When are low-wage workers better than automation?

Time and time again, these pages have listed numerous benefits of automation and robotics. The discussions point out that mechanization doesn’t make us poor, that attempting to tax machines is counter-productive. Automation even makes our jobs safer as we can offload dangerous tasks to a metal creation.

However, automation is not always the best course of action and, as cost effective as automation has proved in many areas of our life, we are finding a rise of businesses beginning to automate for reasons other than improved productivity or cost effectiveness.

The latest news is that a company called Miso Robotics has developed an automatic burger flipper called Flippy. Naturally, media outlets are already writing headlines of how this is replacing jobs. The issue in this case is that this particular form of automation isn’t being driven by any kind of cost effective plan but as a result of government action.

When Should Companies Automate?

Before we go any further, we first need to understand where and how automation works and why it works effectively in those areas it is currently used. Automation requires a significant amount of capital investment, which is not a one-time purchase as the equipment needs to be periodically replaced when it is too broken to fix or too outdated to work on current products. Automated systems also require expensive maintenance professionals and tool changeovers can knock these expensive machines out of commission for hours while a new product is loaded for production. Even keeping up with tooling itself is a costly capital expense. Because of these limitations, automation is not appropriate for activities that have low volume and high levels of variability from product to product. It makes sense to build a tool and produce 10 million stamped gears out of a $10 million automatic press because the volumes can justify the purchase price, financing costs, tool changeover personnel and maintenance costs of the equipment. Trying to make this work when producing 10 custom metal items is foolish when one can use a human operated manual press. Those 10 custom items would be grossly uncompetitive compared to a human operated machine if run out of a large press. It’s not uncommon for companies to get in trouble by purchasing robotic production for a product mix that isn’t conducive to the equipment.

If the total unit cost of the human labor is less than the total unit cost of the automatic system, then it’s appropriate to use the human labor over the automated system. Otherwise, the task should be automated.

This is why Flippy and other automation efforts in the fast food industry present an automation conundrum. If we look at raw statistics, we find that a typical fast food joint will move around 300 customers a day. Those 300 people aren’t buying a single, standardized product. Some will order a burger, some chicken, some a salad. Even those burgers vary from the size of the patty, cooking times, and toppings. A burger joint is absolutely the worst place to think of using an automated production system since it would operate mostly as an expensive spatula.

At least, until we find out that this effort is driven primarily by jurisdictions that have mandated a $15 minimum wage. What we are seeing with this ill-advised effort to assist the working poor generate higher wages is pushing the cost of their job description high enough to justify investing in an automated system, even if that system is not particularly suited for the business. This means that the additional wage rate is more expensive than the costs associated with capital investment and lost sales due to more standardization to make the machines work without additional labor operating it.

Employers Backed into a Corner: When Automation Is Only Second-Best

In other words, Flippy wasn’t designed and isn’t being rolled out because it is a superior, cost effective system but because it is the least damaging of two options. Businesses weren’t rushing to purchase this equipment at a lower wage level, meaning that the automation itself isn’t superior to human labor. It’s just superior to human labor at $15 per hour. The actual cost falls somewhere between the old labor cost and the new minimum wage mandate.

This is true even for jobs above the minimum wage. Every job in America is burdened with additional benefits and taxes, many, if not most, of which are driven by various government mandates. One of the largest — medical care — has been rapidly eating into the cost effectiveness of workers for decades due to interference by government officials. Using the $10,000 estimate in the aforementioned article and even a generous 50% cut to that due to government medical system interference, this low ball medical inflation alone is responsible for a 12.5% growth in the cost of hiring someone at $30,000 per year. And this is not slowing down as government mandates of the ill-named Affordable Care Act continue to impact the market. The ripest targets are low wage jobs since the effects of government policy are, in the words of the Progressive movement, regressive in nature. And when low wage jobs go away, we also destroy the building block foundation of future productivity growth. The real damage is still in the future, when today’s teens, already being priced out of the market, find themselves living poorer adult lives.

What this means is that for tasks that can’t be shipped out of the country, either by nature of the product or due to the growth of damaging protectionist policies, will become bigger and bigger targets for automation even though the job itself may not justify such equipment in a free market environment.

So if you find yourself pressured by automation, or worse yet, wonder why today’s youth are having trouble finding that summer job, maybe you should turn your eye to your government representative and the bureaucrats they hired. Their mandates could be making your job expensive enough to justify that machine.