Friday, August 7, 2015

What will happen if Nashville introduces a $15 minimum wage?

Snopes reports that McDonald's is exploring the use of kiosks in its stores for the following reasons:

Fast food chains are exploring new ways for customers to order their meals without having to interact with a cashier. Labor costs are rising and consumers are demanding ever faster, more convenient service. At McDonald’s, self-service kiosks are popping up in restaurants in the U.S. after the burger chain saw some success with the machines overseas.
If an increase in minimum wage leads to "rising" labor costs, then we can expect to see more of this in cities that increase the minimum wage.  

Megan Barry, one of Nashville's mayoral candidates, has called for an increase in the Nashville minimum wage.  If fast food restaurants respond to the incentives created by the higher labor costs, we can expect to see fewer entry level jobs, as firms replace more costly labor with cheaper alternatives.  Even Democrat Warren Buffet thinks that a $15 minimum wage would crush employment.


  1. I always read a hike in the minimum wage as a way for a government to try to legislate it's way out of bad policy outcomes.

    Businesses in my city don't think that our workers' skills/education/experience/output warrant more than $7.50 an hour? I can either a- invest in long term solutions to try to make people worth more to employers (through education or some other human capital investment that may take decades to see payoff), or b- just force employers to pay people more. One costs a lot up front and may not make people happy until well after I'm out of office. The other costs me nothing for now and could win me favor among big groups of constituents quickly.

    Smacks of the decision that Venezuelan politicians make when setting price controls for milk and bread.

  2. I agree that increases in minimum wage are often a political move to curry favor.

    It is my opinion that increases in minimum wage further cultivate the entitlement culture that currently plagues many U.S. cities.

  3. Society is infatuated with technology, so the initial reaction to replacing manpower with the newest tech gadget is often exciting. Look at the press that Savioke and Aloft have received for their robotic butler.

    Right now, with one "Botlr" at only certain hotels, it doesn't seem to be a threat. At what point do we decide that technology has become too prevalent and that humans are paying the costs? Walmart is expanding self-checkout prevalence according to the below article, while other retailers are cutting back due to backlash from people protesting the replacement of employees with technology:

  4. I can recall when customer service telephone lines began introducing computer technology. "If you need this, press or say 2." Like all new technologies, the older the customer was, the more resistance that customer had. Change is never comfortable as people grow older. The simple fact is that "people" are difficult. They vary in their intelligence, they get sick, moody, irritable, and any number of other personality problems that can distract them from the task at hand. Even a task as simple as placing an order can take four times as long as needed because of texting, cell-calls, chit-chat, etc. When using a kiosk, I believe people actually pay more and closer attention to the task at hand. In the end, I believe market research and trials will demonstrate that the benefits of such technology are greater that the losses that may come from it.

  5. According to the 4th edition of Managerial Economics, “Anything that impedes the movements of assets to higher-valued uses, like taxes, subsidies, or price controls, destroys wealth.” Though in a discussion of minimum wage, I would think the question should really be focused on whose wealth is being destroyed, and by how much. If a person has $100,000 and 1% of that went to paying more so that another person could make a living wage, is the person who now has $99,000 really going to miss that single thousand dollars?

    As companies turn to technology to avoid the wage hikes, they will never really be able to remove humans from the process. Even with a self-order screen at McDonalds, someone will still need to deliver, install, and maintain the self-service kiosk. There will still be jobs, and perhaps all of the college graduates who are working minimum wage jobs will be able to put their education to good use once more technology driven jobs have been created.

  6. Doubling employee wages enables them to strive and achieve a better quality of life that they weren’t afforded previously. Until wages are increased, which is a glimmer of hope, employees know they can’t survive off of $7.25. Some have to decide whether to pay for food or housing expenses. Others forego health insurance and routine care. These companies should want to invest in their employees. It will boost morale and those that want to work will be willing to contribute more when their home life is in tact. There has to be a balance of work and their personal life.
    Companies has a couple of years to figure out how to raise wages and possibly cut costs where they can but ultimately the rising costs with be passed down to consumers. This is the down side of the wage increase along with where the company where pull the extra labor cost from, which leads to some to think that raising minimum wage works against optimizing performance and maximizing profits for businesses.
    One option is that businesses can automate order taking so employees can prepare the food faster and fresher. This would motivate employees to produce orders efficiently and the increase of minimum wage is an incentive to maximize work performance. The draw back is the short-term cost of installing the automation machines.
    Another option would be for our government to stop sending money to foreign countries and invest in their own. It amazes me how so many people can argue against raising the minimum wage but the U.S. government contributes to others countries on a regular basis. When is it going to be American citizens turn to receive billions of dollars in attempts to bring its people above poverty level?!

  7. The sad thing here is that not only will company’s figure out how to reduce staffing to accommodate the increase, but they will also find a way to make us pay for it. What really bothers me though is that we will not only have to pay for it, we will have to deal with a reduction in quality too. The one thing that you can count on these days is that nothing is made like it used to be; wait until quality is impacted by staffing cuts associated to wage hikes. There is also the potential to simply pay more. Perhaps the local pizza place will charge $6.00 for a $3.00 slice to accommodate having a counter person, only to realize that he would rather have the extra $3.00 for himself and subsequently fire the counter person. I believe that the minimum wage should be a living wage, but sadly I fear it will hurt those it’s supposed to help most.

  8. Although technology is ever evolving, a self-aware Artificial Intelligence which would allow for a fully automated business is still far from development and could take even longer for deployment in the business world due to feasibility. If there is one industry where humans are slowly being replaced by machines, it would be the banking industry where ATMS are being substituted for tellers. Despite the growing roles of ATMS, they lack the flexibility and many abilities that humans provide in the workplace and are not able to upsell or cross sell like tellers do. Despite the perceived “savings”, machines will not grow the business and could potentially lead to loss of business.
    Increasing the minimum wage would benefit low income individuals or families, would potentially reduce the dependence on state and federal welfare programs and would stimulate the economy since minimum wage workers would have increased spending power. Despite the positive effects of the minimum wage, the fact remains that large corporations would adapt while some small or midsized firms could suffer due to the increased cost of doing business. I personally believe that even if some businesses close down, others would either benefit from the increased business or new ones would spring up to take their place, both scenarios would necessitate recruitment of labor. An increased minimum wage would also lead to more competition in the labor market and even more talented employees who would enhance productivity and give output a needed boost to compensate for the increased cost of labor.

  9. A University of Chicago survey of 42 economists revealed that only one agreed that a $15 per hour minimum wage hike will produce “measurable gains in GDP” (Graham, 2015). In fact, most anticipate that there will be job losses, mostly in low-wage employment, but there is no prior evidence that would suggest it. 2007 Nobel Prize winner Eric Maskin believes that the “total increase (to $15) is so big that I’m not sure previous studies tell us very much” (Graham, 2015). To add to this, many do not factor in the Obama Care employer mandate, which would further “magnify the negative impact of the minimum-wage hike” (Graham, 2015). The cost-benefit would result in employer savings in workforce reduction would outweigh the adjustment costs in labor saving technology.

    To add to this, the employer mandate penalty in 2016 is $2,160 per full-time employee, with an after-tax penalty of $3,547 per tax-deductible wager, or the equivalent of an additional $1.71 per hour to any minimum wage.

    Graham, J. (2015, September 23). 2% Of Economists Say $15 Minimum Wage Will Boost GDP. Investor's Business Daily.

  10. When it was announced that the minimum wage was being raised to $15 an hour, many workers were happy and excited, and businesses got worried. Many businesses, especially smaller businesses can't afford to pay $15 in wages, and would have to let employees go or cut their hours, so in the end many people won't actually be getting a raise. If the employees are let go, there will be a large amount of entry level workers looking for jobs and likely not enough openings. Businesses are already getting ahead of having to pay a higher wage for these employees and implementing technology to do many of the same tasks the workers do with minimal impact on the customers. It is helpful to have the increase be implemented in incremental amounts over a course of years than all at once, but businesses are always going to try to find ways to cut costs, especially when they are mandated to pay more.