Hike the minimum wage. $10 an hour, $15, an hour, heck, lets make it $20 an hour. That should really spur the economy. Just one problem. Raising costs for businesses puts pressure on them to cut costs elsewhere. No problem. There's an app for that. Michael Saltsman writes in the Wall Street Journal:
Ten years ago it might have seemed far-fetched that a customer could order food in a restaurant without speaking to anyone. But it's a reality now as service employers across the country—including Chili's, Chevys Fresh Mex and California Pizza Kitchen—introduce tabletop ordering devices. A few clicks on an iPad-like device and the food is on its way.
Technology has made these changes possible, but that's not what's driving their implementation. Steady federal and state increases to the minimum wage have forced employers in retail and service industries to rely on technology as the government makes entry-level labor more expensive. Now Democrats are pushing to raise the federal minimum wage to $10.10 from $7.25 at the behest of President Obama, who argued in his State of the Union address that the increase would "help families." Lawmakers should consider the technology trend a warning.
Microsoft co-founder Bill Gates made the connection in a recent interview on MSNBC. Asked if he supported a higher minimum wage, Mr. Gates urged caution and said the policy would create an incentive for employers to "buy machines and automate things.".....
Technology has enabled much bigger overhauls. Consider the modern department store: At some Target and Macy's locations, customers can check their own prices, as well as check themselves out at self-service kiosks after shopping. The Bureau of Labor Statistics reported in 2012 that the number of these establishments has grown by 23% over the last 10 years, while total employment at the firms has fallen by 6%.
Tablet-based ordering is coming into vogue at U.S. restaurants: Chefs polled by the National Restaurant Association recently ranked computerized menus as the top tech trend for 2014. Airports in locations like New York City and Minneapolis now feature "restaurants" that are waitstaff-free. In 2011, McDonald's announced it was replacing human cashiers with touch-screen alternatives at more than 7,000 European locations.
Customers may find the new technology convenient, but the thousands of young adults who used to earn money filling these roles won't. The data suggest employers are acting from economic necessity rather than spite. Profit margins in restaurants range from 3%-6%. They are even more modest at grocery stores, at 1%-2%.
Empirical studies, including University of California-Irvine and Federal Reserve researchers David Neumark and William L. Wascher's exhaustive 2008 book "Minimum Wages," show what happens when labor costs increase. Companies must choose between increasing prices or reducing costs to maintain limited profit margins.
And they've already been fighting rising costs. The federal minimum wage increased by 40% between 2007 and 2009. In the five years prior to that hike, 28 states acted independently to increase their own minimum wages. The cities of San Francisco and Santa Fe were the first to raise their base wage to nearly $9 an hour. Eleven states now raise their minimum wage automatically with inflation. New Jersey even amended its constitution to ensure wage hikes. Then there's the Affordable Care Act, which has presented low-margin industries with another set of cost challenges.
President Obama and Senate Democrats are now endorsing another 40% increase in the federal minimum wage. And in localities such as Seattle and San Francisco, $15 an hour—which translates to an entry-level wage of $30,000 a year—is being seriously entertained. The small airport town of SeaTac in Washington already passed a $15 an hour minimum wage in November. It is not surprising that companies are urgently seeking labor savings that don't dramatically alter the customer's experience.
Which is exactly what today's technology offers. Andy Puzder, CEO of CKE Restaurants, the parent company of Carl's Jr., Hardee's and other brands, has cautioned legislators that a higher minimum wage is "encouraging automation." Other service-industry CEOs are saying the same thing behind closed doors.
"Efficiency" is the positive public face of these changes. Chris Sullivan —a co-founder of Outback Steakhouse who now works with MenuPad, a tablet-ordering company—explained his product to me this way: "It increases productivity, allowing servers to wait on more tables." That means tips may increase for some.
But the flip-side of more efficiency is a 20%-25% drop in the number of waitstaff necessary to run a restaurant. Currently, a worker who earns tips can be paid below minimum wage, allowing tips to make up the difference. But the $10.10 proposal would raise the minimum tip wage to $7.07 from $2.13, a 232% spike. With roughly three million current tipped jobs in the U.S., that could amount to as many as 750,000 fewer entry-level opportunities if implemented widely.
Technological change is inevitable and often healthy for industries, and perhaps our restaurant and grocery store experience will look different in 20 years regardless of labor costs. Yet policy makers are encouraging the switch to technology by increasing the cost of hiring—at a time when unemployment for young adults age 16-19 has hovered above 20% for more than five years.
There's no limit on who can be replaced: San Francisco-based Momentum Machines has a burger-flipping robot that replaces three full-time kitchen staff, makes no wage demands and stages no walkouts.
Mr. Saltsman is research director at the Employment Policies Institute, which receives support from businesses, foundations and individuals. Rest of essay
Mathematics and economics can be such a pain.
16 comments:
All true, but fans of free markets (myself included) rarely follow this argument to its logical conclusion.
There is no realistic scenario under which 35-50% of currently existing low- to medium-skill labor isn't automated within 30 years. Over 50-60 years, the sky is the limit: virtually anything that doesn't involve high-level creative, technical, or design skills will be susceptible to automation. Everyone from IT people, to manufacturing workers, to delivery drivers, to many lawyers and doctors will be replaced.
So the question becomes: what do we do with free market capitalism when (and it's when, not if) the historical assumption that almost everyone can sell their labor for subsistence goes from being true to being false?
The answer could be: We enjoy a vastly better existence where we are freed from the drudgery of most menial work and get goods and services for a fraction of the cost. But that answer is not possible without a radical rethinking of how we distribute wealth. The only questions are when and how we do it.
Your theory avoids the obvious question, 11:00. When the replacements occur, what do we do with the outcasts? Can they be used for fuel? Can we rebuild failing infrastructure using their carcasses? Of what possible utility will they be?
Do we put them in holding pens, or prepare more razor-wire compounds? Do we lay them parallel in ditches and pump them full of lead? Do we 'ship them back where they came from'?
The obvious answer, if the current trend is any clue, is that we will clothe and feed them and give them an allowance and expect nothing in return.
But that answer is not possible without a radical rethinking of how we distribute wealth.
Fallacy of the false dilemma.
It's the cash value of a dollar that isn't being considered.
Nor is the problem limited to jobs disappearing overseas or being automated.
A Florida teacher making $8000 a year in 1968 would have to make $54000 a year to stay even. They make $49000 a year.
A 3rd round draft in the NFL gets $550000 as a signing bonus. In 1968 it was $9000.
The problem is that even middle class salaries haven't kept pace with dollar value.
Other salaries have wildly become wildly inflated with no correlation to jobs generated or value to society.
Our middle class average income wage earner is now sliding into poverty by any statistical measure one uses.
It's about how much money does it take to subsist in this country.
A computer is better than the labor pool we have around here. So democrats give them a lousy education. NO charter schools or choice. It is rare a cash at Kroger even looks up and says hello to you. They are too busy joking with their friends.
The problem is not just computers. These folks don't know how to work with the public.
4:53, it's only a false dilemma if (a) you can explain how a free market can solve the problem explained above; or (b) you think leaving 75% of the population to sink or swim in a labor market where they compete directly with robots is an acceptable solution (or put into camps, as Morton suggests).
I reject both notions. What I'm saying, in a nutshell, is that almost everybody will have to be paid just for being alive at some point mid-century. I don't like it, but there's no other plausible scenario.
Another either-or fallacy. Congrats.
The author is not presenting an either-or choice. He is simply saying if you raise costs to a certain point, then business owners will start looking for cheaper alternatives. Supply and demand dictates someone will come up with a solution if a profit can be made.
I mean really, $15 an hour to push buggies at a grocery store. Seriously?
What gets me is there is no "plan" to get out of this economic malaise occurring in the middle class. Just like Obama care, NOW is the worst time in 100 years to pass a minimum wage increase. Would someone put a plan together to cut taxes, repatriate cash, bring mfg home with incentives, and get this economy off its ass, then you wouldn't need a min wage hike, but argue the point then, NOT NOW!
This transition is common. There may be an increase in the low-skilled server jobs but there will be an obvious need for those skilled in producing and manufacturing the tablets (hardwar, softeware etc.).
9:12 Apparently you don't understand that 8:56 and others have their eye on the last domino. The result is as predicatable as it is inevitable. The only question is when.
No, 12:43. The transition in the 21st century won't be like the transition in the early 20th century.
Hardware will continue to be assembled for 15-20% of U.S. minimum wage overseas until robots are capable of doing it better. Under no circumstances will assembly of computer hardware provide large numbers of U.S. jobs ever again. As for creating software, it's currently done by a small cadre of highly skilled programmers. It's not a replacement for what 95% of people do. (And that's without even touching on what happens when the programs get better at programming than we are.)
Yes, there have been transitions before, but they didn't involve machines that can mimic and improve upon human performance in nearly every area of the economy. This one will. To just say, "Oh well, there will always be something that billions of humans can do better than the best machine," is pure denial.
February 3, 2014 at 3:28 PM = supremely confident of their supreme confidence
3:28 has nailed it.
When I was a kid bloviators talked about the dilemna we would have when labor-saving devices free us of menial labor, and we would have so much time on our hands we wouldn't know what to do with it all. They never imagined the effect this shift would have on menial laborers.
Those who don't get a basic education, and who don't continually upgrade their job skills, are going to find fewer and fewer low-skill jobs available as time progresses. Those who are paying taxes will have little to no desire to support those who have chosen not to acquire the skills necessary to out-compete some third-worlders for jobs on the lowest rung on the ladder.
The sock puppets are out in force on this post.
57 year-old fast food fry cook, one of millions in this country reduced to part-time status to avoid Obamacare requirements on business, tells Comrade Barry they he can't survive on what he makes.
President Epic-Fail ducks the reason why his hours were reduced and tells him the solution is a higher minimum wage.
Good old Donkeycrat logic!
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