June 11, 2016
US $15 Minimum Wage Would Cost Wal-Mart $5 Billion Per Year

Less than Wal-Mart's $14+ billion per year net income.

I am fascinated by the minimum wage debate in the United States due to the impact that higher wage costs have on incentives to automate. If Wal-Mart starts paying $5 billion extra per year in minimum wage costs it still has another $9+ billion to spend on automation projects. One could get a lot done with just $1 billion per year.

With 2.2 million employees Wal-Mart is the biggest private employer in the United States, bigger than the next 4 combined. The retail trade is over 14.8 billion employees. If we roughly extrapolate from the Wal-Mart numbers retail would see about $30+ billion increase in costs from a $15/hour minimum wage. Dollars that large would fund a lot of robot development.

A big rise in minimum wage could cause a spike in lower class incomes. But over time the size of the spike would decrease as automation cuts the number of people working at, say, $15 per hour. How big the spike? Some businesses with thin margins (e.g. some restaurants) would shut down or immediately switch to lower service styles of operations (e.g. simpler restaurant menu itens). How fast the tapering afterward? Faster the case 10 or 20 years ago because we have orders of magnitude more computer power available to substitute for human labor.

My intuition about robots and automation: there are plenty of ways to automate when costs of lower skilled labor goes up. My post on car wash automation links to an article that shows how car wash technologies are old (not requiring the latest computers) and how a flood of low skilled immigrants actually caused a reversal away from automation. This suggests there is a lot of automation waiting to be used if only labor costs were to rise. Well, low skilled labor costs are headed up in some states due to higher minimum wage. So we are going to see more extensive utilization of existing automation technologies as well as development of many new ways to cut labor costs.

Our experience of life outside our homes is going to involve less interaction with retail workers and other service providers. This has already happened. Most of us rarely interact with gas pump attendants or bank tellers. Some of us rarely interact with department store clerks. I haven't been in a Target or Wal-Mart or similar store in years and some of my groceries are delivered. In the next 10 years retail store space is expected to shrink by a third or a half. Throw in higher wage costs and stores will shrink even faster and robots will wander their aisles stocking shelves and helping customers.

We face a very automated future.

Share |      Randall Parker, 2016 June 11 11:18 AM 


Comments
jp straley said at June 16, 2016 7:55 AM:

Automation is inevitable unless institutions (I mean government) act with appropriate restrictions to assure employment. Self-driving trucks? Automatic item retrieval at a warehouse-style retail? This clearly will widen and deepen the income gulf between owners and workers. Sounds Marxian, I guess, but the terms are fairly accurate. It is wealth-transfer. Even so, inevitable. The fix is gradual population decline as well as eugenic measures to increase the overall fitness. But this is obviously deflationary...and so economically difficult.

Yippee, cowboys!

Jacob's Step Stool said at June 23, 2016 5:50 PM:

15 dollar an hour wage increase will not cost Walmart a penny. They will pass on any increase in operating costs to the consumer, just like they (and any other business) do with every other increase in operating costs. I wish more people understood basic economics.

jorgen said at June 26, 2016 6:31 AM:

Jacob's Step Stool should make an attempt at understanding economics. Wall-Mart is in heavy competition with other companies and will have to automate in order not to lose money.

Ronald Brak said at June 27, 2016 5:55 PM:

You can get a good idea what will happen from the example of other countries. For example, in Australia, hedge fund managers iron their own shirts: http://brontecapital.blogspot.com.au/2010/12/lessons-in-my-laundry-part-1.html

We don't have gas pump attendants. I went to the bank a couple of days ago for the first time in a over a year and just to rub it in that they don't want me coming in they made sure to give me an additional account with a higher interest rate that bank tellers are not permitted to have anything to do with. We don't eat out much, at least not compared to people in the US. If you want someone to clean your house or mow your lawn it is common to pay over $20 US an hour.

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