Entrepreneurs

Here's new evidence minimum-wage hikes result in workers being replaced by robots

A robot organizing boxes in a factory.
Photo by Bloomberg
A robot organizing boxes in a factory.

There is new evidence that raising the minimum wage pushes business owners to replace low-skilled workers with automation. And it shows that old, young, female and black low-skilled workers face the highest levels of unemployment after a minimum-wage increase.

Economists Grace Lordan of the London School of Economics and David Neumark of UC Irvine studied 35 years of government census data for their working paper, which was released in August, titled "People Versus Machines: The Impact of Minimum Wages on Automatable Jobs."

"Based on [current population survey] data from 1980-2015, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers," the study says.

These automatable jobs include positions like supermarket check-out clerks, who can be replaced by self-service checkout cashiers, and assembly-line workers in manufacturing plants, who can be replaced by robotic arms. Low-skilled workers, for the study, are defined as those who have a high school diploma or less.

"We find that a significant number of individuals who were previously in automatable employment are unemployed in the period following a minimum wage increase," the study says.

And while most minimum-wage research focuses on teenagers, this study looks at the influence raising the minimum wage has on many other populations. "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."

Raising the minimum wage is a deeply polarizing issue. While some argue raising the minimum wage squeezes businesses, forcing them to lay off workers, others argue it is beneficial for both individual workers and the economy as a whole.

The federal minimum wage is $7.25 per hour, but 30 states and the District of Columbia have higher state minimum wages that go as high as $11 in Washington state, and $11.50 in the District of Columbia, according to Lordan and Neumark. Some cities have their own rules, too, such as Seattle, which has a minimum wage of $15 per hour.

Minimum wage is not the only cause for automation. Billionaire tech titan Elon Musk has warned that advances in technology are happening so fast that the government will end up having to pay people cash handouts to live.

"There is a pretty good chance we end up with a universal basic income, or something like that, due to automation," Musk tells CNBC in an interview last year. "Yeah, I am not sure what else one would do. I think that is what would happen."

Billionaire entrepreneur Richard Branson has echoed the sentiment. "With the acceleration of [artificial intelligence] and other new technology ... the world is changing fast," Branson writes in a post published this week. "A lot of exciting new innovations are going to be created, which will generate a lot of opportunities and a lot of wealth, but there is a real danger it could also reduce the amount of jobs."

While many low-skilled workers will be replaced by automation, developments in technology will create some new jobs, too.

"[F]irms may hire other workers who perform new tasks that are complementary with the new technology. For example, a firm using more robots may hire individuals to service, troubleshoot, and maintain these new machines," the study from Lordan and Neumark says.

These jobs, though, are likely to require more education and training than the lower-skilled jobs being replaced. And, notable even to the study's authors, those higher-skilled jobs that are created by new technology tend to be filled by women.

"Interestingly ... we find positive effects for females in higher-wage jobs," the study says. "This suggests that employment prospects for some workers in higher-wage occupations are boosted by minimum wage increases, consistent with a story in which some jobs are lost to automation, while others are created.

"However, those that are created are for higher-wage workers among the lower-skilled workers, and perhaps — given that result emerges for women — among jobs less likely to involve manual or physically demanding labor."