California’s $15-an-hour minimum wage may spur automation

The restaurant industry, which has complained loudly about the planned wage hike, is ripe for tech change

For many California business groups, the state's decision to gradually raise its minimum wage to $15 by 2022 is a terrible thing. But for its technology industry, it may be a plus.

Higher wages, says the California Restaurant Association, will force businesses to face "undesirable" options, including cutting staff, raising prices and adopting automation.

But a higher minimum wage will "signal to tech companies and entrepreneurs" to look at the restaurant industry, said Darren Tristano, president of Technomic, a research group focused on the restaurant industry.

The state's governor and legislators reached an agreement Monday to raise the wages.

"I think there are a lot of tech companies that are looking at the restaurant industry to accelerate their growth," said Tristano.

The restaurant industry is primed for change, said Tristano, "Many of the routines that take place in restaurants are not very different from 30 to 40 years ago," he said.

In lower paid jobs, there is already a trend toward automation.

"One reason the economy has not yet experienced lots of job loss so far is because of economic growth," John Graham, a professor of finance at Duke University.

For example, said Graham, Amazon is growing and continuing to build warehouses. But "each new warehouse adds fewer employees because each new warehouse is more automated."

If economic growth were to slow, or the pace of automation quicken, that could lead to a worsening job situation, said Graham. "And if the cost of labor were to increase (due to minimum wage hike) that will quicken the pace away from labor towards machines," he said.

The just released Duke CFO Global Business Outlook, which surveys some 630 firms, backs up that assertion. About 70% of the respondents that pay less than less than $15 an hour said a higher minimum wage would push them toward automation.

A shift to automation affects higher paying jobs, too. The White House, in a recent economic report, found that people earning between $41,000 and $83,000 ($20 to $40 an hour) face a 31% median probability of being replaced by automation.

Michael Jones, an assistant professor of economics at University of Cincinnati, said that if it costs $10 an hour to serve 100 customers with labor, and $12 an hour to serve 100 customers with technology, firms will hire workers. As soon as labor becomes $15 and hour, they will switch to technology, he said.

"Reality is more complicated, of course," said Jones. Not every worker is as productive as others or reflects identical costs, and technology can be incorporated in some firms at a lower cost than others, he said.

"However, the general principle still holds that as labor becomes more expensive, firms will substitute technology for labor when possible," said Jones.

Copyright © 2016 IDG Communications, Inc.

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