Business Insider
Business Insider
Workforce Development

Machines Invade the Labor Market

Last week, Wendy’s announced that self-service ordering kiosks will be made available to its more than 6,000 stores nationwide. Wendy’s is just the latest example of increasing automation in the fast food industry. McDonald’s recently announced that self-service kiosks would be a part of its “restaurant of the future” investments in some Canadian stores, and Chili’s and Applebee’s have already begun their rollout of tablets where customers are able to place their own orders.

While the self-service technology has certainly been around for several years and has been shown to decrease customer wait times, restaurants have been hesitant to adopt it up to this point. But as more and more restaurants move to increase automation, that hesitance appears to be all but gone. Technological advancements are inevitable, but usually there is an adjustment period in which workers can acquire skills needed to compete in a changing economy and fewer upcoming workers enter the declining field. Competing restaurants adopting different kinds of technology to increase efficiency or edge out competitors isn’t uncommon, but the recent trend towards quickly adopting automation signals a significant shift in the way that these restaurants conduct business.

That shift is the result of an economic trend that affects all businesses, but especially those serving fast food: increased labor costs. Unlike so many economic changes with causes that can be difficult to identify, the increased cost of labor is a direct result of the pressure that states and localities have been under to increase their minimum wages. Last year, the Seattle city council voted to increase its minimum wage to $15 per hour over several years. Just this year, both California and New York, two of the four most populated states in the nation, voted to gradually increase their minimum wages to $15 per hour in the next several years.

With major markets in populated states and cities voting to artificially increase the cost of labor, expect to see many more restaurants experimenting with automation as a way to decrease labor costs. Even though many restaurant chains will discuss efficiency, time-saving capacity and other benefits of automation, the largest benefit will be the need to employ fewer people. Writing in the Wall Street Journal, Andy Puzder, CEO of CKE Restaurants which operates Hardees and Carl’s Jr., summarized the reason for restaurants increasing automation: “While the technology is becoming much cheaper, government mandates have been making labor much more expensive.”

As the push for a $15 per hour minimum wage continues, entry-level positions that were once considered to be a crucial starting point for workers will continue to disappear. In 2014, a Congressional Budget Office report estimated that an increase in the federal minimum wage from its current $7.25 to just $10.10 per hour would cost between 500,000 and 1,000,000 jobs. Those displaced workers’ skills cannot compete at a minimum of $10.10 per hour at this point in their careers and other employment will be difficult to find when the minimum goes even higher than that.

Unfortunately, the well-intentioned efforts to increase the minimum wage will end up hurting exactly the workers that they are intended to help. The increased labor costs will lead to more automation and fewer opportunities for workers to get their foot on the first rung of a career ladder. The results from the Seattle minimum wage increase have already been disappointing, and as more cities and states increase their minimum wages, the stage is set for machines to take over the low-wage labor market.

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