New minimum wage is a double-edged sword

The McDonald’s restaurant just off Highway 101 in Pismo Beach doesn’t look any different from the 1,500 or so others in California.

But walk into this one, and you immediately encounter a robotic kiosk that allows you to order your hamburger on a touch screen, rather than verbally with a human worker at the counter.

It’s an experiment in automation to reduce operational costs, and not the only one.

Faced with rising labor costs, thanks in part to a big boost in California’s minimum wage, and shortages of workers, employers throughout the state are trying to replace humans with machines.

Amazon’s highly automated warehouses that have seemingly sprung up overnight throughout the state are testaments to this desire, as are intensified efforts in large-scale, labor-intensive agriculture to develop machinery that can handle even the most delicate crops such as strawberries.

While workers with high technical skills and/or high levels of education will still command high pay and have no shortage of opportunities, there’s a lot of turbulence in the lower realms of the state’s job market – such as fast food and agriculture.

Gov. Jerry Brown and legislative leaders boast that they’ve been helping California’s low-skill workers by raising minimum wages, writing more generous family leave policies and, in the case of farm workers, mandating an eight-hour work day. But there’s a raging debate among economists over whether such rules actually help low-income, low-skill workers, or hurt them by eliminating jobs and/or curtailing hours.

The minimum wage increase is the mostly hotly debated policy.

Brown and legislators are raising California’s minimum wage from $10 an hour in 2016 to $15 by 2022 and indexing it to inflation thereafter, even though Brown, as he signed the bill, commented, “Economically, minimum wages may not make sense.” Some cities have gone further.

Critics are pointing to a University of Washington study, released last June, about what happened after Seattle embarked on a similar course.

The UW researchers concluded that “employment losses associated with Seattle’s mandated wage increases are in fact large enough to have resulted in net reductions in payroll expenses – and total employee earnings – in the city’s low-wage job market.”

The study drew sharp rebukes from liberal economists, such as those at the University of California.

UC’s Labor Center soon issued its own study declaring California’s $15 minimum wage “will substantially increase lifetime earnings among low-income workers (and) by boosting the earnings ... enable them to save for retirement.” It could also greatly “increase in Social Security benefits for young low-income workers, and (provide) a modest increase for mid-career low-income workers.”

Oddly, both could be correct. Boosting minimum wages will prod employers to reduce their labor forces, which might, as the UW study found, decrease “total employee earnings.” But those who can keep their jobs could, as the UC Labor Center showed, see incomes rise and retirements become more secure.

If so, the losers won’t be employers or employees but those who don’t get hired because many jobs have been eliminated by automation, such as that order-taking kiosk in Pismo Beach.

Any big policy change, such as increasing the minimum wage, always has negative consequences for somebody – even if they’re not immediately evident.

This story was originally published January 7, 2018 at 3:39 PM with the headline "New minimum wage is a double-edged sword."