NBER Report: Raising the minimum wage accelerates robotics, reducing job opportunities for low-skill workers

A new report published by the National Bureau of Economic Research adds to the compelling research demonstrating that minimum wage increases lead to increased automation, reducing employment opportunities. E21 reports on the study:

A new working paper by Grace Lordan of the London School of Economics and David Neumark of the University of California at Irvine finds that increasing the minimum wage lowers the share of jobs susceptible to automation held by low-skill workers. A $1 increase in the minimum wage lowers this share by 0.43 percentage points.  Increases also adversely affect the workers’ likelihood of being employed and hours worked.

You’ll recall that NBER previously published an analysis of the minimum wage hike in Seattle by a University of Washington research team that found negative effects on low-income workers.

A new report from University of Washington economists finds that Seattle’s minimum wage ordinance has not provided the benefits proponents claimed. Their research was published today by the National Bureau of Economic Research (full report available for purchase). The abstract neatly summarizes the findings:

This paper evaluates the wage, employment, and hours effects of the first and second phase-in of the Seattle Minimum Wage Ordinance, which raised the minimum wage from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016. Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. (Emphasis added.)

The report looks at the effect of the wage increases on various demographic groups. 

Younger workers are the focus of much of the minimum wage literature because most of these workers are low-skilled. Unsurprisingly, the authors find that a $1 higher minimum wage reduces the share of automatable jobs held by workers 25 and younger by 0.94 percentage points.  For workers over 40, a $1 increase in the minimum wage reduces the share in automatable work by 0.72 percentage points…

While younger workers see large effects in many sectors, the estimate for manufacturing is close to zero. In contrast, the share for older workers in automatable jobs in manufacturing decreases by 1.68 percentage points in response to a $1 minimum wage increase. Previous minimum wage studies might have overlooked the extent of this effect on this subgroup of older workers.

Along other demographic dimensions, female and African-American workers tended to see larger adverse effects, although the magnitude of these differences varied by industry.

Here’s how the authors describe the results in the abstract (NBER paper available for purchase through the site).

We study the effect of minimum wage increases on employment in automatable jobs – jobs in which employers may find it easier to substitute machines for people – focusing on low-skilled workers from whom such substitution may be spurred by minimum wage increases. Based on CPS data from 1980-2015, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers, and increases the likelihood that low-skilled workers in automatable jobs become unemployed. The average effects mask significant heterogeneity by industry and demographic group, including substantive adverse effects for older, low-skilled workers in manufacturing. The findings imply that groups often ignored in the minimum wage literature are in fact quite vulnerable to employment changes and job loss because of automation following a minimum wage increase.

Charles Hughes at E21 points out that the nation is entering uncharted territory, with Seattle in the vanguard.

Many of the proposed or passed minimum wage increases are venturing beyond the pale of historical experience in two dimensions: the increases are larger, and the effects of automation on low-skilled workers is likely higher. Despite the stated well-intentioned goal, minimum wage increases often harm many of the low-income families they are supposed to help, and the net effect could be even worse going forward. 

That, at least, appears to be the lesson being learned in Seattle.