Manufacturing firms typically have a choice of various production technologies. Some production technologies involve more labour. Others involve more automation (robots, as in this post). If labour becomes relatively more expensive compared with robots, firms have a greater incentive to adopt robots. That suggests that higher minimum wages, which make labour relatively more expensive for firms, may not only decrease employment (see the links at the end of this post for more on that point), but may increase the adoption of robots.
The extent to which firms adopt robots in the face of increasing minimum wages is the subject of this recent NBER Working Paper by Erik Brynjolfsson (Stanford University) and co-authors (ungated version here). They look at this question in two ways. First, Brynjolfsson et al. create a state-level measure of exposure to robots, which captures the extent to which robots are over- or under-adopted in each state, given the state's mix of industries and employment. They then correlate changes in that measure with changes in the state-level minimum wage over the period from 2003 to 2015. That correlation is illustrated in Figure 1(c) from the paper:
The regression line in the figure implies that a 10 percent increase in the minimum wage is associated with an increase in robot exposure equivalent to about 8 percent of the sample mean level of robot exposure.
Second, Brynjolfsson et al. use microdata from the US Census Bureau, including the Longitudinal Business Database and Longitudinal Firm Trade Transactions Database (LFTTD), to construct a panel dataset of robot adoption among US manufacturing firms from 1992 to 2021. They use the LFTTD data to identify which firms imported industrial robots. They then compare robot adoption between firms in adjacent counties on opposite sides of state borders, which face different state-level minimum wages but are likely to share many local economic conditions. Their measure of robot adoption in this analysis is simply whether a given firm adopted a robot in a given year, or not. In this second analysis, they find that:
...a 10% increase in minimum wage leads to an 8.4% rise in robot adoption relative to the sample average...
Notice how similar in magnitude the effects from their two analyses are, despite being quite different in nature, as well as covering different time periods. Both analyses suggest that higher minimum wages are associated with greater levels of robot adoption. The state-level relationship in the first analysis is clearly correlational, rather than causal. However, the comparison between firms in adjacent counties provides some plausibly causal effects (at least, there are plenty of other research papers that use a similar approach to estimate the causal effects of minimum wages). More generally, this research provides another example of how firms may respond to minimum wages on margins other than employment (see the links at the end of this post for more). When the relative price of labour increases, firms may change not only how many workers they employ, but also the production technology they use.
[HT: Marginal Revolution, back in February]
Read more:
- A bunch of research findings on minimum wages in New Zealand
- The disemployment effects of Canadian minimum wages
- Jeffrey Clemens on the disemployment effects of the minimum wage
- The impact of an online minimum wage
- Seattle's minimum wage, revisited
- The latest evidence supports negative employment effects of the minimum wage
- Latest research suggests the minimum wage DOES reduce employment
- More empirical support for the disemployment effects of the minimum wage
- The minimum wage and job vacancies
- The minimum wage and hiring standards
- The employment effects of the minimum wage, from American Community Survey data
- The minimum wage and homelessness
- New York restaurants find a new way to respond to the minimum wage
- The minimum wage and workplace safety
- How employers respond to minimum wage increases
- Minimum wage increases and employer noncompliance
- Higher minimum wages and poverty revisited
- Minimum wages and health
- Effects of the minimum wage on the nonprofit sector
- 15 years of US research on the minimum wage elasticity of employment
- Local minimum wages and low-quality housing rents in Japan
- Minimum wages and student summer employment
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