2015 May 20 Wednesday
Net Effects Of High Minimum Wages?

While I expect LA's coming $15 minimum wage will spur robot development, improve the quality of local services, and reduce interactions between customers and service providers Megan McArdle thinks a high minimum wage will produce deadweight loss due to a loss of economic efficiency.

In the short run I think Megan is correct. But in the long run higher minimum wage will boost economic efficiency by speeding the development and spread of automation technologies. Also, in the short run and long run higher minimum wage will increase unemployment among the least skilled, least driven, and least talented. The relentless advance of computer hardware and software technology promise to do that anyway. But higher minimum wage will cause that to happen sooner.

What a much higher minimum wage will also do: gentrify cities that already have other local conditions attractive to gentrifiers. Such cities should gradually ratchet up their minimum wage to $20 per hour. This will drive the low skilled work to outside the city's boundaries along with the low skilled employees and their families. This will improve local school scores, lower crime, free up housing, and all this will attract the gentrifiers.

Ben Casselman points out that the cities raising their minimum wages to $15 have well above average living costs. The people who manage to continue to keep their jobs when their wages go up to $15 per hour will still be pretty poor.

What I'd do if I was running fast food joints around LA: by franchise locations right outside the city boundaries. Alternatively, switch to franchises that have low-labor meals and support for payment kiosks. Automate, automate.

So far the number of cities moving to a $15/hour min wage (SF, LA, Seattle) isn't large enough to cause a big boost in fast food automation technology development. But throw in some more big cities (hear the call NYC, Boston, Chicago, San Jose) and that would change.

Share |      By Randall Parker at 2015 May 20 05:09 PM 

Mercer said at May 20, 2015 10:31 PM:

It could boost automation in the long run. I think the short run will see an increase in small family businesses. Immigration boosters frequently claim immigrants are more entrepreneurial then natives. This will be a test of how entrepreneurial are Mexican Americans.

Black Death said at May 21, 2015 10:38 AM:

What would be the effect of a $15 minimum wage in cities such as Baltimore or Detroit?

Randall Parker said at May 21, 2015 7:44 PM:


Family businesses: yes, I could see that. No need for parents to pay the kids the full minimum wage. But much bigger demand for welfare too.

Black Death,

$15 min in the most dysfunctional cities: Interesting question. Well, it'll have no impact on those who make their living illegally. Also, no impact on those on the dole or those on the city payroll. So that's 3 major categories right there. We aren't talking about areas with high (legal) labor market participation.

But it would make these cities worse off than they already are.

I really think a high minimum wage would be a boon for home owners in prosperous cities as the lower class leaves due to lack of jobs. $20 per hour would make any desirable city into a very gentrified place.

Technological advances will make this easier to do. Instead of grocery stores in the city everyone would get home delivery from delivery services based outside the city. Cities would have neighboring smaller cities that would do most of the lower class work and ship it in. Want a cake from a bakery? It'll get sent over the city line on order. Home cleaning will involve robot cleaners. Parts for houses will be chosen for durability and ease of swapping out.

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