Increasing the Cost of Low-Skilled Labor Does Not Create Jobs

The Presidential election is over but we are still subjected to misinformation about US jobs being taken offshore.  The straight truth is that some US jobs were lost due to lower wages for foreign labor, but a larger portion of US manufacturing jobs lost were lost due to automation and productivity here in the US.  Now, labor in other sectors is feeling the pressure from automation and robots, but many workers do not seem to understand that.

Each unit of manufacturing takes fewer man-hours than it used to.  Since 1979, 7 million US manufacturing jobs have been lost, yet in that period, our factory output has doubled.  Of the jobs lost, about 88% were lost to automation and robots.  The Reshoring Initiative, which lobbies manufacturers to return jobs to the United States, says the number being moved abroad is roughly offset by the number returning or those being created by foreign investment.  There is no offshore exodus of jobs.

One of the lead organizers in the $15 minimum wage campaign is the Service Employees International Union, an aggressive left wing group that shows up in street protests for many causes.  The “$15 minimum” campaign tried to insinuate itself into the election campaign and ride voter sentiment against companies who moved any operations offshore.  But thoughtful observers knew that the $15 minimum movement was actually working at cross purposes against attempts to creating well-paying jobs in the US.

Jobs in fast food and retail stores have long been suited for low skill.  The lack of skills consigns workers to compete for these jobs and automation deletes the demand for these workers.  The sophistication of today’s robots can outperform low skill workers on accuracy and cost.  The result is that these workers are experiencing the same plight as workers in the manufacturing sector who were replaced by automation and robots.

This is not a threat for the distant future. Displacement by automation is all around us.  For example, in a nearby Walmart on Thursday December 1, 2016, there was two self-serve checkouts areas totaling 10 registers with two clerks to manage both areas.  In the same store were 12 regular checkouts each staffed by a conventional cashier.  Another 9 checkouts were “not in use”.  Checkouts were “busy” and queue length at the staffed checkouts was 2 or 3 people deep, and there were 2 people waiting to enter each self-serve checkout area.

The point is that this Walmart uses automated checkout machines to replace 10 conventional cashiers with 2 clerks.  Overall, this Walmart is using 14 staff to run 22 checkouts or 64% of what it would have needed a few years back.

Some consumers avoid the self-checkout option.  Yet, it appears the average time to pass through the automated checkout queue and item scanner is much shorter than to pass through the conventional queue and the item scanner run by a cashier.  On occasion, progress may be slowed if the automatic scanner acts up or you have difficulty finding a bar code.  Over time, as consumers gain confidence in automated checkouts, and as minimum wage moves upward toward $15, we can expect more of the checkouts to become automated checkouts.  That will displace even more of Walmart’s checkout staff.

Another example shows what we can expect at McDonalds.  Many of McDonalds customers are young and will feel comfortable entering their food order at a kiosk.  That will come soon.  McDonalds just announced the nationwide roll-out of touchscreen self-service kiosks, and employees who once managed a cash register now just monitor customer choices at a kiosk.  Fewer employees will be needed to monitor customers than were needed to run the cash register.  The $15 wage movement is merely accelerating this automation.  Union leaders understands this, but perhaps their members don’t.  Time spent in job training programs is more productive for these workers than time spent protesting.

For several years now, airlines have reduced the headcount of check in staff by using sophisticated kiosks at the ticketing counter.  Unless you need to check a bag, you can speed through the ticket area and join the security screening line.  It is unclear how many airline staff have been displaced by these ticketing kiosks.

Investments in kiosks and robots usually pay off handsomely in retail operations.  Reforming regulations that dissuade major investments is a serious opportunity to benefit American workers.  We can add to those benefits by aligning US business tax rates with those of our international competitors and finding a way to repatriate the trillions of dollars parked off shore by American firms.  Those repatriated dollars will find productive use in advancing automation and robotic investments.

The big payoff for American workers will come from huge stimuli that create higher demands for higher skills, not from artificially hiking the wage for lower skills.

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