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Automation usually requires a high fixed cost to enable long-term low-operating costs. If you suppose a decreasing unit installation cost or scale construction

by iciac 8y ago

Automation usually requires a high fixed cost to enable long-term low-operating costs. If you suppose a decreasing unit installation cost or scale construction over time you'll eventually hit a point at which companies will automate, especially if there's added efficiency (two examples: McDonald's certainly didn't shift to kiosk solely due to minimum wage, nor could we set an hourly wage low-enough that a typist pool could compete with a common word processor). Ditto for location shifting: it's dependent on a) the transferability of the activity, b) the cost of shifting, and c) the price differential between the two locations. Minimum wage may be a component in this decision - but it will not be the only one. For context: I work as a policy economist in Australia, principally in regional employment. The minimum wage rate here is (AU) $18.93/h, unemployment sits at trend around 5.5%. In my experience the primary driver for regional employment (often less complete markets) is labour demand rather than the cost of supply.

sokoloff 8y ago
Isn’t labor demand a curve with a slope, rather than a point? Does not the cost of supply curve interact with demand?
AnthonyMouse 8y ago
> Automation usually requires a high fixed cost to enable long-term low-operating costs. Sure, but it still has a relationship to wages. You take the fixed cost and amortize it over the expected lifetime of the equipment, add the operating and maintenance costs and compare to wages. If the automation costs $25,000/year per employee replaced then you use it as soon as employees cost more than $25,000/year. It's clear what happens when the cost of an employee rises from $20,000 to $30,000. > nor could we set an hourly wage low-enough that a typist pool could compete with a common word processor Sure you could. No one would willingly take the job for so little money, but that doesn't mean the dollar value doesn't exist. But nobody needs to "save" those jobs because there are many other jobs that pay more. A $0.05/hour job is useless when there are unfilled $10/hour jobs. But a $10/hour job can be better than unemployment when there aren't unfilled $15/hour jobs and the employer's automation threshold is $12/hour. > Ditto for location shifting: it's dependent on a) the transferability of the activity, b) the cost of shifting, and c) the price differential between the two locations. Minimum wage may be a component in this decision - but it will not be the only one. It's not a matter of it being the only factor, it's a matter of whether it pushes the number over the threshold. Which is what happens at the margin.

by iciac 8y ago

sokoloff 8y ago

Isn’t labor demand a curve with a slope, rather than a point? Does not the cost of supply curve interact with demand?

AnthonyMouse 8y ago

> Automation usually requires a high fixed cost to enable long-term low-operating costs. Sure, but it still has a relationship to wages. You take the fixed cost and amortize it over the expected lifetime of the equipment, add the operating and maintenance costs and compare to wages. If the automation costs $25,000/year per employee replaced then you use it as soon as employees cost more than $25,000/year. It's clear what happens when the cost of an employee rises from $20,000 to $30,000. > nor could we set an hourly wage low-enough that a typist pool could compete with a common word processor Sure you could. No one would willingly take the job for so little money, but that doesn't mean the dollar value doesn't exist. But nobody needs to "save" those jobs because there are many other jobs that pay more. A $0.05/hour job is useless when there are unfilled $10/hour jobs. But a $10/hour job can be better than unemployment when there aren't unfilled $15/hour jobs and the employer's automation threshold is $12/hour. > Ditto for location shifting: it's dependent on a) the transferability of the activity, b) the cost of shifting, and c) the price differential between the two locations. Minimum wage may be a component in this decision - but it will not be the only one. It's not a matter of it being the only factor, it's a matter of whether it pushes the number over the threshold. Which is what happens at the margin.