In BriefResearchers from the National Bureau of Economic Research have published a paper noting a relationship between automation and the minimum wage. From 1980 to 2015, a $1 increase in the minimum wage resulted in a 0.43 percent decline in automatable jobs.
Benefiting Whom, Exactly?
The desire for a higher wage is pretty self explanatory. However, the impact a minimum wage increase could have on society is not so clear.
In an effort to shed light on this subject, researchers at the National Bureau of Economic Research (NBER) conducted a study, and they’ve concluded that a minimum wage hike might not necessarily lead to happier workers. In fact, it could lead to fewer workers as such an increase has historically resulted in the loss of more jobs to automation.
For this study, authors Grace Lordan of the London School of Economics and David Neumark of the University of California, Irvine looked at minimum wage changes in the United States from 1980 to 2015. They realized that these changes affected the number of so-called “low-skill” or minimum wage jobs — such as packing boxes or using sewing machines — in various industries in the country.
In other words, if a wage hike meant it would cost more to hire a human to do a job than it would to have a machine do it, employers often chose the machine.
“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, and increases the likelihood that low-skilled workers in automatable jobs become unemployed,” the authors wrote in the paper’s abstract.
The researchers determined that a $1 minimum wage increase led to a 0.43 percent decline in automatable jobs. Such a wage increase led to a full one percent decline in the case of manufacturing, and older, low-skilled workers employed in that industry were particularly likely to be negatively affected by the wage increase.
The Cost of Automation
While the current federal minimum wage in the U.S. has remained unchanged since 2009 — $7.25 an hour — 30 states have higher minimum wage laws. These are, of course, meant to ensure that the “minimum wage” is the same as the “living wage” — the amount of money a person needs to earn to be able to afford such expenses as rent, food, and other necessities.
However, as the NBER study showed, such wage policies should be carefully considered in the face of intelligent automation. Legislators must ask themselves if increasing the minimum wage would help workers keep their jobs or speed up losses due to automation.
Today’s automated systems are more intelligent than ever before, and machines are now capable of performing even higher-skill jobs thanks to advances in artificial intelligence (AI) and robotics. In short, today’s machines are far more advanced than the ones available to employers during the three decades covered in the NBER study.
A number of industries in the U.S. have already started feeling the effects of automation. From Amazon’s “employee-less” grocery store to the factories using autonomous vehicles to transport goods, workplaces that feature routinized tasks are already turning to automated systems.
Experts predict this trend will speed up over the coming years and decades. According to a recent study by consultancy firm PricewaterhouseCoopers, 40 percent of jobs in the U.S. are at a high risk of being taken over by robots by 2030. In the U.K., some 30 percent of jobs are vulnerable, while Germany and Japan could lose 35 percent and 21 percent, respectively.
While troubling, studies like these serve a valuable purpose as they give us time to prepare for the future effects of automation before we’re actually living with them. As long as we pursue ways to mitigate the increased use of automated systems — perhaps through universal basic income (UBI) trials, retraining or education programs, or taxes on robots — the world will be able to benefit from the technology.