Minimum Wage – Position Paper

Minimum Wage

Introduction

The rapid advancement of technology, particularly in the fields of artificial intelligence (AI), automation, and robotics, has transformed the global workforce.  While these innovations offer efficiency gains and economic growth, they also raise concerns about job displacement and income inequality.  In response to this evolving labor market, policy positions that advocate for an increase in the minimum wage have emerged to advocate for the benefits of this approach as a viable way to mitigate the negative impacts of these technologies on employment.

Position

At Coazt we believe that increasing the minimum wage is not only viable solution, but will become a critical tool to address socioeconomic disruptions.

Benefits

Increasing the minimum wage is a strategic response to the challenges posed by AI, automation, and robotics.  By addressing the socio-economic consequences of technological disruption, an elevated minimum wage can help mitigate the negative impacts on employment in the following ways:

Encouraging Skill Development

  • A higher minimum wage incentivizes workers to acquire new skills. When wages rise, individuals are motivated to enhance their qualifications to access better-paying jobs.  This promotes lifelong learning and adaptability, crucial in an era of technological disruption.

Encouraging Technological Innovation

  • Contrary to concerns that higher wages will discourage investment in technology, evidence suggests that a higher minimum wage can actually drive technological innovation. With increased labor costs, businesses are incentivized to invest in labor-saving technologies such as automation and AI.  In the long term, this can lead to increased productivity and efficiency, generating new job opportunities in high-skilled and technology-driven sectors.

Addressing Job Displacement

  • As AI, automation, and robotics replace certain tasks, workers face the risk of job displacement. A higher minimum wage cushions the impact by ensuring that remaining jobs provide decent compensation.  It encourages businesses to invest in retaining human workers rather than solely relying on machines.

Preservation of Human-Centric Employment

  • A higher minimum wage incentivizes businesses to prioritize human labor over automation in certain tasks where the cost-benefit ratio tilts in favor of machines. By making labor comparatively more affordable, employers are encouraged to invest in retaining and upskilling their workforce, preserving jobs that necessitate human ingenuity, creativity, and emotional intelligence—qualities that machines are yet to replicate with precision.

Strengthening the Economy

  • A higher minimum wage can lead to increased worker productivity, reduced turnover, and improved job satisfaction. This, in turn, can lead to lower training and recruitment costs for businesses, contributing to overall economic stability and growth.  By investing in our workforce and ensuring that all workers are fairly compensated, we can build a stronger and more resilient economy.

Spur to Consumer Spending and Economic Growth

  • Increasing the minimum wage injects additional purchasing power into the hands of low-income workers, who are more likely to spend a significant portion of their earnings on consumption. This surge in consumer spending not only fuels demand for goods and services but also stimulates economic growth, potentially offsetting job losses precipitated by automation.  A robust consumer market serves as a catalyst for business expansion, thereby creating new employment opportunities in sectors less susceptible to automation.

Middle Class Expansion

  • Increasing the minimum wage would bolster the middle class and enhance financial security for workers and their families. Aside from increased tax revenue for the community, this policy change would potentially help millions of Americans move closer to economic stability and reduce financial stress.

Economic Security for Vulnerable Workers

  • Elevating the minimum wage offers tangible economic security to workers in low-wage sectors, who are often the most vulnerable to displacement by automation. As machines assume tasks traditionally performed by humans, workers find themselves at risk of unemployment or underemployment.  By raising the minimum wage, policymakers can provide a vital safety net, ensuring that workers can sustain themselves amidst technological upheaval and transition to new roles or industries.

Reducing Poverty

  • Many low-wage workers struggle to make ends meet. A higher minimum wage lifts millions out of poverty by providing a living wage.  Poverty reduction has broader societal benefits, including improved health outcomes, reduced crime rates, and enhanced social stability.

Implementation Considerations

Impact on Employment

  • Assess the potential impact of a minimum wage increase on overall employment levels, particularly in industries most affected by AI, automation, and robotics. Analyze whether job losses resulting from increased labor costs would outweigh the benefits of higher wages.

Sectoral Differences

  • Recognize that the impact of a minimum wage increase may vary across different sectors of the economy. Certain industries may be more susceptible to job displacement due to automation, while others may be less affected.  Consider implementing sector-specific policies or targeted support measures.

Regional Disparities

  • Take into account regional disparities in economic development and labor market dynamics. Recognize that the impact of a minimum wage increase may vary across different regions, with some areas more vulnerable to job displacement than others.  Consider implementing regionally tailored policies or support measures.

Complementary Policies

  • Consider implementing complementary policies to support workers affected by job displacement resulting from AI, automation, and robotics. This may include investments in education and training programs, job placement services, and support for entrepreneurship and small business development.

Monitoring and Evaluation

  • Establish mechanisms for monitoring and evaluating the impact of the minimum wage increase on employment levels, job displacement, and overall economic performance. Regularly assess the effectiveness of policy measures and adjust as needed.

Consultation with Stakeholders

  • Engage with employers, workers, labor unions, industry associations, community members, and other stakeholders to gather input and ensure that policy measures are effectively targeted and implemented. Consider the concerns and perspectives of different stakeholders in the design and implementation of policy measures.

Long-Term Planning

  • Take a long-term perspective when designing policy measures to address job displacement resulting from AI, automation, and robotics. Consider the potential future impact of technological advancements on the labor market and develop policies that promote resilience, adaptability, and inclusive growth.

Economic Impact

  • Supply and Demand Dynamics: The labor market operates based on supply (workers) and demand (employers seeking workers). An increase in the minimum wage disrupts this equilibrium.
  • Price Floor: The minimum wage acts as a price floor, setting a wage higher than the equilibrium wage. This can lead to more workers entering the labor market (increased supply) and firms adjusting to higher labor costs (reduced demand).
  • Beneficiaries and Surplus: Workers benefit from the higher wage, but there may be a surplus of labor (unemployed workers) due to the wage increase.

International Context

  • Consider the international context and learn from experiences in other countries that have implemented minimum wage increases or other policy measures to address job displacement resulting from AI, automation, and robotics. Exchange best practices and lessons learned to inform policy development and implementation.

Examples

Australia

  • The Australian Fair Work Commission reviews the minimum wage annually and may adjust it based on economic conditions.[1]

Brazil

  • Brazil has a national minimum wage that has been adjusted periodically since 2005. In 2023, the minimum wage was raised to R$1,320 (around $250) per month.[2]   This policy aims to improve the income of low-wage workers and enhance economic stability.

Germany

  • The German government recently agreed to raise the minimum wage in stages, reaching €12 (around $13.50) per hour by 2024.[3]

India

  • India is considering a legal reform to extend the coverage of its Minimum Wage Act.  The reform aims to include not only workers in established occupations but also the entire population of wage workers.[4]

South Africa

  • South Africa announced the introduction of a new national minimum wage in 2018.  This complements the existing 'sectoral determinations' adopted after the end of apartheid.[5]

United Kingdom

  • The UK government has implemented a multi-tiered minimum wage system with different rates for different age groups. The minimum wage for over-25s has been steadily increasing, reaching £9.50 (around $11.40) per hour in April 2023.[6]

United States - Federal

  • There is ongoing debate in the US about raising the federal minimum wage, which currently stands at $7.25 per hour.
  • The Raise the Wage Act of 2023 was introduced in the U.S.  House of Representatives and U.S.  Senate on July 25, 2023.  This act proposed a gradual increase of the federal minimum wage to $17 an hour by 2028.  It also seeks to eliminate subminimum wages for tipped workers, workers with disabilities, and youth workers, ensuring that all workers covered by the Fair Labor Standards Act (FLSA) receive the same wage level.[7]

United States - States

  • Several US states have adopted minimum wages higher than the federal level. For example, California's minimum wage is currently $16.00 per hour for large employers.[8]

Conclusion

Embracing policies that prioritize the welfare and dignity of workers is not just a moral imperative, it’s also a pragmatic necessity for fostering inclusive prosperity and sustainable progress.  Advocating for an increase in the minimum wage represents a proactive and holistic approach to mitigating the adverse effects that AI, automation, and robotics are having on employment.  By providing economic security to vulnerable workers, preserving human-centric employment, stimulating consumer spending, reducing income inequality, and reinforcing social cohesion, a higher minimum wage can be an effective part of a strategy to minimize the disruptions caused by advancing technology.

Sources

1. Fair Work Ombudsman. (n.d.). Annual Wage Review. Retrieved from https://www.fairwork.gov.au/about-us/workplace-laws/annual-wage-review

2. Brazilian Government. (2023). Increase to minimum wage and ISS contributions. Retrieved from https://www.riotimesonline.com/brazil-news/brazil/brazilian-government-announces-7-42-increase-in-the-minimum-wage-in-2023/

3. Deutsche Welle (DW). (2023, June 26). Germany: Minimum wage to increase to €12.41 in 2024. Business Germany. Retrieved from https://www.dw.com/en/germany-minimum-wage-to-increase-to-1241-in-2024/a-66030989

4. FactoHR. (n.d.). Minimum Wages in India: Acts, Laws, and Calculations in 2024. actoHR. Retrieved from https://factohr.com/minimum-wages-in-india/

5. Department of Employment and Labour. (2018). The National Minimum Wage Act No. 9 of 2018. Inspections and Enforcement Services. Retrieved from https://www.labour.gov.za/DocumentCenter/Sectoral%20determinations/National%20Minimum%20Wage/National%20Minimum%20Wage%20Act.pdf

6. Low Pay Commission. (2022). Minimum wage rates for 2023. GOV.UK. Retrieved from https://www.gov.uk/government/publications/minimum-wage-rates-for-2023

7. Zipperer, B. (2023). The Impact of the Raise the Wage Act of 2023. Economic Policy Institute. Retrieved from https://www.cbo.gov/publication/59833

8. California Department of Industrial Relations. (2024). California Minimum Wage MW-2024. Official Notice. Retrieved from https://www.dir.ca.gov/IWC/MW-2024.pdf