How Raising the Minimum Wage Destroys Jobs

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For anyone who dismissed as a bunch of right-wing propaganda the claim that a higher minimum wage and mandatory health benefits would mean more workers replaced by computer screens, here is a reality check.

McDonald's announced this month that it will deploy computer kiosks at 7,000 restaurants in Europe, allowing customers to place their own orders and pay by swiping their own credit card. Another restaurant chain, Panera, is deploying the computer kiosks for customers in the U.S., a development that Bloomberg News reported under the headline, "More Kiosks, Fewer Cashiers Coming Soon To Panera."

The fast-food trade publication QSR that a McDonald's in Laguna Niguel, California, is experimenting with iPads that let customers customize their hamburgers. A White Castle in Columbus, Ohio, has deployed computer kiosks that let customers place their own orders, unassisted by a paid human being. "Both Chili's and Applebee's recently announced that they are adding tablets throughout their restaurants, allowing customers to order and pay at their tables," the QSR story says.

Nextep Systems, a Troy, Michigan-based firm that specializes in touch-screen self-order systems, says its sales for 2013 were up 50 percent from the prior year. At some point, you won't even need the kiosk—you'll be able to order from an app on your smartphone, maybe even before you arrive at the restaurant.

And it's not only restaurants. Even Costco, a firm that President Obama has praised for its labor practices, features self-checkout lanes where customers scan the bar codes on their own purchases, then pay by swiping a credit card and signing on a computer scanner. No cash-register employee needed, whether at minimum wage or "living wage."

For the restaurants and customers, the technology has potential benefits besides savings on labor costs. Accuracy is supposedly improved, and the restaurants seem to hope they can sell more food to customers who don't have to worry about being embarrassed when they ask out loud for that supersize fries.

For people who worry about jobs and joblessness in America, though, there's a concern that yet another occupation may have its ranked severely thinned by technological progress. The number of travel agents in the U.S., for example, declined to about 64,000 in 2013 from 117,000 in 1997, as Orbitz, Expedia, Priceline, and Travelocity, not to mention the websites of the airlines and hotels themselves, replaced human agents with self-service. Automated corporate telephone answering systems and voicemail trees had roughly the same effect on the number of telephone switchboard operators. Smart meters that communicate automatically directly with utility companies have put meter readers on the Bureau of Labor Statistics' list of fastest declining occupations. "Pay at the pump" with a credit card at self-serve gasoline stations has reduced the number of gas station attendants, and windshield-based transponders like E-ZPass have reduced the need for human highway toll collectors.

Optimists will point out that there are some jobs that are difficult to automate—the BLS lists home health aides, physical therapists, dental hygienists, and substance abuse counselors among the fastest growing occupations. And there is something awesomely powerful and efficient about the dynamism with which the invisible hand of capitalism reallocates labor to more productive tasks.

Still, even political moderates well familiar with the laws of economics are voicing concerns about the effects of technology. The economist and former treasury secretary Lawrence Summers warned recently of "the devastating consequences of robots, 3-D printing, artificial intelligence, and the like for those who perform routine tasks. Already there are more American men on disability insurance than doing production work in manufacturing. And the trends are all in the wrong direction, particularly for the less skilled, as the capacity of capital embodying artificial intelligence to replace white-collar as well as blue-collar work will increase rapidly in the years ahead."

Microsoft founder Bill Gates warned recently, "you have to be a bit careful: If you raise the minimum wage, you're encouraging labor substitution, and you're going to go buy machines and automate things."

Gates, who made himself one of the richest men in the world and founded a company that employs a lot of people, knows that machines and automation can create jobs and wealth as well as destroy them. But that’s one thing when it happens on its own, another thing when it happens when politicians, through regulation, making hiring an employee so expensive that it's cheaper for the employer just to buy a machine instead.

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  • Rusty 5hackleford

    Calling Reason editors!

    "Even Costco, a firm that President Obama has praised for its labor practices, features self-checkout lanes where customers scan the bar codes on their own purchases, then pay by swiping a credit card and signing on a computer scanner. No cash-register employee needed, whether at minimum wage or "living wage."

    Please use correct information when you are criticizing an issue.

    http://finance.yahoo.com/news/.....13946.html

    or to reply

  • Haven't disappeared yet in the Costco nearest me.

    Also Kroger

    (in case you don't like shopping at Costco)

    or to reply

  • NealAppeal

    A year old report...way to show those editors! I've seen various stores take them out...only to put them back in. I would bet by popular demand. I'll be honest, I can check my groceries better than half the employees at these stores. I'd rather not have to interact with them either.

    or to reply

  • ~Knarf Yenrab~

    The economist and former treasury secretary Lawrence Summers warned recently of "the devastating consequences of robots, 3-D printing, artificial intelligence, and the like for those who perform routine tasks. Already there are more American men on disability insurance than doing production work in manufacturing. And the trends are all in the wrong direction, particularly for the less skilled, as the capacity of capital embodying artificial intelligence to replace white-collar as well as blue-collar work will increase rapidly in the years ahead."

    Luddite. Fallacy. Will. Not. Die. The consequence of automation is that within a century, everything from mining to manufacturing to medicine will be automated, leaving human beings to pursue other, emergent interests. And the idea that low-skilled workers will somehow become denizens of tent cities without an income is absurd, particularly within a republican system of government that has a 100-year tradition of giving away huge sums of money to ensure voter loyalty.

    Socialism may suck, but if the market succeeds in eliminating 90% of the scarcity we currently face--particularly in energy and medicine--we'll be a massively wealthy society that can handle the parasitism of people living on handouts. And if we eliminate most all scarcity, having a population composed entirely of the idle rich dedicated to art, philosophy, and research doesn't strike me as such a terrible thing.

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  • Rusty 5hackleford||#

    Please don't tell me you are part of the "Venus Project" cult.

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  • ~Knarf Yenrab~||#

    Never heard of it. I'm more a Cult of Economic Development sort of guy.

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  • ~Knarf Yenrab~||#

    "Fresco argues that Earth has enough resources and that the practice of distributing resources through a price system method is irrelevant and counterproductive to survival."

    Good luck with that.

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  • Daily Beatings||#

    With replicators, holodecks, starships with dilithium crystal warp drives, and hot female aliens a certain captain seems to enjoy quite often.

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  • Knarf the Yenrabian||#

    In a world with minimal scarcity, there will be hot female aliens for everyone!

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  • Spaceno93||#

    Doh, you mean a business is going to get a machine that functions well, doesn't take a sick day in general, doesn't complain, and saves money?

    Serious though, I would like to see what the break even point is. Say a Kiosk cost 10,000 so it take 667 hours of use (not counting electricity or repairs) so 17 weeks to become profitable? I can see it saving in training and turn over.

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  • american socialist||#

    We don't have a shred of evidence that incremental increases in minimum wage increase unemployment or hinder economic growth, but because fast food companies are now using a thing called a computer to serve its customers we'll be sure to blame that on this. Or is it this on that?

    Ira, have you been to a grocery store, oh, in the last 15 years or so? Notice anything different in the 10 items or less aisle?

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  • The Heresiarch||#

    Well, you've convinced me. Let's just turn it up to $100.00 per hour and everyone will be prosperous.

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  • Emmerson Biggins||#

    Yes. We have at least a shred of evidence. It's called the "Law of Supply and Demand". I think it's been empirically confirmed a few times.

    Since you are a socialist, I wouldn't expect you to understand such things. Run along and play now.

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  • CommonSense457||#

    The title of the article should be "how technology destroys jobs." That's a real stretch, blaming the current debate on minimum wage as the fall man for the loss of jobs, when it appears all the author is doing is listing examples of how apps and kiosks are making order taking easier. Quick Check went the route of order kiosks almost a decade ago. No one made a hubub about minimum wage back then. It just made sense to leverage technology. Does that cost jobs? Sure. Ask any lamplighter how technological progress affects the workforce.

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  • creech||#

    If you've ever worked in the real world, an employer making a decent profit reacts only when an expense that is a particularly large portion of his costs suddenly jumps in price. If he has one minimum wage employee out of fifty, no big deal. If he has forty out of fifty, damn right the robot salesman will be getting a call.

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  • Curtisls87||#

    A certain part of me agrees with the sentiments of other posters that point to the fact that job replacement is not really a minimum wage argument. Having said that, there is a slope in technology whereby in its infancy, its cost is quite high, then it steadily drops as user adoption takes over until it becomes commoditized. Replacing low wage workers with kiosks even 10 years ago was expensive and user adoption was low. As these kiosks become more commoditized and lower in price, they definitely do impinge on low wage positions.

    Having said that, we constantly see this wherever there is unskilled labor providing a service. Even with skills, many positions have gone the way of the Dodo. This is where flexibility and retraining become crucial in the workforce. 25-35 years ago, I installed business phone systems for a living (25 pair cables running to each phone, a MDF, etc). Now all those skills are pretty much useless. I now run a team of systems and network engineers that build and maintain "cloud" services. Such a thing did not exist 25-35 years ago, so I would not have even known to train for it. I had to adapt and retrain (much of it on the job).

    As technology proceeds, we all will have to learn to do so, or we will go the way of the cooper and the blacksmith.

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  • Eric Bana||#

    Thatchers have had it made though.

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  • ace_m82||#

    "Gates, who made himself one of the richest men in the world and founded a company that employs a lot of people, knows that machines and automation can create jobs and wealth as well as destroy them."

    The only "automatons" I can think of that actually destroy wealth are built for war. And even then they aren't really "autonomous".

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