How Robots Relate to the Minimum Wage

Wondering if jobs are lost, economists continue debating the impact of a higher minimum wage. One group believes the minimum wage boosts spending and productivity. Meanwhile, others disagree saying jobs would be lost.

Now robots have entered the discussion.

Minimum Wage Impact on Robot Adoption

Researchers recently concluded that a 10% increase in the minimum wage corresponds to the likelihood of an 8% rise in robot’s replacing lower wage jobs. However, they are concerned that their averages could be misleadingly low. Citing the dates of their study, they note that adoption accelerated during the later years.

As robot receptive manufacturing states, Arizona, New Mexico, California; Michigan, Indiana, Kansas, and Washington had the most robot adoption:

Below, minimum wage growth is the x-axis and expansion of robots, the y-axis. Combining them, we wind up with an upward slope:

The Minimum Wage Debate

There are still no definite answers.

Examples include a massive study of the McDonald’s in 42 states where researchers found that the minimum wage hike was accompanied by higher Big Mac Prices. But then, in another paper, using Yelp ratings, a research team observed that poorly rated eating establishments closed permanently after a minimum wage hike. And elsewhere, economists were delighted to find a mall that stretched between two states with a different minimum wage. There, they found a difference in worker quality.

Our Bottom Line: A Price Floor

Economists like to illustrate the theoretical impact of a minimum wage with a price floor. Located above equilibrium, it illustrates a surplus of labor. Below, you can see the horizontal line that represents a (minimum wage) floor. Depending on the difference between the quantity supplied of workers at that wage (Q_S) and the quantity demanded (Q_D) for them, there might or might not be many unemployed laborers.

At this point, we can ask about the tradeoff. Will factory owners select a higher wage or labor saving capital?

My sources and more: Thanks to my David Wessel Hutchins NBER article for inspiring today’s post.  But then, among the countless articles on the minimum wage’s impact, we can return to several econlife posts, here, here, and here.