Raising the minimum wage spurs these companies to replace workers with automation – MarketWatch

Raising the minimum wage may be one of the biggest factors in creating more automated jobs.

A sharp minimum wage increase in the U.S. will most severely impact low-skilled workers, according to an analysis of U.S. Census Bureau Current Population Survey data from 1980 to 2015 by economists Grace Lordan from the London School of Economics and David Neumark from the University of California at Irvine. The findings imply that groups often ignored in the minimum wage literature are in fact quite vulnerable to employment changes and job loss because of automation following a minimum wage increase, the paper distributed by the National Bureau of Economic Research in Cambridge, Mass. concluded.

The highest concentration of industrial robots occurs in the Midwest and Upper South of the U.S., according to data released this week by the Brookings Institution, a nonprofit public policy organization based in Washington, D.C. More than half of the nations 233,305 industrial robots are burning welds, painting cars, assembling products, handling materials, or packaging things in 10 Midwestern and Southern states, led by Michigan (28,000 robots or 12% of total number), Ohio (20,400 or 8.7%), and Indiana (19,400 or 8.3%). The entire West accounts for just 13% of the nations industrial robots.

Increases in minimum wage give firms incentives to adopt new technologies that replace workers. Their increased payroll costs effectively cause them to make investments in new technologies that they hope will save them money. While these adoptions undoubtedly lead to some new jobs, there are workers who will be displaced that do not have the skills to do the new tasks. While roughly half are under the age of 24, minimum-wage workers represent 15% of the overall workforce, Neumark said. This vulnerability among minimum-wage workers is greater for older workers, he said. For a 50-year-old, the opportunities and likelihood of retraining are a lot harder.

The political debate between Democrats and Republicans over the impact of the minimum wage has been raging for decades. One side says it puts pressure on small (and large) businesses, while the other argues that raising the minimum wage helps lift people out of poverty. The national minimum wage has risen only 116% over the last three decades, from $3.35 an hour to $7.25. But some 19 states have minimum wages that are higher than the federal rate. (Since 1985, Wall Street bonuses soared 890%, seven times the rise in the federal minimum wage, according to recent data by the New York State Comptroller released in March.)

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Many of these automation-heavy states voted for President Donald Trump in Novembers election. We know that many of the voters who propelled Donald Trump to victory were in rural areas, says Mark Hamrick, Washington, D.C. bureau chief at personal finance website Bankrate.com. Generally, these are areas of the country, like my own hometown in Kansas, which have seen declining population precisely because of a lack of economic opportunity. By contrast, people are attracted to areas where jobs are available or even plentiful, which tends to reinforce the cycle.

Robots are expected to create 15 million new jobs in the U.S. over the next 10 years, equivalent to 10% of the workforce, Forrester Research found. The downside: Robotics will also kill 25 million jobs over the same period. And the better a job pays, the less likely it is to be replaced by automation: Theres an 83% chance that automation will replace a job that pays $20 per hour, a White House report released last year concluded. That falls to 31% for a job that pays between $30 and $40 per hour, and only a 4% chance for a job that pays $40 per hour or more.

U.S. wages have been flat. The average CEO of an S&P 500 company made 347 times more money than the average worker, according to separate data released in May by Executive Pay Watch, a report conducted by the American Federation of Labor and Congress of Industrial Organizations. Last year, CEOs were paid 335 times the average worker who has seen his/her pay rise 3% per year. The average production and non-supervisory worker earned $37,600 annually in 2016. When adjusted for inflation, the average wage has remained stagnant for 50 years, the report concluded.

Lordan and Neumark did find that hikes in the minimum wage had a more positive effect on females in higher-wage jobs. 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. 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.

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Raising the minimum wage spurs these companies to replace workers with automation - MarketWatch