Wednesday, July 27, 2016

Raising the minimum wage is not the best way to fight income inequality because it will increase the rate of job automation

What Not to Do As Robots Take More Jobs: To compete with artificial intelligence, low-wage workers need more opportunities to qualify for high-wage jobs by Joy Buchanan of Mercatus. Excerpt:
"Leading computer scientists at the Future of Life Institute last year wrote an open letter warning policymakers of the risks posed by artificial intelligence. A primary concern is that many jobs will become automated, filled machines. It's a problem if people do not adapt, but one piece of good news is that high-paying jobs in the tech sector are motivating millions of people to learn how to use computers.

Until more people leave low-wage jobs for high-wage jobs, we will have income inequality. Because of income inequality, jobs exist for people who are not ahead of the technological revolution, and higher wages in the tech sector are directing people toward the jobs that will be more profitable and secure in the future. A young person who is about to go to college can see that a computer programmer can make a lot of money. This motivates students to work through difficult technical courses. And you don't have to go to college if you do college-level courses online for free.

Meanwhile, the minimum wage is rising in certain states. Fighting income inequality by making it illegal to work for less than $15 per hour, when technological change already threatens many jobs, is harmful to people who have not re-skilled their trade yet. Teenagers have not had time to build skills. Young people will have to spend even more time in school or in illegal jobs just to reach the first rung of the career ladder. If adults do not want to learn a new trade or might not want to move to a new city, they should still have the right to participate in the economy right where they are.

In order to help low-income workers and reduce income inequality, the focus could be on creating a system that gives more people the opportunity to qualify for high-wage jobs. Not everyone needs to apply to high-wage jobs for wages to equalize. There just have to be enough people trying to fill those positions that competition drives the wage of those high-wage jobs down while the shortage of people applying for other jobs raise wages elsewhere.

Let companies experiment and compete to successfully navigate the new employment frontier blazed by artificial intelligence.

The moral anchor of the high minimum wage movement is that parents who work full time can live below the poverty line. A law to raise the minimum wage will help some low-income families, but it will also hurt some of them. Less harm would be done if tax-payers gave direct assistance to low-income families.

There is no doubt that raising the minimum wage will reduce job growth and that everyone will pay higher prices at the store since labor costs will rise. If the economy shrinks and prices rise, it's not just rich people who will get hurt. A shrinking tax base will mean fewer social services like Medicaid. Making it harder for humans to compete with robots will ultimately hurt low-income families.

If prices are allowed to move freely, then the problem of who goes where as more robots join the economy will be solved faster because prices communicate information. No one knows exactly where the greatest demand for human workers will be next year, but market wages will immediately indicate where the need is. The way for a community to become rich is to use this information from market prices and to help more people who want high-wage jobs to get them."

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