Contributor Post Created with Sketch. New Study Finds that Minimum Wage Hikes are Great News for Robot Workers

 

Back in 2014, I wrote a post that asked, “Why are minimum wage proponents dismissing automation risk?” I just wasn’t getting a sense from the “Fight for 15” crowd that it had thought much about the possibility that dramatically raising the minimum wage might worsen the competitive position of low-skill humans versus machines.

Or maybe it had, but the politics were so tantalizing that they took precedence over sound policy. My conclusion back then: “Pushing for an unprecedented boost in the minimum wage given both the weak economy and automation risk seems like foolhardy public policy.” That, especially given the low-risk alternative of raising and expanding the Earned Income Tax Credit.

Now comes the new NBER working paper, “People Versus Machines: The Impact of Minimum Wages on Automatable Jobs” by Grace Lordan and David Neumark (bold is mine):

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. … Our work suggests that sharp minimum wage increases in the United States in coming years will shape the types of jobs held by low-skilled workers, and create employment challenges for some of them. … Therefore, it is important to acknowledge that increases in minimum wage will give incentives for firm to adopt new technologies that replace workers earlier. While these adoptions undoubtedly lead to some new jobs, there are workers who will be displaced that do not have the skills to do the new tasks. Our paper has identified workers whose vulnerability to being replaced by machines has been amplified by minimum wage increases. Such effects may spread to more workers in the future.

Three things: First this study is a great companion piece to a recent one by Daron Acemoglu and Pascual Restrepo analyzing the effect of increased industrial robot usage between 1990 and 2007 on US local labor markets: “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.”

Second, Lordan and Neumark note that minimum wage literature often, in effect, ends up focusing on teenager employment as it presents aggregate results. But that approach “masks” bigger adverse impacts on some subgroups like older workers who are “more likely to be major contributors to their families’ incomes.” This seems like an important point.

Third, some policy folks argue that it’s a feature not a bug that a higher minimum wage will nudge firms to adopt labor-saving automation. (Thought not those arguing for robot taxes.) The result would be higher productivity and economic growth. But perhaps we are “getting too much of the wrong kind of innovation.

There are 9 comments.

  1. Hang On Member
    Hang On Joined in the first year of Ricochet Ricochet Charter Member

    I’m all for high minimum wage precisely because it will drive automation and robots. It’s also why there should be absolutely zero refugee program and zero low-skills immigration. Combine that with an education system that actually educates rather than the ridiculous things our current education system does. I am for higher per capita GDP not GDP growth per se.

    • #1
    • August 15, 2017, at 8:04 AM PDT
    • Like
  2. Jamie Lockett Inactive

    We needed a study to know this?

    • #2
    • August 15, 2017, at 8:16 AM PDT
    • 2 likes
  3. Seawriter Member

    The folks pushing The Fight for 15 see automation as a feature, not a bug. Its goal is not better wages for bottom-end workers. Its goal is increasing the numbers of those who vote Democrat. They figure those who benefit from the increased minimum wage might vote for Democrats, but those who are pushed into poverty and put on relief because of it will vote for Democrats. A win either way.

    Seawriter

    • #3
    • August 15, 2017, at 8:23 AM PDT
    • 7 likes
  4. Seawriter Member

    Jamie Lockett (View Comment):
    We needed a study to know this?

    Studies employ the parasite class.

    Seawriter

    • #4
    • August 15, 2017, at 8:25 AM PDT
    • 2 likes
  5. OldDanRhody, 7152 Maple Dr. Member

    An anecdotal aside: A friend works for a company that, among other things, supplies the welding industry. A frequent complaint he hears from customers is the difficulty of hiring reliable welders, despite the fact that the work pays a decent wage. The problem is that the new hires may show up for work, or they may not, seemingly dependent upon the whim of the day. A welding robot may cost $100,000+, but at least you can depend upon its being there at the beginning of the work day.

    • #5
    • August 15, 2017, at 9:08 AM PDT
    • 1 like
  6. Phil Turmel Coolidge

    Hang On (View Comment):
    I’m all for high minimum wage precisely because it will drive automation and robots. It’s also why there should be absolutely zero refugee program and zero low-skills immigration. Combine that with an education system that actually educates rather than the ridiculous things our current education system does. I am for higher per capita GDP not GDP growth per se.

    One might think that, as an industrial automation and control systems engineer, I’d agree. But I don’t for the simple reason that I’m going to sell automation to somebody, as automation work seems to be more supply-limited than demand limited. What doesn’t make sense is to push people into un- or under-employment by artificially making automation more economical. I’d rather see the automation funds spent wherever it makes the most sense for the economy as a whole.

    Automation for automation’s sake is simply another form of “broken windows” economics.

    • #6
    • August 15, 2017, at 1:28 PM PDT
    • Like
  7. Profile Photo Member

    Phil Turmel (View Comment):

    Hang On (View Comment):
    I’m all for high minimum wage precisely because it will drive automation and robots. It’s also why there should be absolutely zero refugee program and zero low-skills immigration. Combine that with an education system that actually educates rather than the ridiculous things our current education system does. I am for higher per capita GDP not GDP growth per se.

    One might think that, as an industrial automation and control systems engineer, I’d agree. But I don’t for the simple reason that I’m going to sell automation to somebody, as automation work seems to be more supply-limited than demand limited. What doesn’t make sense is to push people into un- or under-employment by artificially making automation more economical. I’d rather see the automation funds spent wherever it makes the most sense for the economy as a whole.

    Automation for automation’s sake is simply another form of “broken windows” economics.

    Higher wages increasing automation and productivity can be a good thing if the higher wages come from market forces.

    • #7
    • August 15, 2017, at 4:42 PM PDT
    • 1 like
  8. I Walton Member

    The most significant cost and burden of minimum wages is almost impossible to tease out of the data. Kids who can’t get their first job, unless they are educated, well presented and have some minimum connections to mainstream America, will not become employed, won’t learn job skill and will join the criminal or the dependent classes. The only thing unsure about this observation is whether this remains the principle goal or is an unintended consequence of progressive indifference, racism and stupidity.

    • #8
    • August 16, 2017, at 5:39 AM PDT
    • 1 like
  9. Tedley Member

    James Pethokoukis:I just wasn’t getting a sense from the “Fight for 15” crowd that it had thought much about the possibility that dramatically raising the minimum wage might worsen the competitive position of low-skill humans versus machines.

    It may be different for the leadership, but for the majority of those protesting for a higher minimum, I think you could end this sentence at the word “thought.”

    • #9
    • August 16, 2017, at 5:35 PM PDT
    • Like