Robots, Jobs, And The Minimum Wage

In his campaign for President, Vermont Senator Bernie Sanders has called for raising the minimum wage significantly, to make it a “living wage,” and in many places local governments have raised the minimum wage.  The argument for such raises is that if we just increased the minimum wage, people working at those minimum wage jobs would earn more money, could provide better for their families, and might actually spend more of their pay and help the economy.  In short, the country as a whole would be better off.

These arguments seem to defy basic rules of economics and normal human experience.  We know from our own lives that the cost of something matters.  How many people shop without looking at the price tag?  We also know from our own experience that if something becomes too expensive, we will try to do without that costly item.  So the notion that you can raise the cost of anything without any negative reaction or consequences seems both naive and outlandish.  The across-the-board minimum wage hike arguments presuppose that those who employ minimum wage workers — who are, by definition, the most unskilled, untrained, fungible people in the national workforce — have an endless supply of money and will simply accept a minimum wage hike without taking any steps to account for their increased costs.  If you know anyone who has worked as a manager of a fast-food restaurant, you know that assumption is fantasyland.

hqdefaultSome municipalities have increased the minimum wage anyway.  So, how is it working?  While the data is preliminary, it seems to show what any rational person would suspect — that minimum wage increases affect hiring.  A recent economic research study by the Federal Reserve Bank of San Francisco concluded that “the overall body of recent evidence suggests that the most credible conclusion is a higher minimum wage results in some job loss for the least-skilled workers—with possibly larger adverse effects than earlier research suggested.”  The study adds that “allowing for the possibility of larger job loss effects, based on other studies, and possible job losses among older low-skilled adults, a reasonable estimate based on the evidence is that current minimum wages have directly reduced the number of jobs nationally by about 100,000 to 200,000, relative to the period just before the Great Recession.”  And more recent data from the U.S. Department of Labor suggests that hiring slowed in those locations where the minimum wage was increased.

I’m sure the minimum wage hike advocates will dispute the data, or argue in the alternative that the better earnings by the employed more than compensate for any job loss that might have occurred.  Such arguments seem to me to be both misguided — wouldn’t we rather have more people working, and taking that first step up the job progress ladder? — and short-sighted.  If employers of minimum wage workers are cost-sensitive, as the data is indicating, they’ll look for other ways to avoid paying wages that are too high as a result of governmental fiat.  As the Washington Post has reported, one option that is being explored is increased reliance on machinery and robotics in places like fast-food restaurants, which already have seen declines in worker employment.

Let’s not kid ourselves.  Hiking the minimum wage is no panacea, and we don’t live in a fairyland where employers have endless supplies of money.  Don’t be surprised if, in a few months or years, you don’t see that teenager behind the counter at your favorite fast food restaurant and are served your burger by Robbie the Robot instead.

Raise The Minimum Wage?

This week I received an email from U.S. Senator Sherrod Brown, of Ohio, about the federal minimum wage, which currently is $7.25.

Senator Brown supports raising the minimum wage for several reasons.  First, a minimum-wage worker would earn $14,500, which does not allow families to make ends meet and would put a family of four below the poverty line.  Second, the minimum wage hasn’t been raised since 2007.  Third, 30 million people are paid the minimum wage, and Senator Brown describes them as hard-working people who “bring in the same paycheck year after year” while the price of other goods increases.  Fourth, Ohio and other states have slightly higher minimum wage rates.  Finally, he says a raise is a “good, common-sense idea” because “[t]he more money in people’s pockets, the more they’ll spend.”

I don’t buy the arguments.  By definition, the minimum wage is reserved for low-skill, entry-level jobs — the kind high school kids get as their first work experience.  Workers then move up the scale as they gain experience and skills.  I’m skeptical there are many families of four whose income is wholly dependent upon one minimum-wage worker, or that such people are paid the minimum wage “year after year.”  Even if those families exist, we shouldn’t build federal economic policy around such outliers.  The fact that the minimum wage hasn’t been raised since 2007 also means nothing.  Since 2007, America has been mired in a brutally long recession, and unemployment still remains far too high.  There’s nothing in our economic performance since 2007 that supports raising the minimum wage.  To the contrary, with employers already skittish about the economy and nervous about hiring — particularly given the still-uncertain impact of the Affordable Care Act — the likely effect of raising the minimum wage will be to discourage hiring.  In short, far from putting money in people’s pockets, raising the minimum wage is likely to make it even harder for kids to find that first job and to leave more people unemployed.

If Ohio and other states want to require employers to pay a bit more, that’s fine — but it doesn’t mean the federal wage must follow suit.  If the stronger economies and hiring patterns in some states warrant higher rates, let the state governments that are more familiar with local conditions make that decision.  We don’t need edicts by the faraway federal government to control every aspect of our economy.

I think raising the minimum wage right now is a bad idea.