How Raising the Minimum Wage Destroys Jobs

Computer screens are replacing workers at restaurants and stores.

For anyone who dismissed as a bunch of right-wing propaganda the claim that a higher minimum wage and mandatory health benefits would mean more workers replaced by computer screens, here is a reality check.

McDonald's announced this month that it will deploy computer kiosks at 7,000 restaurants in Europe, allowing customers to place their own orders and pay by swiping their own credit card. Another restaurant chain, Panera, is deploying the computer kiosks for customers in the U.S., a development that Bloomberg News reported under the headline, "More Kiosks, Fewer Cashiers Coming Soon To Panera."

The fast-food trade publication QSR reports that a McDonald's in Laguna Niguel, California, is experimenting with iPads that let customers customize their hamburgers. A White Castle in Columbus, Ohio, has deployed computer kiosks that let customers place their own orders, unassisted by a paid human being. "Both Chili's and Applebee's recently announced that they are adding tablets throughout their restaurants, allowing customers to order and pay at their tables," the QSR story says.

Nextep Systems, a Troy, Michigan-based firm that specializes in touch-screen self-order systems, says its sales for 2013 were up 50 percent from the prior year. At some point, you won't even need the kiosk—you'll be able to order from an app on your smartphone, maybe even before you arrive at the restaurant.

And it's not only restaurants. Even Costco, a firm that President Obama has praised for its labor practices, features self-checkout lanes where customers scan the bar codes on their own purchases, then pay by swiping a credit card and signing on a computer scanner. No cash-register employee needed, whether at minimum wage or "living wage."

For the restaurants and customers, the technology has potential benefits besides savings on labor costs. Accuracy is supposedly improved, and the restaurants seem to hope they can sell more food to customers who don't have to worry about being embarrassed when they ask out loud for that supersize fries.

For people who worry about jobs and joblessness in America, though, there's a concern that yet another occupation may have its ranked severely thinned by technological progress. The number of travel agents in the U.S., for example, declined to about 64,000 in 2013 from 117,000 in 1997, as Orbitz, Expedia, Priceline, and Travelocity, not to mention the websites of the airlines and hotels themselves, replaced human agents with self-service. Automated corporate telephone answering systems and voicemail trees had roughly the same effect on the number of telephone switchboard operators. Smart meters that communicate automatically directly with utility companies have put meter readers on the Bureau of Labor Statistics' list of fastest declining occupations. "Pay at the pump" with a credit card at self-serve gasoline stations has reduced the number of gas station attendants, and windshield-based transponders like E-ZPass have reduced the need for human highway toll collectors.

Optimists will point out that there are some jobs that are difficult to automate—the BLS lists home health aides, physical therapists, dental hygienists, and substance abuse counselors among the fastest growing occupations. And there is something awesomely powerful and efficient about the dynamism with which the invisible hand of capitalism reallocates labor to more productive tasks.

Still, even political moderates well familiar with the laws of economics are voicing concerns about the effects of technology. The economist and former treasury secretary Lawrence Summers warned recently of "the devastating consequences of robots, 3-D printing, artificial intelligence, and the like for those who perform routine tasks. Already there are more American men on disability insurance than doing production work in manufacturing. And the trends are all in the wrong direction, particularly for the less skilled, as the capacity of capital embodying artificial intelligence to replace white-collar as well as blue-collar work will increase rapidly in the years ahead."

Microsoft founder Bill Gates warned recently, "you have to be a bit careful: If you raise the minimum wage, you're encouraging labor substitution, and you're going to go buy machines and automate things."

Gates, who made himself one of the richest men in the world and founded a company that employs a lot of people, knows that machines and automation can create jobs and wealth as well as destroy them. But that's one thing when it happens on its own, another thing when it happens when politicians, through regulation, making hiring an employee so expensive that it's cheaper for the employer just to buy a machine instead.