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Minimum wage hike advocates’ claims are contradictory

    My City AM column today talks about one of the unintended consequences of hiking the minimum wage, a policy more and more people are jumping on board with. I argue those who say there will not be employment consequences from raising the cost of labour seemingly ignore the rise of low-skilled automation, such as computer self-checkout systems and ordering ‘apps’. In this environment, when these technologies are just starting to be adopted, hiking the minimum wage massively (as some like Paul Kirby have suggested) has the same effect as an industrial subsidy to firms looking to automate – it’s essentially a tax on those who hire unskilled labour. It’s government interference in the economy.

    As if on cue, ZeroHedge yesterday highlighted how a machine has been developed which can prepare “360 'customized' gourmet burgers per hour without the aid of a human”. The machine can slice your onions, etc. just before you get your burger, ensuring it is a fresh as possible. It can change your order after it has been placed, and has ensured levels of cleanliness that means the food can be safer hygienically than if prepared by human hands. Alongside the development of apps to place your order, it’s not difficult to see the future of fast food is not with low-skilled minimum wage workers. In fact, significantly hiking the minimum wage would merely accelerate this trend towards machines.

    In my column, I argue these technological developments are the natural way we get improvements in productivity which ultimately lead to more prosperity. Yet we shouldn’t pretend that the transition will be easy, nor that there will not be significant costs for some in the short-term. Indeed, the problem with a significant hike in the minimum wage is both that they make these technologies economic even when they wouldn’t be in a free market and that they, by legislation, freeze workers out from offering to “undercut” the cost of the machines replacing them, meaning many low-skilled, low-productivity workers in particular are unable to acquire the sorts of “on the job” transferable skills and improvements to human capital that enable them to get other jobs in the future.

    This is not a Luddite argument. Paul Kirby, whose blog I counter in my piece, has come back and asked me “Will you be arguing for the return of typing pools?” Of course not. I recognise the role of productivity improvements. What I find nauseating about the minimum wage debate is the way the same people who argue a big hike in labour costs will be good for productivity are also those who claim it won’t have employment effects, and that they are the champions of the low-skilled worker.

    Automation will come. It will bring with it higher skilled jobs in servicing and building the machines that provide us with our burgers. But there are young and low skilled workers in our economy, who leave school with a lousy education who will not be able to do these jobs. For some of these people low paid work, developing numeracy skills alongside punctuality, and learning how to deal with other people in the form of colleagues and customers are vital for improving their life chances. Low paid work can play a social role. Big minimum wage hike activists should acknowledge that for these people - many of the most vulnerable who they purport to help - making it illegal for them to work below a higher wage will kill opportunities, not increase them. Deep down, they recognise these trade-offs, hence why they don’t argue we should increase the minimum wage to £20 per hour. I just wish they’d be more honest about it.

    Ryan joined the Centre for Policy Studies in January 2011, having previously worked for a year at the economic consultancy firm Frontier Economics.

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    Comments

    Richard Bentall - About 1711 days ago

    On Channel 4 tonight, when the minimum wage was discussed, you came over as frankly uncaring and didn't seem to have a sensible answer to the gentleman who asked what would happen if his wages were cut to £2 per hour. (Nor did you seem to understand - or at least have a response to - the points about the many noneconomic consequences of inequality, e.g. for mental and physical health). The minimum wage is one tool for addressing rising inequality which, unless checked, will inevitably lead to economic stagnation and, ultimately, severe social unrest (if we're not careful the old geezer in Highgate cemetry might yet turn out to be right). Like any tool, it has to be applied sensitively and yes, there is surely a point at which a massive increase (you mention £20 per hour but nobody who is sensible is arguing for that).

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