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The minimum wage and its discontents

August 9, 2013

RoyBattyThere are many calls today to raise the minimum wage, pointing to the fact that the minimum wage in 1968, adjusted for inflation, would be just shy of $11/hr today. Adam Ozimek argues against that. He starts with the standard argument that price increases at McDonald’s would cut demand. But he makes only a partial argument. It’s quite possible that even after that loss in demand, a higher minimum wage provides more aggregate income to those earning it. Quantitative arguments require at least quantitative estimates. McDonald’s sets prices to maximize profit, not wages.

His stronger argument is that automation will replace the workers at McDonald’s, first the outward facing clerks, and eventually the kitchen staff. But that change quickly is coming whether or not we raise the minimum wage. We’d have to lower the minimum wage to third-world levels to prevent that. Part of what is driving that change is customer desire, not just cost. Most people no more want a conversation with a fast-food clerk, before getting their burger, than they do with a bank teller, before getting their cash. The fact that we spent the last two decades rapidly automating what once counted as “service,” and making it better by doing so, is why the bottom of the labor market now is so bleak. Of course, labor has been displaced by automation since the industrial revolution, only for those changes to pave ways for new kinds of labor. Whether that happens again is neither a certainty, as the free-market fundamentalists hold, nor an impossibility, as the pessimists suspect. The future keeps its secrets close.

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