Everyone is predicting what the real world impact of Seattle’s newly passed $15 minimum wage will be. The truth is there will not be a mass exodus of businesses from the city, nor will the economy crash.
Certainly, some businesses will move or close down, consumers will pay more, some workers will receive fewer benefits and the lowest skilled workers will have a harder time finding a job because they are competing with more experienced workers.
But many businesses will simply figure out how to employ fewer low-wage workers. They will do that by substituting machines and technology for people.
Service industry CEOs have cautioned a higher minimum wage is “encouraging automation,” which can improve efficiency. Even Microsoft co-founder Bill Gates warns that a higher minimum wage would “encourage labor substitution” and incentivize employers to “buy machines and automate things” and ultimately “cause job destruction.”
He’s right. When government increases the cost of labor, employers find other ways to save money.
Just look at how McDonald’s has responded to France’s $12 an hour minimum wage. In 2011, McDonald’s invested in 7,000 touch screen computers in France to reduce the number of workers needed. Restaurants around the country are already exploring automation as a means to cut costs; Applebee’s is installing 100,000 tabletop tablets for ordering and payments.
Many food businesses are considering a machine that can freshly grind, shape and custom grill 360 gourmet burgers per hour, no human labor needed. Alpha, the burger-making robot, can even slice and dice the pickles and tomatoes, put them on the burger, add condiments and wrap it up. The manufacturer makes the point that cashiers or servers aren't even needed: "Customers could just punch in their order, pay, and wait at a dispensing window." The maker says Alpha will pay for itself in a year.
Even Seattle’s coffee icon, Starbucks, is joining the automation movement; the company recently announced it will soon release an app allowing customers to order and pay from smartphones.
Automation, in the form of tablet ordering, self-check out and other labor saving measures can reduce the number of necessary employees by 20%–25%. According to the Bureau of Labor Statistics, the number of businesses taking advantage of the cost savings of automation has increased 23% over the past 10 years, while total employment at these businesses has decreased by 6%. The trend will get bigger, not smaller; such efficiency means fewer workers are needed.
Professor Arindrajit Dube, an economics professor at the University of Massachusetts, actively supports a “modestly higher wage” than the current federal wage of $7.25. He says while a modest increase does not harm employment, a radical increase to $15 an hour could hurt employment and increase prices:
“Would I be concerned about possible job losses if there were a $15 minimum wage in the restaurant industry, yes, I’d be concerned. There are concerns that it might lead to the substitution of automation for workers”
Given what Alpha can do, Professor Dube's concerns are not unfounded.
But it isn’t just fast food workers and waiters who will lose their jobs to automation as the result of an artificially high mandated wage. In response to the threat of a higher minimum wage, a manufacturing company in Seattle has decided to begin replacing most of its 100 employees with automation in coming years.
The company initially planned to simply leave Seattle and relocate in a neighboring city to escape the impending $15 wage mandate. But once the Governor and some lawmakers began pushing for a higher state minimum wage earlier this year, which is already the highest of any state in the nation, the company made the hard decision to stay in Seattle and begin moving towards automation. The company shared their story but requested anonymity because its employees do not yet know they will be unemployed in the near future, thanks to the city’s new minimum wage.
The fact is Seattle’s mandated $15 minimum wage will push more and more businesses to adopt a business model that replaces people with machines. The higher wages are artificially pushed, the more cost efficient it becomes for businesses to invest in machines instead of people. Unemployment will be the unfortunate and unintended result of Seattle’s new wage law for many workers whose jobs can be replaced by technology.
The terms “flipping burgers” or “want fries with that” used to describe the entry-level jobs for those with few other employment prospects. Thanks to a $15 minimum wage, low skill workers in Seattle may not even have that option.
