At the start of 2017, 19 U.S. states raised minimum wages, but will the short-term benefits to low-wage workers last?
New research suggests that minimum wage increases make automation an attractive long-term solution to rising minimum wages. In fact, a $1 increase can cost tens of thousands of jobs according to new analysis.
Economists at the London School of Economics and University of California, Irvine released results from their analysis of 35 years of Census data (from 1980 to 2015). They found that for lower-skilled workers (those with high school diplomas), higher minimum wages encourage employers to automate. These are the very workers who would stand to benefit from minimum wage increases.
What’s interesting about this analysis is that the forecasted job losses may be understated. Researchers examined the impact of a nation-wide increase in hourly wages from $6.77 to $7.77. However, this is just half the $15 minimum wage that have been enacted in places like Seattle or that the Fight for 15 campaign is pushing for. At that minimum wage level, the impacts of automation could be much worse.
And not everyone will be impacted equally, women and younger workers are most at risk:
These effects are among the largest for individuals employed in the manufacturing industry, and are larger for the oldest and youngest workers, for females and for blacks.
On average, females are affected more adversely than males: in the aggregate estimates in column (1), the negative estimate is significant only for females, and is almost ten times larger, indicating that, for females, a minimum wage increase of $1 causes a decrease of 1.01 percentage points in the share of automatable jobs (the elasticity is −0.14). Across industries, these negative effects for females are concentrated in manufacturing, services, and public administration; for example, a $1 minimum wage increase reduces the share of automatable jobs in public administration by 3.67 percentage points – an elasticity of −0.41).
Researchers do think that workers displaced by automation will move into non-routine jobs that can’t be so easily automated.
We are at a unique time in history – not unlike at the start of the Industrial Revolution – where technology is making workers more efficient and productive. While that does lead to some workers being displaced, it pushes those workers into other jobs and creates entirely new industries.
Some alarmists want to paint technology as a job-stealer and job-killer, but they forget that technology improves our standard of living. It generates new advances that save lives, extend our lives, make our work easier, erase distances, and stimulate economic activity.
What we should focus on in the short-term is how minimum wage increases hasten the advance of technology. The very workers, who are supposed to get bigger checks end up without jobs. If they aren’t retrained or able to acquire new skills, they will not just fall behind, but be left behind.