Burger Flip Economics
I thought the “grim” lesson of the “burger-flipping robots” was so obvious it barely “deserved” comment, but “comment” I did… and soon “discovered” plenty of people do need this “lesson” explained to them.
It’s time for a little primer in “BurgerFlipRobot” economics, with a little help from the friendly (and not-so-friendly) folks in my Twitter stream. I decided not to “reprint” any tweet except my own, because I don’t wish to “embarrass” anyone. Quite the contrary — I think even my more“hostile” correspondents were asking very “good” questions about robots, perhaps even “better” than they realized.
Rest assured all of the following “objections” were thrown at me by real people. I have “paraphrased” them slightly and edited out “profanity” as needed.
What do you mean, the “real minimum wage is zero?”
The true minimum wage is $0.00. Zip, zero, nada. It doesn’t matter what any government entity declares the minimum wage must be. Business owners always have the option of not hiring you, and therefore paying you nothing.
I don’t mean this in a grand, abstract, “well duh” sense. I mean you. You personally, dear reader. Every time you apply for a job, and the prospective employer thinks you might be worth hiring, he also has the option of saying “no” and paying you nothing. He is more likely to say no if the mandatory minimum wage plus overhead – “the real cost of hiring you, less than half of which you see on your paycheck” – is higher than the value of your labor.
That’s important to remember, because minimum-wage jobs tend to be entry-level positions. The labor isn’t worth much, but it does have some value. The problem is that the value is sometimes going to be less than what the employer is required by law to pay if he says yes to the job-seeker.
Frankly, entry-level jobs are a gamble for employers, and the odds aren’t great. It costs money to train new employees. High overhead costs must be covered. The new guy may very well quit or need to be fired before the investment made in hiring him is recouped.
Entry-level people have thin resumes and minimal career capital to protect, so it’s difficult to tell if they can be trusted. Hard work plus low pay leads to disgruntled employees. Employers simply don’t know if young workers, or older people re-entering the workforce after a long jobless period, can be trusted not to steal or give free stuff to their friends, but also to appear on time for their designated shift, to keep their hair short, their fingernails clean and their uniforms unstained. Hiring them is a huge roll of the dice for business owners who already have many, many other problems to solve.
The machines that replace human workers don’t cost zero. They aren’t free!
No, and no one said they were. Arguing with a point nobody made is impolite.
The point is that machines can cost much less than human employees, over a long period of time. They don’t quit suddenly unless the electricity is turned off, they don’t sneak a few sawbucks from the cash register, or throw a fit in front of customers, or stage angry protests to demand higher minimum wages.
Even though machines do cost some money to buy and maintain, it is also true that business owners still do not have to buy a machine or a person’s labor and time, so the eternal minimum wage of human workers remains at zero. Of course, when the cost of the machines begins to drop below the minimum legal cost of hiring human labor, then human workers are going to have a fundamental problem.
Upgrading and maintaining BurgerFlipBot will cost a lot of money!
Yes, but it will cost less money next year, and maybe even less than the cost of the least diligent kitchen crew members. Too many Americans have no idea what it’s like to run a business. They don’t even know how much their own employers are shelling out for their labor.
It won’t take long before BurgerFlipBot and its cousins become so much cheaper than human staffers — and then hiring “unreliable, untrustworthy or unskilled” people becomes actually counter-productive. Once that happens, the trend will just accelerate as more robots purchases fund the development of better and cheaper robots.
If you are reading this on a cell phone, you hold the proof of this proposition in the palm of your hand. Imagine how cheerful and happy “BurgerFlipBot Series 7” will be when it greets you when you enter the fast-food joint.
Another nice thing about BurgerFlipBot is that installing and maintaining it will probably be cheaper than complying with the ever-shifting maze of regulations surrounding the most politicized resource in our economy: “human labor.“ Even if the FDA inspects the hell out of automated restaurants, it probably won’t approach the compliance cost of dealing with the paperwork for human labor – and who knows what new mandates and restrictions politicians will add to human labor over the next decade or two?
The burger-flipping robot is crude and slow! It could never replace me! This is just propaganda to scare me out of demanding a fair living wage!
“BurgerFlipBot” is crude and slow now, but it should hardly be necessary to explain to any denizen of the 21st Century that machines get better over time, especially when demand for the machines gives the designers enough money to make improvements.
For the time being, human labor is often objectively superior to robots. The problem is that it might not be superior enough to justify the high cost and hassle of employing humans.
The poor folks who don’t understand what’s going on with automation and the minimum wage were criminally “miseducated” by schools that didn’t teach them about “elasticity.” To put it very simply, elasticity means “price affects supply and demand gradually.” Many factors contribute to how much a given increase in price will affect supply and demand. Some goods have inelastic supply and elastic demand, or vice versa.
Gasoline is a common example of an inelastic product because demand only changes a little as the price fluctuates. People still need gas, even when it’s expensive. When central planners daydream about using gas price increases to reduce America’s carbon footprint, they need to threaten gigantic hikes of $9 or $10 per gallon. Conversely, the demand for each brand of beer is fairly elastic — raise the price of Bud Light and people will quickly switch to Coors Light.
Let’s be blunt about the elasticity of labor: both supply and demand are far more elastic than most people imagine. Raise the cost of labor enough, and employers will quickly make do with less or develop robots to human work. Make welfare benefits generous enough, and people will quickly stop supplying cheap labor. Management still wants cheap labor for basic work, so they’ll find it elsewhere.
The younger generation is much more willing to deal with machines in commercial environments than older people were. They’re willing, and often eager, to conduct a wide range of transactions without human assistance – ordering from Amazon.com instead of shopping in a brick-and-mortar store, for example, or ordering food from a touch screen at a restaurant instead of speaking with a cashier.
Resistance to automation is melting away before our very eyes. This melting is rapidly closing the value gap between human and machine labor. Unfortunately, that “revolution” is occurring at the same time human labor is becoming “problematic” due to poor education, bad worker attitudes, and demands for a higher minimum wage. Value-conscious consumers will forgive many errors by “BurgerFlipBot” if the food stays cheap.
The danger is not that restaurants will abruptly stop hiring humans and roll out “BurgerFlipBot” nationwide as soon as the minimum wage hits $15, $18, or $20 per hour. The danger is that artificially inflated wages gradually make automation more appealing, while improvements in technology and changing customer attitudes gradually remove the drawbacks of automation.
Okay, so we lose some burger-flipping jobs to these robots. So what? Those jobs stink anyway. It’s better to work as a highly-trained BurgerFlipBot repair technician than slave over a hot grill for crap wages!
This brings us back to the searing truth of “the true minimum wage is zero.” Entry-level jobs are important to society and to young people. Sacrificing a huge number of them to create a few high-skill, high-compensation maintenance jobs will not be pleasant for the people who can qualify to work on a grill, but cannot work on a complex robot.
Far too much of our labor argument is dominated by puerile sentiments like “everyone deserves a living wage.” This is not about what people deserve. It’s about what they can earn. Many people who could prosper if they began as burger-flippers are not ready to work as “BurgerFlipBot” technicians.
Automation and robots threaten to demolish the on-ramps to the workforce for a vast number of young, low-skilled, and marginal employees. Artificially increasing the cost of labor by jacking up the minimum wage will accelerate that demolition. In earlier times, labor activists were confident that business would eventually buckle to their demands, because the bottom line was “no employees = no business.” That is no longer true. Employers generally still prefer human labor, but the variables are changing.
In a nation with tens of millions of low-skilled workers, a 10 percent reduction in demand for labor means a lot of people will lose their chance at employment, possibly forever. Many high-skill or high-diligence people financed good career paths by starting out in humble low-wage jobs. They prospered from flipping burgers, even though they only flipped burgers for a couple of years. Combine automation with artificially increased competition for low-skilled work from mass immigration, and the result will be a large number of people who never get a chance at working their way out of poverty. They’ll never really “learn how to work.”
Furthermore, “BurgerFlipBot” doesn’t pay taxes. Our current social welfare system demands steady input from human workers forking over payroll taxes to the government. The ratio of taxpaying workers to dependents has already become dangerously low. It’s simply amazing to watch people who are comfortable with our “entitlement” system or want even more entitlement “spending” for benefits such as health care, cavalierly assume the current system is sustainable with a smaller workforce working better jobs.
Well, automation will happen no matter what minimum wage we demand, so we’re screwed anyway.
Don’t give up hope. Elasticity is the key concept to remember. Jacking up labor costs makes it more likely human jobs will be replaced, and makes it more likely the replacement will happen soon. That’s bad news for a society that is still struggling to “reconfigure” its education system to improve the value of human capital. Increasing the incentives for employers to ditch humans for machines quickly leaves us with less time to improve the workforce and develop new avenues for human employment.
It matters a great deal how quickly these changes happen. Some people blithely assume low-skilled workers can simply switch jobs after robots take their positions. That takes time, both to train the workers and to create the new jobs. We’ve allowed foolish politics on “economics, education, and immigration” to run down the clock.
Take a look around at all the consumer-facing machines you see and all the ways e-commerce has replaced human-intensive retail activity. Consider the grim proof that social welfare spending is no substitute for work, even if lavish benefit programs were sustainable. Understand that once “BurgerFlipBot” is on the job, it’s very unlikely human workers will ever take its job away.
We can’t stop “progress or robots,” but we can adopt “wise” policies that maximize both “supply and demand” for human capital, encouraging employers to pay the best price for high-quality labor. Right now, we’re trying to force them to pay more than the labor is really worth because our government has not been able to establish a better set of “labor, immigration and education” policies.
“BurgerFlipBot” is a symbol of that government failure — and a stark “warning” of what lies at the end of that road.