Donald J. Boudreaux: Minimum wages & technology

July 31, 2018

Economists have long explained that the availability of labor-saving machines such as self-checkout kiosks and package-delivery drones is one reason why minimum wages cause long-term unemployment for many low-skilled workers. If a machine can do for a cost of $7 per hour what a worker must be paid at least $7.25 per hour to do, the machine gets the job while the worker gets unwanted leisure.

When I explain to my students that minimum wages prompt firms to substitute technology for labor, they often react as if this greater reliance on technology is an upside of the job-destroying nature of minimum wages. But my students are mistaken.

Technology is unquestionably a great boon to humanity. Yet like almost everything else in reality, not every additional amount of it is worthwhile.

Technology isn’t free. Human effort is required to invent machines, and scarce resources are necessary to produce, power and maintain them. Using these efforts and resources to produce and operate labor-saving machinery renders these efforts and resources unavailable for the production of other goods and services, such as food and housing, that would enhance our standard of living.

And so what we want is not maximum possible technology. We want only technology that is worth its cost.

Getting one’s head around the idea that using advanced technologies is not always economically justified can be difficult. Advanced technologies are, after all, advanced. Isn’t it always good to advance?

No. To see why, consider another concept that, like technological advance, conveys the impression of always being desirable -- namely, safety. How often have you heard someone declare that “You can’t be too safe!”?

But you can, indeed, be too safe. If you drive a compact car, you are less safe while on the roads than you’d be if you drove a large sedan. And so in choosing to drive a compact car, you reveal that the greater safety of a sedan is not worth, to you, such a car’s higher price or less-attractive styling. In short, maximum possible safety isn’t worthwhile to you.

Ditto if you drive a car that is several years old (because older cars aren’t quite as safe as are newer cars). Ditto if you ever ride a bicycle along city streets. Ditto if you have ever eaten that extra cookie, skipped your time at the gym or jaywalked.

Safety is valuable, but not infinitely so. And technology is no different.

Because each year roughly 4.5 million Americans turn 16 years of age, each year a large number of unskilled and inexperienced individuals enter the U.S. workforce. All 16-year-olds who enter the workforce are willing and able to perform any of a large number of tasks that require only the barest of skills. Because these teenagers can and want to perform many of these tasks at wages lower than the costs of instead using machines, to use machines in such cases is wasteful.

While the likes of self-service checkout lanes and driverless delivery vans appear to be more advanced than employing humans to do these jobs, economically they are less advanced if these technologies are used only because government prohibits the employment of low-skilled workers who are incapable of producing at least $7.25 of value each hour. By pushing lots of low-skilled workers into artificial idleness, minimum wages not only harm those workers but also cause other resources to be used wastefully.

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