Wednesday, August 19, 2015

The Big Question: Would Businesses Develop Robots Even If There Weren't Minimum Wage Laws?

Donald J. Boudreaux sets the record straight with a letter to the Wall Street Journal:

Brian Collins asks “Do you truly believe that absent any increase in the minimum wage that Wendy’s or any other business will suspend efforts to develop and implement new forms of automation that promise to reduce staff levels?” (Letters, August 18).

The answer is ‘no.’  Contrary to Mr. Collins’s implication, however, this fact does nothing to excuse raising the minimum wage.

Even in a world in which market forces naturally promote automation, raising the minimum wage has two pernicious effects.  First, it causes the rate of automation to be faster than it would be if the minimum wage were not raised.  That is, raising the minimum wage results in automation being introduced at a rate that is too fast given the size of the low-skilled labor force.  Second, raising the minimum wage destroys incentives for entrepreneurs and businesses to find ways to profitably employ workers whose limited skills prevent them from producing hourly outputs valued at least as high as the minimum wage.  The first effect throws some low-skilled workers out of jobs that they would otherwise retain, while the second effect ensures that no one has incentives to find ways to profitably employ these and other low-skilled workers.

If it is inhumane to outlaw the profitable employment of those workers whose skills are the least valuable, then the minimum wage is deeply inhumane.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

The above originally appeared at Cafe Hayek.


  1. While the min-wage does contribute, there are so many more laws/regulations penalizing an employer for hiring a worker that it's no wonder they would like to replace them all. Justifiable extinction.

  2. My guess is that most firms are going to seek to eliminate all unskilled and low skilled positions as fast as possible via outsourcing, automation or work re-assignment. The real cost is far more than the huge minimum wage increase since you cannot take a worker making $10/hr and pay them $15/hr, while at the same time take a worker making $8/hr and also pay them $15. And how do you deal with a skilled worker making $17/hr (more than $9 above he old minimum) who is now making only $2 above the minimum? You would need to raise his compensation by at least $8-9/hr to maintain your pay structure. That just isn't feasible for most businesses. The only feasible solution would be to remove these people from the workforce entirely.