Federal and state mandated minimum-wage hikes could accelerate the migration toward replacing low-skilled workers with automation.

Federal and state mandated minimum-wage hikes could accelerate the migration toward replacing low-skilled workers with automation. The movement to raise minimum wages continues to gather momentum. As HR Dive points out, 11.8 million U.S. workers will see minimum-wage hikes in 25 states. Another eight million workers could receive increases in at least 12 more states if campaigns prove successful in 2017 and 2018. Without a proportionate improvement in sales, employers are scurrying to offset rising labor costs with investments in automation.

The Rising Tide

While wage hikes can boost morale, the lack of improved productivity/revenues could trigger more layoffs to offset rising labor costs and shrinking margins. Businesses opting to pass the additional costs to customers could find themselves priced right out of the market as consumers jump ship to competitors. Only businesses that are already well in the black could absorb the rising tide of wage hikes.

To curtail rising labor costs, businesses are investing in automation that can replace "low-skilled" workers, high school educated or less. Automation has already taken hold in grocery stores with self-checkout lines and fast food restaurants with touchscreen order entry kiosks. We see it with smart ATMs and the robots installed in manufacturing plants.

No More Free Rides

The argument can be made that businesses have been getting a "free ride" with the minimum wage for too long. As noted by Econofact, when factoring in the rate of inflation averaged at two percent, the current federal minimum wage rate of $7.25 per hour would actually be worth 25 percent less in 1968 at $5.43. The same rate would be worth 10 percent less in 2009 at $6.52 per hour. Wages have fallen backward. The federal mandate to boost the minimum wage to $15 per hour by 2024 would technically amount to $12 per hour today, when adjusted for inflation.

Minimum-Wage Demographics

According to a Pew Research Center survey, the top five industries with the most near-minimum-wage workers are as follows: restaurant and food service with 3.75 million employees, grocery stores with 902 thousand employees, department and discount stores with 650 thousand employees, construction with 633 thousand employees, and elementary and secondary schools with 563 thousand employees.

The most common occupations are cashiers at 1.4 million workers, retail salespeople at 1.1 million, cooks at 1.04 million and janitors at 725.3 thousand. Waitstaff was the fourth highest at 773.3 thousand, but the additional tips received bring the average hourly wage closer to $10.10 per hour.

The Plight of Grocers

Grocery stores are the second largest industry of minimum wage earners with the largest occupation of near-minimum-wage workers, cashiers. According to a First Research industry profile, labor costs are the largest expense for grocery stores averaging 10 percent of sales. They also, as Forbes points out, happen to have some of the smallest profit margins of any industry, averaging 2.5 percent in 2016. Mandated minimum-wage hikes will shrink margins to the point of insolvency for many grocery stores, which is why automated self-checkout lines continue to grow.

The Blowback

Since all competitors are required to implement minimum-wage hikes, the effect would be spread equally throughout the industry theoretically providing no competitive advantage. However, the spirit of capitalism would drive an industry-wide migration toward automation through robotics, self-service kiosks and bots. The rapid advancement of adaptive learning technologies aims to increase the scope of automated tasks and jobs.

The Automation Evolution

The essence of business is the harvesting of profits by optimizing efficiency to maximize productivity while improving margins. Automation is the inevitable course of business evolution as technology continues to streamline processes, enhance margins and transform business ecosystems. While boosting minimum wages serve to improve the living standards of employees, it also serves as a wake-up call for both businesses and workers alike to accommodate the automation evolution or face extinction.

Stay up-to-date on the latest human capital management insights for finance leaders: subscribe to our monthly e-newsletter.

Tags: employment regulations artificial intelligence