Automation and Minimum Wage in US – Some groups typically ignored in the minimum wage literature are in fact quite vulnerable to job loss

For decades, economists have studied the effects of the minimum wage on employees in the United States. These studies have largely focused on the employment effects for low- skilled workers – with the principal focus on teenagers. Overall, there is some controversy regarding whether disemployment effects exist, with some studies finding no effects,although with more – and more diverse kinds of studies – finding evidence of disemployment effects.

This study empirically assesses whether there is labor reallocation away from automatable employment following increases in the minimum wage, and how this reallocation affects the type of employment held in the United States, overall, within industries, and for particular demographic groups. We focus specifically on jobs that tend to be held by low-skilled workers, for which labor costs increase the most in response to minimum wage increases. We estimate the impact of minimum wage increases on the share of low-skilled employment in automatable jobs, and on the probability that a low-skilled individual working in an automatable job stays employed (or stays employed in the same job). We explore and document considerable heterogeneity in these effects across demographic groups, and across industries. The analysis goes beyond the types of workers usually considered in the conventional, long-standing research on the employment effects of minimum wages, such as teenagers – studying, for example, the effects of minimum wages on older less-skilled workers who are in jobs where it is easier to replace people with machines, and on manufacturing workers in such jobs.

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. The average effects mask significant heterogeneity by industry and demographic group. For example, one striking result is that the share in automatable employment declines rather sharply for older workers – and within manufacturing, most sharply for this age group. An analysis of individual transitions from employment to nonemployment (or to employment in a different job) leads to similar overall conclusions. The heterogeneous adverse effects we document indicate that some groups typically ignored in the minimum wage literature are in fact quite vulnerable to job loss because of automation following a minimum wage increase. At the same time, we find that some of the adverse employment effects among low-skilled workers in automatable jobs are offset by increased employment opportunities for higher- skilled workers, likely because automation of low-skilled work creates other kinds of jobs.

Our work suggests that sharp minimum wage increases in the United States in coming years will shape the types of jobs held by low-skilled workers, and create employment challenges for some of them. Given data limitations, we cannot address the permanence of the effects. However, the decision to use labor-saving technology seems likely to be relatively permanent, especially if – as is becoming increasingly common – minimum wages are indexed so that a minimum wage increase results in permanently higher relative costs of low-skilled labor.

Chosen excerpts by Job Market Monitor. Read the whole story at  People versus Machines: The Impact of Minimum Wages on Automatable Jobs