Zackery Wallach

Professor Creaney

English 11000

October 28, 2019

Maintaining Financial Equitability in an Automated Society 

Over the past few years the topic of increasing the federal minimum wage has created much debate. Supporters of the increase believe that doing so will help to reduce poverty and improve the lives of millions of Americans both financially and mentally. At first glance this seems to be a strong argument for an increase to the minimum wage, however many are fearful of its unintended consequences. One worry is that with such an increase, companies will begin to automate away these jobs instead of paying their workers more. If you stop to take a look at our everyday lives, you begin to see that automation is right around the corner. Kiosks at fast food restaurants, self checkout at stores, and the implementation of artificial intelligence in nearly everything technology related are just some examples of this. By increasing the minimum wage, many companies may start to increase efforts to find a cheaper alternative to paying their workers more. They may decide that it would be cheaper for them to find a way to automate away the jobs. Automation of these jobs could result in unemployment of millions of people, and brings up the question: Will increase to the federal minimum wage incentive companies to automate away jobs? 

To address this question I wanted to get a better understanding of the argument for increasing the minimum wage. J. Paul Leigh’s article in the American Journal of Public Health discusses the benefits of the minimum wage, and how it relates to mental health. Leigh is a supporter of an increase to the minimum wage. “One estimate indicates that increasing the federal minimum wage to $12 per hour by 2020 would lift wages for 35.1 million workers, or 25.5% of all workers.” (Leigh 1). He states that 28.4 million workers would be directly affected by such an increase. He also believes that another 6.7 million additional workers would be affected as a result of the increase as those earning more than that would receive a raise as well. (Leigh 1). He explains that an increase to the minimum wage would also improve mental health of millions of Americans. “Increasing wages can improve psychological well-being and job satisfaction, increase the opportunity cost of engaging in unhealthy habits, and expand the ability to delay gratification.” (Leigh 2). He says that not only would an increase to the minimum wage, help people financially, it will help to improve the morale of millions of Americans. By taking a financial burden off of the people, it would take off a lot of stress, and help in preventing unhealthy habits that they may engage in. 

Before reading Leigh’s article, I didn’t consider the way that workers would benefit mentally, and I felt that he brought up a good point. However, while I can understand how an increase could benefit workers mentally, I feel that his thinking is slightly flawed. Just because the minimum wage increases, doesn’t necessarily mean that companies would also increase pay for those who already earn more than the minimum wage. As a result these workers might not benefit mentally as they would perceive themselves as minimum wage workers, when previously they were above.

I looked back at my question of whether an increase to the federal minimum wage will lead to automation. An increase could help bring Americans out of poverty, and help them in their everyday life. However, while I understand the argument for an increase, I can also see how such an increase can bring forth some unintended consequences. I could see both sides of the argument, however, I feel that the threat of automation is something that shouldn’t be ignored.

The article that originally changed the way that I thought about the minimum wage was a paper from the National Bureau of Economic Research by economists Grace Lordan of the London School of Economics and David Neumark of the University of California, Irvine. Both Lordan and Neumark analyzed government census data from 1980 to 2015 in order to study the effect the minimum wage has in automatable jobs, more specifically low-skilled workers. Low-skilled workers in this study is defined as workers with a high school diploma or less. They found that as the minimum wage increases, so does the automation of jobs. These automatable jobs include positions such as cashiers who can be replaced by self-checkout machines, and assembly line workers who can be replaced by robot arms. “increases in minimum wage will give incentives for firms to adopt new technologies that replace workers earlier.” (Lordan and Neumark 25). Low-skilled workers in these jobs are likely to be replaced by a machine or robot as the minimum wage increases. “We find that a significant number of individuals who were previously in automatable employment are nonemployed in the period following a minimum wage increase.” (Lordan and Neumark 6).  Their study reflects how shortly after an increase to the minimum wage, many workers were soon out of a job. However, higher skilled workers seems to be unaffected. “firms may hire other workers who perform new tasks that are complementary with the new technology” (Lordan and Neuman 1). 

Lordan and Neumark’s paper made me realize that the threat of automation is much worse for the very people that the proposed increase was meant to benefit. As the minimum wage increases companies look to find solutions to save as much money as possible. It would be cheaper for these companies to replace jobs with machines, as they would only need a few workers to look after and maintain this new technology. 

Another economic journal reinforces the findings of Lordan and Neumark. Daniel Aaronson, Brian J Phelan analyzes how low-wage worker employment is declining due to the increasing cost of hiring them. They state that the high cost of labor leads businesses to try to find an alternative.  “the empirical results are consistent with high labour costs expediting technological substitution in low-wage occupations that are intensive in routine cognitive tasks.” (Aaronson and Phelan 3). Many routine jobs are in danger of being replaced by technology. Aaronson and Phelan found that while the increase would hurt these workers via automation, it has little effect to higher paid workers. “The employment effect is largest among the lowest wage occupations – those most affected by minimum wage laws – and has no impact on higher paid occupations.” (Aaronson and Phelan 32). This is further backed up in an article on CNBC by Annie Nova and John W. Schoen where they discuss the impact that automation would have on the country. “Overall, the researchers found one-quarter of jobs in the U.S. are at ‘high-risk’ of automation, since 70 percent or more of their tasks could be done by machines.” (Nova and Schoen). This illustrates in numbers how low-wage workers are susceptible to automation. 

These findings are what convinced me of negative effects that the minimum wage would have. Both journals have very similar findings. In cities where the minimum wage has increased, businesses try to find cheaper alternatives. Executives turn to technological advancements to try to lower costs at the expense of low-wage workers. 

 

Recently Target vowed to raise their minimum wage to $15 an hour. However, the effects of the increase confirms the findings of the previous two journals. Shortly after the increase worker’s hours were cut, and many workers were negatively affected. Target COO John Mulligan defended this by stating that changes needed to be made in order to create a more inviting experience for customers. However, as stated in the article from the National Reviewer by Zachary Evans, some of these changes reflects the side effects of an increased minimum wage. “The changes include elimination of some backroom shifts and the introduction of self-checkout machines, along with specialization of some jobs to cover a specific department instead of an entire store.” (Evans 1). After the increase Target relied on self-checkout machines instead of cashiers. A worker described how the increase affected her by saying “I got that dollar raise but I’m getting $200 less in my paycheck”; as a result of the raise the number of hours she was allowed to work was slashed in half. “She began working 40 hours per week but is now offered less than 20.” (Evans 1). To make matters even worse, these cuts have affected the employees’ eligibility of receiving health benefits. “Employees who work less than 30 hours per week are deemed ineligible for company health benefits at the start of Target’s spring enrollment period.” (Evans 1). Workers who were previously working upwards of 40 hours were now working under 30, making them unable to collect health benefits. As a result, many employees were forced to quit and look elsewhere for work.   

Upon reading this article I began to reflect upon my own experiences when I go to the store or supermarket. At stores such as Target and CVS, I see more and more self-checkout machines. At fast food restaurants such as McDonalds and Burger King I see the kiosk where you can order food. Leigh, my first source, said that an increase would help Americans financially and mentally, however the opposite is shown here. These workers were negatively affected by an increase, and the thought of losing work hours and health benefits would add much more stress to a family who rely upon that. This made me realize the threat of automation resulting in financial hardship for millions is a lot closer than many seem to realize.    

A paper published in MDPI by Ben Vermeulen, Jan Kesselhut, Andreas Pyka, and Pier Paolo Saviotti studies the potential impact that automation will have in the next decade. They refer to automation and advancements in artificial intelligence, robotics and science as the “fourth industrial revolution”. The authors of the paper believe that automation is inevitable, and that we must look at solutions to help people transition to a new era of technology. “Mankind may thus face mass unemployment and increasing income inequality, which calls for unemployment relief through income redistribution and unemployment benefits” (Vermeulen, Kesselhut, Pyka, Saviotti 1). The authors discuss three potential policies that could be implemented in order to help with the transition. The policies include: regulation of the implementation of AI and other technologies, implementation of a “universal basic income” to counter the effects, and measures to ensure inclusion of low-skilled workers by educating them to find jobs in newly emerging sectors. (Vermeulen, Kesselhut, Pyka, Saviotti 17-18). They believe that a combination of these three policies are necessary to help people transition. “Dynamic efficiency of a structural transition may be enhanced by the universal basic income as this provides people with the opportunity to pursue entrepreneurship.” (Vermeulen, Kesselhut, Pyka, Saviotti 18). 

Tesla CEO Elon Musk seems to agree with what the authors of the journal proposed to help people transition in the era of automation. In an interview with CNBC, Musk says that he feels that there is a good chance that a universal basic income would be implemented because of automation. (Musk, 00:00:00 – 00:00:15). He goes on to say that one of the toughest challenges that we will face as a country would be adapting to live with a future with advanced AI; a universal basic income will give people the freedom to focus on more important issues. (Musk, 00:00:15 – 00:00:41). 

After listening to Musk’s interview I agree with much of what he says. Elon Musk warns that learning to adapt to advancing AI and automation would be a big challenge. As technology increases it is important to find solutions to help the country transition in the wake of the “fourth industrial revolution”. Musk feels a universal basic income would be necessary to help offset the effects of automation. 

The idea of a universal basic income is gaining in popularity. Much of this has to do with Democrat presidential candidate Andrew Yang, who has been endorsed by Musk. Yang proposes to give every American $1,000 a month. An article by Ray Levy-Uyeda, explains the case for a universal basic income while taking a neutral stance. In Yang’s proposal by giving Americans $1000 it would be, “putting money back into local businesses, thus creating jobs, output, and productivity.” (Levy-Uyeda). He goes on to explain that, “the dividend would be funded by a Value Added Tax (VAT), which 168 other countries around the world use, while the U.S. does not.”  (Levy-Uyeda). 

A policy like a universal basic income could be an alternative to an increase of the minimum wage. Keeping the minimum wage the same and implementing a universal basic income could help to slow the rate that automation occurs, and would hopefully help Americans transition.

I realize now that my original question has been answered. If you raise the federal minimum wage, it would serve as an incentive for companies to accelerate efforts to automate away jobs. Yet regardless of an increase, companies will always look for ways to eliminate as many costs as possible. Automation, regardless of a minimum wage is inevitable. There is now a need for solutions to adapt to new technology and automation. If raising the minimum wage is not the answer we must look to different plans, such as a universal basic income to help the country prepare. A solution that helps people financially, while also offsetting the negative effects of automation is necessary. We must figure out the best way to transition the country as artificial intelligence and technology threaten jobs.

 

Work Cited 

Aaronson, Daniel, and Brian J. Phelan. “Wage Shocks and the Technological Substitution of Low-Wage Jobs.” SSRN Electronic Journal, 27 June 2016, doi:10.2139/ssrn.2914347.

Evans, Zachary. “Target Cuts Workers’ Hours after Vowing to Raise Minimum Wage to $15 By 2020.” National Review, National Review, 14 Oct. 2019, https://www.nationalreview.com/news/target-cuts-workers-hours-after-vowing-to-raise-minimum-wage-to-15-by-2020/.

Leigh, J. Paul. “Could Raising the Minimum Wage Improve the Public’s Health?” American Journal of Public Health, vol. 106, no. 8, Aug. 2016, pp. 1355–1356., doi:10.2105/ajph.2016.303288.

Levy-Uyeda, Ray. “How a Universal Basic Income, Federal Minimum Wage, or Jobs Guarantee Would Work in the U.S.” Fortune, Fortune, 22 Oct. 2019, https://fortune.com/2019/10/22/what-is-universal-basic-income-federal-minimum-wage-jobs-guarantee/.

Lordan, Grace, and David Neumark. “People Versus Machines: The Impact of Minimum Wages on Automatable Jobs.” NBER WORKING PAPER SERIES, 2018, pp. 1–44., doi:10.3386/w23667.

Musk, Elon. YouTube, CNBC, 4 Nov. 2016, https://www.youtube.com/watch?v=vJgtRBkFnfw.

Nova, Annie, and John W. Schoen. “If Your Job Is ‘Boring and Repetitive’ Watch out: You Run the Risk of Being Replaced by Robots.” CNBC, CNBC, 27 Jan. 2019, https://www.cnbc.com/2019/01/25/these-workers-face-the-highest-risk-of-losing-their-jobs-to-automation.html.

Vermeulen, Ben, et al. “The Impact of Automation on Employment: Just the Usual Structural Change?” The Impact of Automation on Employment: Just the Usual Structural Change?, vol. 10, no. 5, 21 May 2018, p. 1661., doi:10.3390/su10051661.