Saturday, April 08, 2017

The Minimum Wage Should Be Called the Robot Employment Act

By Andy Puzder

Mandating $15 an hour doesn't help poor youth. It helps Flippy, the new burger-grilling machine.

Entry-level jobs matter—and you don't have to take my word for it. In a speech last week on workforce development in low-income communities, Federal Reserve Chair Janet Yellen said that "it is crucial for younger workers to establish a solid connection to employment early in their work lives."

Unfortunately, government policies are destroying entry-level jobs by giving businesses an incentive to automate at an accelerated pace. In a survey released last month, the publication Nation's Restaurant News asked 319 restaurant operators to name their biggest challenge for 2017. Nearly a quarter of them, 24%, said rising minimum wages.

It's no surprise that restaurants are rolling out the robots. McDonald's said last November that it would install self-order kiosks in all 14,000 of its U.S. restaurants. Wendy's announced in February it would add kiosks at about 1,000 locations to "appeal to younger customers and reduce labor costs."

The trend toward automation is particularly pronounced in areas where the local minimum wage is high. Eatsa, a 21st-century version of the automat, now lists seven locations in four cities, each of which will be subject to a $15 minimum wage within the next 36 months.

Taking automation to the next step, Miso Robotics and the owner of CaliBurger announced in March they have developed a robotic arm, called Flippy, that can turn burgers and place them on buns. CaliBurger plans to install them over the next two years in 50 restaurants world-wide.

By encouraging automation, cities that significantly raise the minimum wage destroy opportunities for the least-skilled workers. In 2015 a scholar at the Federal Reserve Bank of San Francisco released a paper summarizing the available research on this effect. "The most credible conclusion," he wrote, "is a higher minimum wage results in some job loss for the least-skilled workers—with possibly larger adverse effects than earlier research suggested."

The loss of entry-level jobs also worsens racial disparities. In a 2011 report from the nonpartisan Employment Policies Institute, two university economists examined nearly 20 years of data containing 600,000 observations. They compared how each 10% increase in the minimum wage affected the employment of young males without a high-school diploma. For whites, the drop was 2.5%. For blacks, it was 6.5%.

These are jobs America cannot afford to lose. In 2014 nearly 40% of black men age 20 to 24 in Chicago and almost 30% in New York and Los Angeles were neither working nor in school, according to a report last year from the Great Cities Institute. For white men, it was about 10%. Nationally, February's unemployment rate among white males age 16 to 19 was 14.1%; for young black males it was 24.1%.

Bernie Sanders articulately described the solution to this problem in 2013 when he spoke on the Senate floor about the negative effect that entry-level foreign workers have on youth employment. "The best anti-poverty program is a paycheck. Well, let us give the young people of this country a paycheck. Let's put them to work," Mr. Sanders said. "But even more importantly, let us allow them to gain the job skills they need so that they know what an honest day's work is about, and can move up the economic ladder and get better jobs in the future." I couldn't have said it better.

The importance of entry-level jobs is hard to overstate. I can still recall when the franchise owner of the Baskin-Robbins where I worked as a teen called me into her office and handed me a key, telling me to open up the place in the morning. It was perhaps the proudest day of my professional career. I felt the kind of pride and self-confidence that can keep a person working (or in school) and off the streets. But to get that experience you need the first job.

In her speech, Ms. Yellen praised the potential of a pilot program appropriately called Pocket Change. It was designed to reduce youth unemployment in Somerville, Mass., "through internships, training in job skills, and reinforcement of important soft skills such as punctuality and effective communication." If high minimum wages didn't price young people out of the job market, they could learn these skills in entry-level jobs, without yet another government program.

Avoiding significant increases in the minimum wage won't solve all the problems that face today's job-seeking youth. But one thing is certain: If government policies substantially increase the cost of entry-level labor, there will be more automation, fewer jobs and less opportunity for young people trying to get ahead.

Mr. Puzder is a former CEO of CKE Restaurants.