Rise of the Machines or Minimum Wage?

May 4, 2015

In the past, the federal government proposed a national hike to the minimum wage, from $7.25 to $10.10, a 40% increase. More recently, Democratic lawmakers have proposed legislation to increase federal pay by 66% to $12 an hour by 2020. This would exceed the minimum wage of all states. The proposal would also gradually eliminate the lower minimum wage afforded to workers who earn tips.
Large forces exist on both sides of the argument – normally divided down party lines – against and supporting such legislation. Proponents of a rise in the wage argue that a rise would result in a higher standard of living for the many people working in low-skilled jobs. Critics, on the other hand, state that such jobs will be decreased as employers replace workers with lower cost automation. This, however, leads to a very important question: what machines exactly will replace this part of the workforce?
Professor Michael Osborne at the University of Oxford expects approximately 47% of current jobs to be replaced by machines in the next twenty years. The Professor examined the characteristics of approximately 702 occupations. The most threatened jobs were those in accommodation and food services (87%), while distribution (75%) and real estate (67%) were also severely threatened. The safest jobs, however, were in information technology (10%). Robots are limited, due to their incapacity for creativity, social intelligence, and manipulation of complex objects. Consequently, the jobs requiring these traits are the most protected against a possible rise of automation. The work affected by a minimum wage hike would most likely not require these traits, and consequently the workers currently occupying those jobs are severely at risk.
New progress by some of the world’s leading companies, however, may be putting everyone’s job at risk. Facebook, Google, and Amazon have teamed up with many universities to make great strides in artificial intelligence. University-spawned research labs have even been bought by these tech giants. In fact, Ph.D.’s in the field have never been more in demand. Their work allows these companies analyze extremely large amounts of data to predict market trends and make business decisions. This type of data analytics has even replaced middle management in many startups. Businesses replace these positions with strong analytical tools that can present important financial and market information to decision makers within the company. Providers of such tools allow them to seamlessly integrate into the entirety of a business and present previously unattainable data.
The question then becomes the exact bounds of this new information technology capability. The extent of these capabilities developed will be directly correlated to the profile of jobs threatened to become obsolete. For example, software developers currently have the ability to code machines able to churn out an almost endless supply of paintings and music. The next step, however, will be whether a machine may be developed with the creative capacity and human-like perception to judge enjoyable music from bad music.

Machine and software development threatens more than just low-skilled jobs.

With the rise in technology, many jobs across skill levels will become obsolete. This development, however, is not unique from past history. Ever since the industrial revolution in the 1800’s, humans have developed more efficient ways of completing the same commercial task. Replaced workers suffer from short term downturns as the market adjusts, but technology eventually provides them with more jobs to fill. One example of such a tradeoff would be machines forcing a decrease in the amount of cashiers in fast-food establishments. This downturn, however, would be supplemented by an increase in workers building the parts for the machines. In fact, we might already see that progression occurring with McDonalds. Dan Thompson, the organization’s CEO, has confirmed the company is looking into inserting approximately 7,000 touch-screen kiosks in stores across the globe.
Consequently, policymakers should not focus on whether a rise in the minimum wage will cause machines to replace low-skilled workers. That fact seems inevitable despite any movement of the minimum wage. Instead, they should focus on fostering education and business opportunity for those workers likely affected, to allow them meaningful opportunity to participate in a future, automated economy.