extent to which an increase in the minimum wage leads to substitution of low skill workers whose jobs can easily be automated

extent to which an increase in the minimum wage leads to substitution of low skill workers whose jobs can easily be automated

Over the years, there has been a push for an increase in minimum wage all over the united states. It has succeeded in some cities such as Los Angeles, New York, Seattle, and San Francisco. The increase in minimum wage comes at a time when there is a drop in price in computers, which is vital in automation hence replacing human labor (Acemoglu & Restrepo, 2018). An increase in the minimum wage has led to businesses looking elsewhere for cheaper cost of operation, and automation has been identified as a better alternative. For this reason, low skill workers will not only have to compete with each other for jobs but also with computers. To avoid losing jobs, workers will have to learn skills that machines cannot perform. This paper explores the extent to which an increase in the minimum wage leads to substitution of low skill workers whose jobs can easily be automated.

Supporting data

Currently, the minimum wage is set at $7.25 per hour (Acemoglu & Restrepo, 2018). However, this is not tied to inflation and is bound to periodic raise to maintain its value.  Recent studies indicate that there are only ten states that adjust their minimum wages every year, depending on the cost of living (Acemoglu & Restrepo, 2018). Another five cities have also made arrangements to make annual wage increases soon (Acemoglu & Restrepo, 2018). These regular adjustments help the states avoid significant wage adjustments at uneven intervals. It also allows employers to adjust slowly to wage increase (Acemoglu & Restrepo, 2018). There is, however, a risk whereby if the labor payment increases too rapidly, businesses will tend to replace human labor with cheaper automation.

Automation refers to the replacement of human labor with machines. Automation is known to eliminate some job opportunities while also creating new ones. For example, during the industrial revolution, the creation of tools for farming led to a reduction in the need for agricultural labor. At the same time, new factory jobs got opened in the cities (Arntz, Gregory & Zierahn, 2016). Also, the development of smartphones, the internet, and personal computers has created more job opportunities in the service sector. With the fall in computer prices and improvement in their functionality, the labor market is bound to undergo some changes. The graph below shows how an increase in minimum wage affects the income of families. The current income is low, with an increase in minimum wage due to the loss of jobs replaced by automation.

Graph of The Effects of a Minimum-Wage Increase on Employment and Family Income

The food industry in the United States seems to be the most affected as it fights to have a higher minimum wage for its workers and introduce automation in production. For example, employees are required to have software scheduling skills to match staffing levels with low and high customer demand (Arntz et al., 2016) Tablet computers allow customers to order meals and pay hence eliminating the need for a waiter. Self-service kiosks have also replaced cashiers in fast food restaurants. Smartphone apps also enable customers to order and pay for the food before arriving. Supermarkets have also replaced cashiers with self-service checkouts. Robotic arms have also replaced workers in manufacturing plants. Companies have, in turn, hired new workers with skills to complement the latest technology. For instance, an organization using robots will require skilled workers to troubleshoot, service, and maintain the new machines.

For this reason, it is more likely that the people most likely to be replaced by automation due to the increase in minimum wage increase are those with low skill levels. It is, therefore, possible that there will be a reallocation of work from jobs that can get automated due to the increase to minimum wage. It makes the low skilled workers vulnerable to a rise in the minimum wage.

This study focuses more on automation as it is the leading threat to low skilled workers in the United States and internationally. It is mainly due to the significant advancements in technology and the reduction in the cost of these new technologies. Increasing minimum wages for low skilled workers in jobs that can be automated aggravates the need for firms to replace the workers with machines. It is, therefore, essential to understand how an increase in minimum wage will shape employment in the United States. It is necessary to analyze whether an increase in the minimum wage leads to a decline in jobs for low skilled laborers due to automation. Positions held by low skilled workers have high labor costs whenever there is an increase in the minimum wage, which may make firms prefer automation.

Replacement of low skilled workers by machines has forced them to improve their skills for them to remain competitive. Workers with the knowledge of how to manipulate devices and computers will have a better advantage of employment compared to those with no skills. It is also crucial for workers to specialize in areas that can not be automated, such as interpersonal skills. For minimum wage workers to remain competitive, they will need more training and education programs.  Studies indicate that an increase in the minimum wage leads to loss of jobs for routine jobs but not nonroutine or manually regular posts (Lordan & Neumark, 2018). Research also indicates that organizations prefer automation in response to an increase in the minimum wage (Lordan & Neumark, 2018). It, in turn, reduces employment opportunities for routine job workers.

Graph of how automation affects employment

Analysis

Low skilled workers are at a high risk of losing their jobs to automation due to the minimum wage increase. It is important to quantify how these changes will occur to provide more evidence on how the workforce is affected by minimum wage increase and automation.  Automation is a likely and viable substitute to routine job workers and also low skilled labor indicating the effects masks substantial heterogeneity (Lordan & Neumark, 2018). It is, therefore, essential to look at how labor market changes across demographic groups and industries uncover this significant difference in response. Although most of the research is on teenagers, it is crucial to analyze how other worker subgroups not considered in the minimum wage are affected as they are employed in automatable jobs.

There is also the case whereby those who lose their jobs to automation have difficulties in finding new posts compared to other skilled workers. It indicates that there is a possibility that workers who lose their jobs to automation have a risk of staying unemployed for long periods. The study shows that automatable jobs change due to an increase in the minimum wage, and this has an effect on ignored groups such as the elderly. The review is timely as several states continue to raise their minimum wage each year and with new states implementing their minimum wage law. Statistics indicate that over 30 cities in the USA have a minimum wage higher than the federal minimum wage of $7.25, the highest being $11.0 in Washington state, and $11.50 in the district of Columbia as of 2017 (Lordan & Neumark, 2018). Other cities such as Seattle have implemented new minimum wage laws of up to $15 (Lordan & Neumark, 2018). The policy used to come up with these minimum wages get referenced from the effects of unemployment. Most of the literature deals with the impact of increasing minimum payments on teenagers who are not significantly affected by the loss of jobs due to automation. The larger question that should influence policymakers is how raise in minimum wages help improve the living standards of low-income families.

In the case where unemployment increases due to an increase in the minimum wage, especially for subgroups ignored in the minimum wage literature, then policymakers should ignore the evidence provided on teenage workers and focus more on older workers who contribute more to the welfare of their families. Study indicates that a minimum wage increase leads to a significant decrease in the level of employment done for automatable jobs. It is estimated that for every increase in the minimum wage by $1, there is a decrease in the share of low skilled worker employment in automatable jobs by 0.43% (Hughes, 2014). However, the average impact of the increase in wage is masked by heterogeneity by demographic groups and industry. It means that higher levels of unemployment are observed in automatable manufacturing jobs, whereby an increase of $1 in the minimum wage leads to a decrease in the share of employment among low skilled workers by 0.99% (Hughes, 2014). It has also been noted that in the manufacturing industry, the percentage of older workers in automatable employment decreases the most. Automatable work also decreases sharply for women and blacks.

Primary Conclusion

From the study, it is evident that there is an increase in the number of people unemployed and who were previously employed after an increase in the minimum wage. The levels of unemployment are higher for those working in automatable jobs in the manufacturing industry. There is also a high level of unemployment among women and blacks after an increase in the minimum wage. The study shows the risk found in raising the minimum wage for workers who were previously not considered to be in the minimum wage group and who support the income of their families. It can, therefore, get concluded that the old, women, and black are most likely to lose their jobs in case there is an increase in the minimum wage in automatable jobs. There is also the possibility that many more jobs in the future are at risk of automation. It can get concluded that an increase in minimum wage makes companies adopt new technologies that replace workers. Although automation leads to the creation of new jobs, those with no skills to operate the machines are left with no opportunities for employment.

Secondary Conclusion.

With an increase in the minimum wage, leading to loss of jobs for low skill workers, there is a need for such workers to improve their skills for them to remain competitive. Workers in the future will need to specialize in soft skills that can not get automated for them to stay employed. Policymakers should also consider the effects of automation on the low skilled workers as they establish new minimum wages. Minimum wage increase makes automation more cost effective for firms rather than paying the increased wages to low skill workers. There is also a need to enact gradual increases in minimum payments, giving the employee and workers more time to adjust to the changes. It is also essential to pair an increase in the minimum wage with training programs to improve the skills of the workers reducing the unemployment rate due to automation. There is a need to combine several solutions to the effects of industrialization and minimum wage on workers.

References

Acemoglu, D., & Restrepo, P. (2018). The race between man and machine: Implications of technology for growth, factor shares, and employment. American Economic Review, 108(6), 1488-1542.

Acemoglu, D., & Restrepo, P. (2018). Artificial intelligence, automation, and work (No. w24196). National Bureau of Economic Research.

Arntz, M., Gregory, T., & Zierahn, U. (2016). The risk of automation for jobs in OECD countries.

Hughes, J. (2014). A strategic opening for a basic income guarantee in the global crisis being created by AI, robots, desktop manufacturing, and biomedicine. Journal of Evolution and Technology, 24(1), 45-61.

Lordan, G., & Neumark, D. (2018). People versus machines: The impact of minimum wages on automatable jobs. Labour Economics, 52, 40-53.