Rise of the Automaton: How Robots Change the Minimum Wage Debate
By Jack RobbinsPublished February 25, 2016From Los Angeles to New York, progressives around the country have begun to rally around the cause of significantly raising the minimum wage. These political activists contend that the state is morally obligated to ensure that an individual who works full-time will have enough money to support him/herself. By raising the minimum wage, proponents claim that workers will have a higher take home pay and be better able to purchase needed goods; no longer will workers hold multiple jobs and work long hours while remaining in poverty. Moreover, a higher minimum wage is supposed to create tangible macroeconomic benefits such as lowering turnover costs, creating economic stimulus via the multiplier effect, and lifting workers out of poverty. According to economist Arindrajit Dube, a relatively small increase in the minimum wage could lift 4.6 million laborers out of poverty. Longer-term effects could reduce the number of people living below the poverty line by 6.8 million.
Conservatives, on the other hand, have amounted a fierce opposition to these increases on the grounds that there will be a large resulting growth in inflation and unemployment. If there is a huge increase in wages, conventional economics tell us that there will surely be an inflationary effect. However, quantifications of projected subsequent inflation tend to be at the lower bound: Sarah Lemos of the University of Leicester finds that a 25% increase in the minimum wage would only increase aggregate prices by .4%. Unemployment on its surface may seem like another logical consequence of a price floor: business who are just getting by will be unable to supply labor at an increased price. Consequently, firms will be forced to cut hours/employees to remain afloat. Despite this logic, this fails to hold up empirically on a large scale: the overwhelming body of economic research suggest that raising the minimum wage has no discernable effect on employment (although it's quite possible that something like a $18 minimum wage would have resoundingly different consequences for employment). One possible explanation for this phenomenon occurs is that the decrease in turnover costs and increase in economic stimulus outweighs the increase in the cost of labor.
With all of this in mind, how could it be possible that raising the minimum wage would be bad idea for minimum wage workers? The answer relies upon looking at labor's substitutes. Usually, in a perfectly competitive market, substitutes for labor aren't weighed heavily in a supply model because there are no perfect substitutes to human labor. Some labor elimination technology has existed for some time now (see self-checkout aisles in supermarkets or automated ordering tools) but they haven't dramatically affected employment. However, new technology has substantially changed that calculus. Michael Osborne of the University of Oxford finds that 47% of all employment in the US is at risk of automatization. These technologies range from robots who can stock and arrange storage spaces, make fast food items and provide basic customer service functions, or even create art. One robot, called Baxter, costs about $22,000 and has the ability to work most low-skilled jobs in modern society.
These trends in labor are particularly troubling for low-skilled workers due to their skillset. Low-skilled workers by definition have the lowest education in the labor market making it much harder for them to find employment once they are laid off. Moreover, since these robots are targeting the entire low skilled sector of the economy, low skilled laborers don't have many other qualified employment options. Some scholars argue there could be a boom for the creation and maintenance of robots but its seems unlikely that minimum wage workers have the expertise to work in these new fields. Raising the minimum wage (especially if it's a living wage - i.e. 15-17$ per hour) would rapidly expand this automatization process before we have adequate policy solutions to handle an influx of unemployed low-skilled laborers.
Certainly robots present a challenge to American policy makers for the long run: what should be done for the millions of people who will no longer have a relevant skill set for meaningful employment? There are many interesting answers to this problem such as new training initiatives or a universal basic income for all adults. Regardless of what the answer is to the problem of automatization, it seems that these advancements certainly make raising the minimum wage a lot more hazardous than it initially appears.