market by business owners that DO pay a living wage.
As far as automation goes, do you think they'll ever decide "Nah, I don't need more profit!"?. At best, low wages slightly delay automation, but make no mistake: it's coming. It's the story of the industrial revolution and the Gilded Age, big business grew larger and larger until it controlled the economy and could automate or improve efficiency, and laid off many many workers once they were unneeded. The poverty and starvation was great, which is what lead to so many of our labor reforms and formation of unions. We have to start putting human interests first over corporate interests. Don't fall for their propaganda. Every American that works hard deserves to live without fear of where the next meal will come from or how to pay rent this month.
And really, we should be taking advantage of automation to work LESS. Lower the amount of hours for full time work. Give everyone more time to raise their families, get involved in the community and local politics, take classes and improve education, volunteer, etc. There's more to life than wage labor. We can make that happen if we stop obsessing with letting big business take more, more, more for themselves.
Low wages slow technological growth and reduce leisure time.
It's essentially stating the same thing, but without the worship of jobs, which are a means to an end.
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According to the bureau of labor statistics,
Together, these 2.2 million workers with wages at or below the federal minimum made up 2.7 percent of all hourly paid workers.
So, around 1% would lose their jobs and the rest will have have a 15% rise in pay. Spending that should create some jobs, obv.
Automation causes job losses.
If automation was already on the cusp of automating jobs at minimum wage, then those jobs would have been automated soon, anyways.
I'll play devil's advocate here. What right do you have to take money from somebody and give it to somebody else? That's essentially what you're doing. If somebody who has money wants to give it away shouldn't that be up to them?
I actually support UBI, but those are the kinds of things you'll have to have an answer for. And "But it's only fair" doesn't really fly. An appeal to fairness falls on deaf ears since taking money from me and giving it to somebody who doesn't work never 'feels' fair.
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The unemployment in Germany is at its lowest for the past 20 years or so.
"It's such a fine line between stupid and clever" -- David St. Hubbins, Spinal Tap
...automation and job loss. Lack of a minimum wage for farming did not stop those plucky "automators" from reducing farm jobs by about 97% in a century flat. Nor were Luddite concerns related to 19th-century English minimum wage policies.
The automatiion/wage situation was really nailed to the wall by this fine journalism in The Atlantic five years back:
https://www.theatlantic.com/ma...
We are taken to hang-ten on the dividing line between automation and human-work in the case of Maddie Parlier, auto-parts worker who was next up for replacement. The nearly-empty auto-parts factory in which she works automates a job when the machine to do it falls in price below two years' salary. She makes $13/hour, or about $25K/year - and the machine that could replace her exists, but costs $100,000 so her job is "safe" - for a few years.
So this is really about your societal standards. "We don't work for less than $13 an hour" is no different conceptually from "We don't work full time before age 16" and "We don't let employers work people more than 16 hours at a time" and "We don't let our employers work people with no safety equipment" even though safety equipment costs money and therefore, mandating it costs jobs.
These societal rules of COURSE have prices: "forbidding child labour" caused 100% job loss for the affected kids, and serious financial hardship for their families, I'm sure there was a lot of smirking at the time about how much harm had been done by Good Intentions.
If you hate the minimum wage, consider reading "Utopia for Realists" by Rutger Bregman. One of the cases for Universal Basic Income is that the moral argument about minimum wage vanishes: with the minimum already taken care of, $1/hour for a job you enjoy might make perfect sense.
As your link points out, though, they also have unions, which that author believes is responsible for those higher incomes. When the U.S. enacted a federal minimum wage in 1938, union membership was over 28% of the workforce. Now that it's below 11%, I'm not sure you can point to those countries as reasons the U.S. shouldn't have a minimum wage.
Sure, we could try to undo decades of right-wing assaults on organizing and collective bargaining, hoping that we eventually might reach a point where there was sufficient union membership to make a minimum wage unnecessary.... You know, waiting for bad judges to die, changing a ton of anti-union legislation both at the state and federal level as if conservatives wouldn't fight each and every modification tooth-and-nail, or we could just pass a simple single increase in the minimum wage and index it to inflation, right now. I think the choice is obvious, particularly given the low likelihood of success in boosting union membership.
Even the link you posted points out they have no government set minimum wage primarily because strong unions already took care of that and with nearly 100% membership, they have practically the force of law anyway.
The conclusion that companies won't implement automation if labor is cheap enough has some validity. The problem with the conclusion is that the cost of labor is only one of at least a dozen factors to consider.
There is a similar problem when discussing minimum wages in general, let alone increases in minimum wage. If profit margins are too low businesses lay off people, which often reduces their overall business. Consider a Grocery store that can't hire enough people and customers end up leaving before making a purchase, often leaving items in carts. Already short labor is needed to restock items and customer service goes down further, resulting in permanent lost of customers over a short time.
The alternative is to raise prices so that all consumers end up paying more, which results less disposable income in the economy to go toward other businesses. People purchase less clothes, less music, fewer cars, etc.. etc... (FWIW I grew up in poverty so know what you skip out on or get by questionable means when money is not available)
Contrary to what certain political figures want you to believe, it's not like the majority of businesses and business owners are like Scrooge McDuck rolling in the dough laughing at the peons. In fact those companies are an extreme minority.
We suffer with a lack of consideration and dialogue because of half truths.
-The wise argue that there are few absolutes, the fool argues that there are no probabilities.
Many here do not understand the cost of hiring an employee.
- Yes, you have the per hour pay rate.
- But you also have the fed and fica. The federal government charges an additional 7.62% of the wage paid, to the employer on top of the wages.
- And there is also, added Workers Comp. Ins. charges which are based on the number of employees and the size of the payroll.
- Equal Opportunity Employment laws.
- And there is health care, if you have 50 employees, the ACA requires you to provide health care. There are 27,000 pages of reg's in the ACA alone.
- Finally, there are numerous reports that are required by the feds, states, etc. when a business has employees that also add to the cost of choosing to hire. Making the choice to hire is a real balancing act for small businesses.
I think the basic formula is base pay rate plus 50%+ is a real estimated cost to the employer.
FYI I am not saying any of this is wrong, but there is a lot more cost for each employee than just the base pay rate. And in order to understand anything one should have all the facts.
We should automate all jobs and eliminate work. There seems to be some puritan idea of work being good for the character or something. No, work is a terrible waste of the gift of life, and the sooner we are rid of it, the better.
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.
If everyone worked 60 hours a week, then not enough would be out consuming to keep econ going. And it may make for less available jobs since 2 people do the work that 3 normally would. Still doesn't scale. Try again.
Robots have a great work ethic, by the way. (Until they break down.)
Table-ized A.I.