Wage Against the Machine

Two summers ago, I landed in Lyons, France with six euros in my wallet, only enough for a meal at the local McDonald’s. I was afraid that I could not name anything on the menu besides “royale with cheese,” but instead of being greeted by a French-speaking cashier, I stood in front of a kiosk that displayed food items in photos and multiple languages. It was effortless to order what I wanted despite the language barrier, and I got my food almost immediately after paying at the same kiosk.

Last August, American fast food workers held strikes in more than 60 cities, demanding a $15/hour “living wage,” which is more than double the $7.25 federal minimum wage. The protest pits fast food workers against big corporations like McDonald’s. Having worked a minimum wage job at McDonald’s before college, I’m on the side of the workers, but I’m afraid I have to put my money on the big corporations. The fight, after all, might no longer be a zero-sum game between corporations and workers. It may be a fight between workers and machines that will ultimately replace them.

Before taking sides on the fast food “living wage” debate, we should take a look at a related debate on minimum wage, as the fast food industry employs the most minimum wage earners. Opponents of minimum wage argue that minimum wage laws are effectively a price floor for labor. When the price floor is higher than the price for labor in equilibrium, some employers who would hire an employee at a price below minimum wage would opt not to hire at the minimum wage. Those whose productivity is below the minimum wage will be laid off due to the legislation, and aggregate employment level will decrease. Minimum wage will hence not be an effective anti-poverty policy.

The empirical results for this argument are far from conclusive. A seminal paper by David Card and Alan Krueger showed that after New Jersey increased state minimum wage in 1992, employment in fast food restaurants actually increased in New Jersey compared to those in nearby Pennsylvania, although other labor economists disputed this finding. A more recent analysis of this topic using all county pairs across state borders showed no employment effect after increasing minimum wage. When President Obama called for an increase of minimum wage to $9 this year, economists were evenly divided on whether this policy would noticeably decrease employment opportunities for low-skilled workers.

Even if minimum wage increase did not have negative effect on employment in the past, there are good reasons why it will in the near future. We can look at the fate of other low-skilled workers to predict the future of the fast food industry. Airline ticket agents, for example, require similar skills as fast food cashiers. This is a slowly disappearing job, as airlines have been gradually replacing long check-in lines with more efficient and scalable check-in kiosks. The kiosks, in my experience, are even friendlier to use and give clearer instructions than ticket agents. Likewise, ATM has, in most cases, replaced bank tellers. If a machine is better at scanning our passports or depositing our checks, why do fast food companies not use them to take orders for food? My suspicion is that ticket agents and bank tellers, who are presumably more unionized and have greater bargaining power, are paid a higher wage than fast food workers. It makes sense to replace a ticket agent earning $16 an hour or a bank teller earning $12 an hour, but it does not make sense to replace a fast food cashier earning $7.25 an hour. As the cost of kiosk inevitably decreases and the wage of cashier increases, at some hourly wage between $7.25 and $12, workers will be displaced by the cheaper machines. At that point, it would be very difficult for fast food workers to compete with machines if they demand a higher wage.

Even at the current wage for fast food workers, early adopters like Wawa are experimenting with ordering kiosks exactly like the one I saw in Lyons. Smart phone app like Seamless and ChowNow are competing fiercely in the food ordering market. With higher level of automation technology in sight, a “living wage” of $15 an hour or a federal minimum wage of $9 an hour may not immediately push fast food employers to adopt automation technology, but it will certainly accelerate the process. It may be wise for policy makers to incentivize adoption of automation technology, as it allows us to do more with less people and greater efficiency. But the new technology won’t help those who depend on McDonald’s salary for a living.

Perhaps more so now than ever in history, the push for living wage or higher minimum wage is not a battle between labor and capital, but between wage earners against the machine.

Jonathan Z. Zhou ’14 is an applied mathematics concentrator in Eliot House. His column appears on alternate Wednesdays.