Minimum Wage Hikes Could Speed Up Move to Automation, Researchers Say

By Kevin McCandless | June 18, 2018 | 4:09 AM EDT

Robots at work on an LED lightbulb assembly line. (Screen capture: YouTube)

London ( – As Britain’s major political parties embrace minimum wage increases, a new study has found that raising the wage levels of unskilled employees may speed up the process of workers being replaced by machines.

The government led by Conservative Prime Minister Theresa May is projected to raise the minimum wage for workers over 25 to the equivalent of $11.40 an hour by 2020.

This is in line with the party’s pledges ahead of the 2017 general election. During that campaign the left-leaning Labour Party also promised to raise the minimum wage, for almost all workers regardless of age, to $13.30 an hour by 2020.

Government minister Matt Hancock in a speech last week hailed recent increases in the minimum wage, saying they had led to “the fastest rise in pay to the lowest paid quarter of the population in history.” That, he said, was helping ensure that everyone shares in prosperity.

In recent years, the Conservative Party has declared it a priority to raise the minimum wage, with annual increases now occurring every year.

Since 2015, the hourly rate for workers over 25 has climbed from 6.70 pounds (or about $8.91) an hour to 7.83 pounds ($10.41).

However, new research by academics at the London School of Economics and the University of California, Irvine has found that raising national minimum wages has led to low-skilled workers being replaced by machines and other forms of automation.

LSE associate professor Grace Lordan and Professor David Neumark of UCI studied the demographics of the United States from 1985 to 2015, and linked a ten percent increase in the minimum wage to a 0.31 percent decrease in the total share of tasks that, while capable of automation, are still carried out by low-skilled workers.

They said the phenomenon was seen most strongly in manufacturing jobs, with robots replacing workers on assembly lines. Meanwhile self-checkout points are replacing some cashiers in supermarkets.

While economies have tended to create new jobs as old ones become obsolete, Lordan said in a release that was not guaranteed to be the case in the future.

“Replacement becomes less likely as machines continue to learn and minimum wages put pressure on companies already operating in highly competitive environments with tight profit margins,” she said.

Lordan indicated that not all low-skilled jobs were affected in that way, pointing to occupations that require the human touch, such as childcare or hairdressing.

Jobs like tending bar or waiting tables would fall into a gray area, with an eventual mix of humans and robots, she said.

Overall, older low-skilled workers would most likely lose out, since they would have less chance to retrain and learn new skills.

As in the United States, the introduction of annual rises in the minimum wage has led to criticism from all quarters in Britain.

The Living Wage Foundation charged in the spring that the increases have not been enough to cover living costs for all workers, while the Association of Convenience Stores reported to the government that retailers have responded by reducing employees’ hours.

As part of its annual report on British living standards, the Institute for Fiscal Studies suggests that the picture may be more complicated.

In a statement ahead of the full report’s release this week, the authors said bumping the paychecks of low-wage employees in 2016 to 2017 did not significantly improve their living standards.

For some, this was because higher pay meant more tax and a reduction in government benefits.

It said that “low-wage employees in low income households enjoyed modest (2%) growth in their living standards.”

There are also big differences in the living situations of the lowest paid employees. For example, the report states that 38 percent of the lowest paid 20 percent of employees live in households with above average income, perhaps because they have a higher earning spouse or partner.

IFS economist Agnes Norris Keiller said the wages of low-paid employees have grown strongly in recent years. Positive effects on their living standards have in general been “much more modest.”

Kevin McCandless
Kevin McCandless
CNS London Correspondent

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