Robots Replace People As Minimum Wage Rises

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Robots Replace People?

Super Investing

Pressured by a chance of recession in the US, a CFO survey shows even modest increases in minimum wage lead to current staff number reductions and robots replace people in some instances.

The Duke University/CFO Global Business Outlook survey sees the slowdown in China as a major risk to the U.S. economy, with 59 percent saying they see a China slowdown as a “significant” risk.

Changes to the U.S. minimum wage elicited a bleak outlook from the CFOs. 75 percent of U.S. firms that pay some of their workers the minimum-wage said if the minimum wage is raised to $15 per hour, they would need to reduce current or future employment numbers.

Director of the survey, John Graham, a finance professor at Duke’s Fuqua School of Business, said “The recession outlook has worsened significantly in the last nine months. Last June, the odds of recession were low in many countries, including the U.S., Canada and much of Europe. Today, driven in large part by slowing emerging economies and volatile financial markets and commodity prices, the risk is relatively high around the world.”

Rate Of Change

Rapid changes to the minimum wage are a big risk for companies with significant numbers of minimum-wage employees. Rumored changes to the minimum wage range from $8.75 to $15 per hour.

About 20 percent of affected companies say they would lay off current workers if the minimum wage is increased to $10 and 44 percent of those companies  say they would slow future hiring. If the minimum wage was increased to $15 per hour, 41 percent of companies would lay off current employees, with 66 percent pulling back on future hiring.

Even a modest increase to $8.75 per hour would be cause for concern in some companies, with 11 percent saying even that small increase would cause them to lay off some of their current employees. 36 percent said that rate would cause them to reconsider future hiring plans too.

An increase in the minimum wage will have flow-on effects. The survey says at $10 per hour, 20 percent of affected companies would reduce benefits and at $15 per hour, 66 percent would do so.

The initial stinger comes for customers, as many companies would increase prices to cover the increased costs. At $10 per hour, 43 percent of companies would increase prices, and at $15 per hour, 49 percent would increase prices. It is unknown whether those that would reduce employee benefits would keep prices steady or if they are the same companies that would raise prices.

In general, affected companies say they can handle the modest increase to $8.75 without much change, but even that could cause a shift away from human labor towards automation.

There may be some benefits to increasing the minimum wage, even with job losses. Around 50% of affected companies think the increased minimum wage could help them attract higher-quality talent and reduce turnover. At higher increases, productivity would need to improve.

The Math Is Not Simple

Campbell R. Harvey, another founding director of the survey says “the math is not as simple as ‘increased minimum wages = immediate layoffs.’ It is more nuanced. CFOs reveal that increased minimum wages will lead to reduced hiring in the future and reduced benefits for current and future employees. While you might not see an immediate impact, corporations will find ways in the future to compensate for increased costs imposed by new regulations.”

minimum wage - robot graphic.
Will Robots replace people?

While proponents of an increase in the minimum wage want to help people, they may actually be helping robots at the expense of people.

Campbell R. Harvey says “Raising the minimum wage gives robots a competitive advantage. Low-skilled jobs are most at risk of being eliminated by labor-saving technologies, with most companies with employees earning less than $10 per hour investing in labor-saving techniques. CFOs are telling policy makers there is a significant unintended consequence: Some jobs will be replaced by robots and this replacement is permanent.”

A robot can be made to say “Do you want fries with that,” while showing a big smile and a twinkle in its eye.

One question unasked is “What happens to the people who are not earning a regular income, if prices increase rapidly?”

Alan Gray is the Publisher and Editor-in-Chief of NewsBlaze Daily News and other online newspapers. He prefers to edit, rather than write, but sometimes an issue rears it’s head and makes him start pounding the keyboard. Alan has a fascination with making video and video editing, so watch out if he points his Canon 7d in your direction.