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Will minimum wage hikes lead to a huge boost in automation? Only if we're lucky.

McDonald's Tests Self-Ordering Kiosks Photo by Kevin Moloney/Getty Images

As states like California and cities like Seattle boost their minimum wages up to $15 an hour, critics warn that job losses will be inevitable. In particular, one major line of criticism from outlets like the Wall Street Journal editorial page and Forbes's Tim Worstall is that big increases in pay floors only lead to job loss via automation. Both critics point to initiatives at McDonald's and Wendy's to automate more of the service process, and warn that robots, rather than workers, will be the real winners if liberals succeed in boosting minimum pay.

This is doubly wrong. On the one hand, there's little guarantee that increased minimum wages really will increase the pace at which labor-saving technology is developed. On the other hand, there's no reason to think this would be a bad scenario.

If minimum wage hikes really do spur the creation and adoption of high-quality new equipment to automate elements of, say, the food service industry, then that would be a very positive outcome that implies minimum wage hikes are a great idea. Productivity-enhancing technology, after all, is a crucial pillar of social and economic progress. The problem in recent years is that we haven't had nearly enough of it.

California's minimum wage hike pushes the issue beyond the terrain in which it's been studied. Given that, a huge increase in automation is really the optimistic outcome. The thing to worry about is that the robots won't happen, not that they will.

Welcome our new robot wage slaves

What about the workers thrown out of jobs by the new robo-waiters? Many would get new jobs, though the way this would work is often ignored.

  • Most restaurants would keep longer hours (they're paying for the rent and the robots anyway), meaning many workers would get a raise and change shifts.
  • The advanced robo-restaurant technology would itself be a valuable American export good, and people would be employed in designing and selling it.
  • Some low-wage work would be reallocated out of the relatively low-social-value restaurant sector and into things like child care and home health assistance, for which there is ample demand.
  • Since poor people are now making more money, there will be opportunities to sell them things — things like restaurant meals! — that they couldn't previously afford, which in turn creates demand for new jobs.

Even better, to the extent that we are able to produce everything we need with less labor, we can afford to let people work less.

Right now the retirement age is rising from 65 to 67, and most people think it will have to go up to 70. If robots can do a lot of the work instead, we could put it back down to 65 or even to 62 while still growing the economy. We could give more financial support to college students so fewer of them are doing part-time food service work. We could give new parents more paid leave time and mandate four weeks of paid vacation for everyone.

It would be great!

Worry that the robots won't take the jobs

The scenario to worry about with minimum wage hikes is that no technological solution will emerge. Restaurant operations will remain about the same, but employing people to work in them will get more expensive.

In pricey, crowded cities the results won't be so bad. Operating a restaurant will become less lucrative, which in the long term will mean restaurateurs offer lower bids for leases on prime restaurant locations. That will mean lower returns for landlords, which is a small price to pay for better living standards for low-wage workers.

But in less crowded, less expensive locations where labor is a bigger slice of the overall cost pie, it will just mean fewer restaurants open and those that do open will keep shorter hours. People will have a harder time finding jobs (not just super low-end jobs, but also better-paying managerial and construction jobs) and convenient meals.

Some people will benefit through higher pay, but others will just find themselves unable to find work unless they move to a different state that's friendlier to opening new restaurants.

This is the biggest question about minimum wage rules

Whether a legislative push for high pay can actually spur the development and deployment of new productivity-enhancing technology is really the big unknown about the minimum wage. The economics literature has an enormous amount to say about how to efficiently distribute a fixed stock of resources, but has not really succeeded in shedding much light on where innovation comes from or what policies support it.

Existing studies of the labor market impact of minimum wage hikes generally find very small effects on employment based on very small wage increases. The question they ask is essentially whether a small hike in the wage floor introduces a small inefficiency into the labor market or whether it corrects for an existing inefficiency that gives employers some monopoly pricing power over workers.

This is an interesting question, but the wage-innovation question is a much more difficult — and yet important — one. The prevailing conventional wisdom in Western policy circles over the past generation has been that innovation is something that just happens. The government can help it along by providing an educated workforce and funding some basic R&D, but certainly can't just summon productivity-enhancing technology into existence by waving a magic minimum wage wand. But that's really just an assumption, not a proven proposition.

The fact that so many minimum wage skeptics think it's intuitively wrong is telling and interesting. A cheap labor economy, after all, doesn't offer as many incentives for companies to identify and promote managers who are skilled at finding, developing, and deploying labor-saving technology. Perhaps if a large, dynamic, and innovative state like California forces companies to eschew cheap labor, they will respond by innovating and reducing their need for workers.

At least, residents of inland California had better hope that happens. Otherwise they'll be packing their bags for Texas.