Minimum Wages Encourage Uneconomic Automation

Ryan BourneFox Business reports today:McDonald ’s current CEO Chris Kempczinski confirmed during Alliance Bernstein’s Strategic Decisions Conference last week that the company is testing an automated, voice‐​recognition based drive‐​thru ordering system at 10 of its Chicago locations. Kempczinski noted that the artificial intelligenc e technology has 85% accuracy with filling orders, with workers having to step in for approximately one in five orders.Businesses in competitive markets like McDonald ’s face strong incentives to harness labor‐​saving technologies to improve efficiency, at least when such investments make sound economic sense. But the race to automate can have less benign drivers: higher minimum wages, by raising the cost of low‐​paid labor, act asan effective subsidy to more uneconomic forms of labor ‐​saving innovation. Incentivizing these inefficient investments reduces economic wellbeing.As former McDonald ’s CEO Ed Rensi told Fox Business, there is no free lunch where minimum wage hikes are concerned. Assuming businesses know what is good for their bottom line, increasing hourly labor costs by government diktat causes profit‐​seeking businesses to try to recoup losses elsewhere.Some companies will cut workers hours or jobs, others reduceemployee perks or other non ‐​pay benefits. McDonald ’s itself has previously reacted to minimum wage hikes byraising its prices, passing on the cost when it can to (often low ‐​incom...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs