Will Businesses Replace Workers With Machines If The Minimum Wage Goes Up?

It frustrates me whenever I hear politicians debating this question, and politicians debate this question this all the time. The people who claim that businesses will replace workers with machines if the minimum wage goes up usually just don’t understand economics.

The simple fact is this – As soon as a machine is invented that can do the job of a worker, it is just a matter of time before that worker is replaced by that machine. The national minimum wage is now 25% lower than it was when Lyndon Johnson was president, adjusted for inflation, but tens of millions of Americans have lost their jobs since then anyway due to automation. Consider automobile assembly plants. 50 years ago, when Lyndon Johnson was president, the floor of an auto assembly plant needed hundreds of workers in order to function. Today, auto assembly plants have hundreds of robotic arms making cars with just a handful of workers. Was this because of increases in the minimum wage? No. Auto factory workers were never paid minimum wage. They always made more than that. All my life I have heard politicians say that raising the minimum wage would lead to millions of people losing their jobs, but that has never actually happened. However, this time, maybe it will. California is raising the minimum wage to $15 an hour, phased in over several years. I am confident that expensive French restaurants in Silicon Valley will be able to absorb this cost, but what about businesses in the Central Valley? Cities in the Central Valley like Stockton and Modesto were poor before the financial meltdown of 2008, and they never recovered from that. Frankly, I am very skeptical that small businesses in the Central Valley will be able to pay $15 an hour and stay in business. We will see.

The bottom line is this –  regardless of whether the minimum wage goes up or not, businesses will continue to replace workers with machines as soon as those machines are invented and are practical. This is has been going on continuously ever since James Watt invented the steam engine in 1775, which kicked off the Industrial Revolution, and the Industrial Revolution had nothing to do with minimum wage laws. They didn’t have minimum wage laws in the 18th Century.


If You Think Berkeley Rents Are High, Wait Til You Hear What They Are Charging In San Francisco.

If you have driven over the Bay Bridge anytime in the past 3 years going to San Francisco, you probably noticed the Jasper building which is under construction on the right side of the off-ramp on top of Rincon Hill. The building is thin and 40 stories high. The Jasper will be finished soon. They has just announced their rent schedule:
  • Studios $4,250 a month
  • One Bedroom $5,300
  • Two Bedroom $7,000

jasperWhy would anybody pay $7,000 a month rent for a 2 bedroom apartment? I know several people who bought houses in San Francisco within the past couple of years, and all of them are spending a lot less than $7,000 a month for housing, and they all have mortgages. To be fair, the Jasper really is a luxury building. The apartments are large, and the building has a lot of amenities. Most of the apartments have balconies; however, I don’t know how much time I would spend on a balcony next to the Bay Bridge on-ramp at rush hour, especially on a hot, dry day. Breathing air like that can’t be healthy.

The minimum wage in San Francisco is now $12.25 an hour, which I think is too low. I ask you – how can anyone live in San Francisco who works at minimum wage? According to Zillow, the average apartment in San Francisco rents for $3,950 a month. That means that a worker would need to make $79 an hour, or $153,000 a year, to rent the average apartment in San Francisco without spending more than 30% of his pre-tax income on rent. I don’t know how much McDonalds pays their hamburger flippers in San Francisco, but I’m pretty sure that it is considerably less than $153,000 a year. There are a lot of people working for minimum wage in San Francisco, but where do they live? I really can’t figure that out. The people who work at McDonalds and Walgreens in the City must live someplace – but where?