San Francisco’s Problem Isn’t Robots; It’s the $15 Wage Floor
Author: Michael Satlsman
Publication Date: November 2017
Newspaper: The Wall Street Journal
Topics: Minimum Wage
Amazon recently received proposals from cities hoping to host its second headquarters. A number of California localities—including Los Angeles, Sacramento, Pomona and Chula Vista—were in the mix. But the tech titan should tread carefully in the Golden State, where policy makers are studying punitive measures against companies that use workplace robots.
The latest example is a statewide campaign launched this fall by Jane Kim of the San Francisco Board of Supervisors. Ms. Kim intends to raise money to support a statewide ballot measure that would penalize private enterprise for embracing automation in the workplace, as Amazon has done in its warehouses.
“The idea is simple: if an employer replaces a human worker with a robot or algorithm, he or she would pay a tax,” according to the “Jobs of the Future Fund” website. It continues, “If we can expect millions of Californians may lose their job, it is our responsibility to prepare now through a modest tax on the robots and algorithms taking their place.”
While Ms. Kim would like to tax the robots, some of her colleagues would prefer to eliminate them. Earlier this year San Francisco Supervisor Norman Yee proposed a ban on delivery robots. “Our streets are made for people,” he proclaimed. In an interview, Mr. Yee said he was concerned that “many delivery jobs would disappear” if such a ban were not enacted. He later amended the proposed ordinance to create a robot permitting process with geographic restrictions.
Employees displaced by technology might appreciate that these San Francisco politicians are concerned, but an apology might be more appropriate. Over the past few years, San Francisco in particular, and California in general, has increased the cost to hire and train employees at risk of being automated. The minimum wage will rise to $15 an hour in San Francisco in 2018. The rest of California will get there four years later. On top of San Francisco’s hourly wage mandate are requirements for health care, paid leave and employee scheduling.
These added costs give employers with already slim profit margins a strong incentive to automate or embrace self-service. In an interview with Forbes, the founder of a delivery robot company linked his product’s value proposition to a rising minimum wage: “At something like $10 per delivery, the majority of citizens will not use [human delivery]. It’s too expensive.”
The empirical evidence supports the anecdotes: An August study published by the National Bureau of Economic Research linked a rising minimum wage to an increase in unemployment for workers in jobs that require a large number of routine tasks. The authors reported that it wasn’t just service-industry jobs at risk. A rising minimum wage also had a negative effect on job opportunities for older, less-skilled employees in manufacturing.
Instead of spurring self-reflection among advocates for new labor mandates, these consequences have inspired them to propose new laws to solve the problems caused by old ones. Consider the irony: San Francisco voters were promised in 2014 that the minimum-wage initiative backed by Ms. Kim would increase consumer spending by north of $100 million—without affecting employment. Now money from the new robot-tax proposal will be used to offset a reduction in job opportunities, in part caused by the rising minimum wage.
These misconceptions put the livelihood of employers and employees at risk. Mr. Yee’s suggestion that a ban on delivery robots would help save drivers’ jobs is a dangerous confusion of consequence and cause. If customers are unwilling to underwrite a $15 hourly wage for food delivery, and employers are prohibited from embracing an automated alternative, they’ll either stop delivering food or close their doors.
Automation can’t be stopped, and it will change more than the service industry. Earlier this year a PricewaterhouseCoopers report estimated that nearly 40% of U.S. occupations are at a high-risk of automation in the next two decades. But states like California are accelerating the trend by creating labor-cost mandates that exceed the productivity of employees to which they apply. It’s futile to try to resist the downward slope of the labor demand curve. Instead California’s do-gooder legislators should study up on the law of unintended consequences.