Minimum Wage Hikes: What Happens When Labor CAN’T Be Automated?

The impact of government raising the minimum wage seems fairly arbitrary – layoffs, increased responsibilities for existing employees, and automation of labor are all responses to the “market adjustment” made by employers to maintain profitability.  While I’ve previously argued that no job is off limits to automation…

More “intelligent” machines below the scale of a true “A.I.” means is a growing number of jobs will be “outsourced” to machines, and they will never be coming back.  Even now, you likely find yourself with less reason to visit the doctor, because you can just go on WebMD and see if there is a simple solution to what ails you.  Imagine that function being extrapolated across a series of machines at the basic level of medicine, to serve your needs for more common medical questions/issues.  Wouldn’t that eliminate the need for a significant number of medical professionals?

…the majority of jobs in the workplace are decades away from “automation risk”.  Even if many of these roles can be automated now or in the near future, customers may insist on a “human” employee, especially at the luxury end.

More simply put, many businesses have a minimum staff requirement.  Do minimum wage increases simply force closure of businesses that have a “minimum labor” requirement?

Perhaps there is no more appropriate example than the restaurant industry.  New York City has recently all but begged Mayor de Blasio to do something to adjust their business model in the wake of their ever-increasing minimum wage:

  • We have laid off tipped employees including, servers, bartenders, bussers and runners
  • We have cut hours for many employees.
  • We have laid off highly compensated employees.
  • We have changed our menus to try to control kitchen payroll.
  • We have closed restaurants, which will continue closing at an increasing rate.
  • We have been forced to increase menu prices. These price increases have not and cannot come close to offsetting mandated wage increases and real estate costs.
  • We do not consider opening new full-services restaurants in NYC.

Amusingly, restaurateurs’ attempts to attempt to disclose price increases to consumers have been banned in the city:

“Allow us the option of using a clearly disclosed surcharge to generate the revenue to simply survive,” the group said in an open letter to Mayor de Blasio.

Another irony: New York City – with its socialist administration – is the only place in the U.S. that bans such a fee even as it mandates minimum wage increases virtually every year.

“It’s a consumer perception issue,” Rigie said, because apparently diners are so stupid they don’t realize they will still end up paying more, only instead of knowing the hit in advance, they will only see it in the final bill.

This is not unique to NYC – Seattle has had a similar problem with its aggressive minimum wage increases, and their problem largely has to do with the law’s fine print:

Seattle became the first major city in the country to pass a $15 minimum wage law in 2014, and large restaurant groups and franchises particularly took issue with the provisions in Seattle’s law requiring employers with more than 501 workers to raise wages on an expedited schedule — reaching $15 per hour by 2018. Tips were not allowed to be used toward the increases.

So an employee has a minimum wage of $15 hour… that must be paid by the restaurant… and the employee’s total on-the-job compensation cannot be used to reach this figure.  While the need to keep tips and other cash wages “off the books” and not subject to reporting and taxation requirements is understandable, legislators’ failure to include an appropriate legal carve-out for food service employees has led to major issues:

Sam Crannell served his last dinner and threw his last party at his restaurant LloydMartin on New Year’s Eve… “Seattle has changed the rules of the game while we are all playing.” His costs kept going up, while he watched his profits “all but disappear.”

“Ultimately, it seems all Seattle wants is a shiny penny of cookie-cutter restaurants anymore,” Crannell laments. “New is king.”

The examples of NYC and Seattle mirror commentary shared by “corporate” restaurants – the painful effect minimum wage hikes have in luxury dining:

Eighteen states raised their minimum wages at the start of 2018, but increasing labor costs are strangling the dining industry so much that restaurants could soon face the same fate as shopping malls.

“I think you’re going to see thousands of restaurants close their doors,” Willie Degel, “Restaurant Stakeout” host and CEO of Uncle Jack’s Steakhouse, told FOX Business. “Fine dining is going to go by the wayside.”

The downward cycle seems daunting to Degel and other industry insiders. As costs rise, only so much of the burden can be passed along to consumers in the form of price hikes before they decide they cannot afford the expense.

“When we increase in prices … we see guest count go down,” Degel noted. “The consumer is not willing to pay for the experience then.”

Similar patterns are likely to repeat themselves across a wide variety of industries.  When a “human touch” is a part of the experience, minimum wage hikes will not only speed up the process of automating people out of jobs

…they will assist in replacing mom-and-pop stores and high-end consumer experiences with a more “corporate” approach to consumer choices.