If you’ve been following the ongoing debate over the “Fight for 15” and steep increases in the minimum wage, you’ll want to check out this article from James Pethokoukis at the American Enterprise Institute. He’s examining the new NBER working paper, “People Versus Machines: The Impact of Minimum Wages on Automatable Jobs” by Grace Lordan and David Neumark. In case you haven’t guessed from the title, it’s an analysis of the effect of higher minimum wages on the rate at which business shift from hiring lower skill, minimum wage workers to implementing automated / robotic solutions.
Here’s one of the key excerpts. (Emphasis in original)
Based on CPS data from 1980-2015, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers. The average effects mask significant heterogeneity by industry and demographic group. For example, one striking result is that the share in automatable employment declines most sharply for older workers. An analysis of individual transitions from employment to unemployment (or to employment in a different occupation) leads to similar overall conclusions, and also some evidence of adverse effects for older workers in particular industries.
Those are rather general descriptions though and don’t deliver the math you’re probably looking for. James goes on to pair the conclusions in this paper with another recent study and finds that the effects on the general population of workers is measurable and steady over a long period of time.
“According to our estimates, one more robot per thousand workers reduces the employment to population ratio by about 0.18-0.34 percentage points and wages by 0.25-0.5 percent.”
This was always predictable based on nothing more than common sense, but having a couple of decades worth of data to back it up should convince even the skeptical. As the lowest skill jobs are eliminated in favor of automation, some new jobs will be created in fields involving designing, manufacturing and maintaining those robots. But if you already had the skills to take a position like that would you really have been working a minimum wage gig to begin with? So yes.. in the end, the machine wins. Rapidly jacking up the minimum wage simply accelerates the process.
Want some real world examples? There’s a new Associated Press report out this week on how the Japanese have been going gaga over robotic workers. In their case it’s really not such a bad thing because their employment age population is shrinking rapidly compared to the older generation, but the effect produces the same sort of numbers. And then there’s this new trend in hotel services as reported by CNN.
One hotel in Singapore is taking room service to a new level thanks to AURA, the room service robot.
AURA works in the M Social Hotel in Singapore — a lifestyle hotel designed with the business-traveling millennial in mind. The brainchild of robot-builders Savioke, AURA is designed to deliver room amenities to guests.
She’s the first of her kind outside the United States, so her role at M Social marks a turning point in the Southeast Asian hospitality industry.
We’re talking about the workers that you frequently find flocking to tourist traps and resort destinations to work in the many hotels. They’re the ones who are dispatched to make deliveries to the rooms, bring you fresh towels, move around luggage… that sort of thing. And yes, they are pretty much at the bottom of the skills ladder, but for some people it’s the only job they can manage to get. And now, for a relatively low price, the hotels can buy a robot that will do all of that 24/7, never takes sick days or vacations, doesn’t get any benefits and isn’t drawing a paycheck.
The machines are already winning.