, , , , , , , , ,

This interactive chart from the McKinsey Global Institute (not the one above, as good as it is…) shows occupations at risk of automation, and it should give warning to those asserting that a substantial increase in the minimum wage is in the interests of low-wage workers. It shows the extent to which various jobs can be automated under existing technology. The salient facts here are that a large number of workers earn less than $15 per hour, that most of those workers perform jobs that can be automated, and that further advances in technology will increase the potential for automation beyond what’s shown in the chart.

A simple truth that must be understood is that wage rates are strongly associated with the skills and productivity required for particular jobs. Denial of that fundamental rule cannot help anyone, and will almost certainly harm many. Low skill requirements are less highly-compensated because they add little value and are easily satisfied.

As Don Boudreaux points out, innovation is often spurred by economic forces. A mandated wage minimum, which is a price floor creating artificial surplus conditions, magnifies incentives for greater innovation. In addition to the substitution away from low-skilled labor (or domestic labor) that can be expected, there are many other margins along which employers can economize in the face of such government edicts: higher expectations for productivity, fewer benefits, fewer breaks, fewer niceties in the workplace, and less flexibility over hours and days off. These things matter greatly to employees and employers. A wage law can make for an unpleasant work environment.

Those who suffer most from minimum wage decrees are the least skilled, whose jobs are the most vulnerable. Economist David Neumark notes that “The Evidence Is Piling Up That Higher Minimum Wages Kill Jobs“, despite claims to the contrary (gated… Google “wsj NeumarK”, select the December 15, 2015 link).

Lest anyone decry the technologies that could replace these workers, recall that the substitution of capital for labor over time has led to the great gains in productivity that have elevated wages and income over time. Many jobs that are commonplace today (and were not even imagined in earlier times) would not exist if not for advances in technology. Likewise, there will be jobs that are commonplace in the future that do not exist today, and we won’t have the power (nor will the government) to anticipate those jobs until the enabling technologies come to fruition and early adoption. These kinds of changes are never without difficulty, as workers bear significant costs of adjustment in the short run, including the acquisition of new skills. However, wage floors force an even earlier and contrived adoption of technologies, which harms low-wage workers most severely. Far better to allow an unfettered and natural process of free choice, technological diffusion, price adjustment, and growth to take place.