Business Ethos Blog

Robot Employment Acts

Dr. David Mielke, Retired Dean of the College of Business at Eastern Michigan University

 

A number of states and municipalities have passed minimum wage laws and advocates have pushed with their protests and marches for $15 an hour.  Minimum wage hikes are seen as some sort of panacea for low wage workers.  In a recent speech on workforce development by Federal Reserve Chairwoman Yellen, she stated that it is crucial for younger workers to establish a solid connection to employment early in their work lives.  Yet, studies have shown that higher minimum wages have reduced entry level jobs, especially for younger workers.  Some cities and states that passed higher minimum wage laws are now considering the consequences.  Should minimum wages be increased to $15 an hour?  Are government minimum wage policies destroying entry level jobs by giving businesses an incentive to automate at an accelerated pace?  Will increased labor costs for employers be passed on to customers with higher prices?  Will small businesses be hurt by higher costs?  What is the “Right Thing to do?”  Let’s look at some issues:

  1. In a recent survey, the publication Nation’s Restaurant News asked 319 restaurant operators to name their biggest challenge for 2017.  Nearly a quarter said rising minimum wages.
  2. McDonalds said last November that it would install self order kiosks in all 14,000 of its US restaurants.  That announcement came shortly after McDonalds then CEO, agreed with President Obama’s idea for a minimum wage hike.
  3. Wendy’s announced it would add kiosks at almost 1,000 locations to appeal to younger customers and reduce labor costs.  At their second quarter announcement the company explained how mandated wage hikes will lead to fewer jobs for low skilled workers.
  4. When Wendy’s CEO was asked whether higher minimum wage costs could be passed on in higher prices he stated their franchisees who own and operate locations in high minimum wage states will instead look to reduce overall staff, look at the opportunity to reduce hours and any other cost reduction opportunities.
  5. Miso Robotics and the owner of CaliBurger announced they have developed a robotic arm, called Flippy, that can turn burgers and place them on buns.  CaliBurger plans to install them over the next 2 years in 50 restaurants worldwide.
  6. In 2015, the Federal Reserve Bank in San Francisco released a study summarizing the available research on the impact of minimum wage increases.  The results concluded that a higher minimum wage results in some job losses for the least skilled workers, with possible larger adverse effects than than earlier research suggested.
  7. One study of Seattle, which raised its wage from $9.96 to $11 or $13 for larger firms on its way to $15 an hour, compared its wage trends to surrounding jurisdictions that did not raise the minimum wage.  The study estimated that the median low wage worker who remained employed made approximately 73 cents an hour more than the person would have without the new law.  But in businesses that rely heavily on low wage labor, the average employee lost one hour of work per week and their employment rate declined.  The effects of dis-employment appear to offset the gain in hourly wage rates, leaving the earnings for the average low wage worker unchanged.
  8. Another 2011 report by the Employment Policies Institute found that the loss of entry level jobs worsened racial disparities.  The study found that each 10% increase in the minimum wage affected the employment of young males without a high school education.  For whites the drop was 2.5%, for blacks it was 6.5%.
  9. The city council in Baltimore passed a measure to require wages in the city 50% higher than those in the rest of Maryland.  The Mayor, who campaigned on raising the minimum wage vetoed the measure, stating she wanted the city to survive.
  10. The Montgomery County Executive blocked a similar minimum wage increase in the liberal suburban Washington DC jurisdiction earlier this year.
  11. At the same time, leaders of organized labor, who strongly support minimum wage increases are busy making sure they don’t have to play by the same rules.  Cities, including Chicago, Milwaukee, San Francisco and San Jose have exempted union contracts from laws mandating higher minimum wages.

Are mandated wage hikes a gift to workers, or is it becoming clear that such laws threaten the jobs of unskilled workers?  Will these laws price them out of a job?  Will the wage increases raise overall earnings for workers?  Will businesses first response to higher wages be to raise prices?  Should Congress once again consider raising the federal minimum wage on its way to $15 an hour?  What is the “Right Thing to do?”  The problem is that in the real world, there are inevitable trade-offs to making labor artificially expensive through law.  The minimum wage law does not magically make labor more valuable.  It does not increase wealth or productivity.  What we see with the reactions of companies like McDonalds, Wendys and others is that price increases are difficult so the alternative is to look at cost savings and the substitution of automation like robots to displace workers or as the case in Seattle, workers lose hours and end up with the same overall earnings—assuming they keep their job.  Some liberal politicians have started to realize the consequences, as have the unions who have moved to insulate themselves from the laws.  Minimum wages should not be increased.  The market determines the demand for labor and its price.  Growing the economy and producing a shortage of labor as we are starting to see now is the way to increase wages.  If we do continue to create a disincentive for low wage labor, we will definitely create robot employment acts.