Minimum Wage, Unemployment, and Robots: Why Increasing One Could Affect the Others

Reem-C and Reem. Photo: JosepPAL via Wikimedia Commons.

Right now, the federal minimum wage is $7.25 an hour. However, that could soon change, as President Obama and many in Congress continue to push for an increase. Of course, not everyone thinks increasing the federal minimum wage is a good idea. In fact, when MSNBC asked him about it, Bill Gates stated: "If you raise the minimum wage, you're encouraging labor substitution, and you're going to go buy machines and automate things -- or cause jobs to appear outside of that jurisdiction. And so within certain limits, you know, it does cause job destruction." 

A bold claim, for sure. But is Gates correct? Let's look at what raising the minimum wage could mean for robotics.

Who makes minimum wage?

Source: Bureau of Labor Statistics.

According to the latest available report from the Bureau of Labor Statistics, of the total working force in America, only 4.7% make at or below minimum wage. The preceding graph breaks down this 4.7% into age groups. Almost half of the total workers making at or below minimum wage are under 25. However, workers under 25 make up only one-fifth of the total workforce in America. This means that most people making minimum wage are high school to college age.

Let's break this down even further.

Source: Bureau of Labor Statistics.

This pie chart represents all the industries in which workers make at or below minimum wage. The top seven industries contain 77% of the workers making minimum wage, with the remaining 23% coming from a variety of other industries.

Leisure and hospitality make up 34%. Of that amount, most jobs are in restaurants and other food services -- like McDonald's. Consequently, if the Fair Minimum Wage Act is passed, it'll have the biggest impact on high school- to college-age adults working in fast food and restaurant companies.

What this means for robotics
With that data and Gates' comments in mind, I asked Frank Tobe, co-founder of Robo-Stox Global Robotics & Automation ETF (NASDAQ: ROBO  ) -- a stock index focused on robotics, automation, and related technologies -- what he thought an increase to minimum wage could do to robotics sales. Tobe's reply: "A higher minimum wage is unlikely to have a dramatic effect on the robotics sector." However, he added, "robots continue to become more advanced, and by the end of this decade, most unskilled jobs in the food and hospitality industries will be filled by robots."

Further, Tobe pointe out that Unbounded Robotics is developing a "room service" robot that can deliver food, pick up trays, and inspect hotel rooms. Plus, as I previously wrote, Google's (NASDAQ: GOOGL  ) recently acquired Boston Dynamics, already makes the Atlas humanoid robot, which is the platform for DARPA's Robotics Challenge, whose goal is to develop a first-responder robot capable of shattering a concrete wall using a power tool, climbing a wobbly ladder, driving a utility vehicle, crossing a debris-littered field, replacing damaged or dated industrial equipment, and isolating and closing a valve in a leaking pipe -- all while using its own perceptual processing to understand cause and effect. 

PR2. Photo: Troy Straszheim via Wikimedia Commons.

More importantly, the Atlas and Unbounded Robotics'"room service" 'bot are just the tip of the iceberg when it comes to robotics. However, these robots are still pretty expensive, and technology still needs to advance before they become commonplace. Still, as technology does march on, prices are likely to decrease, while robots' abilities are likely to increase. If that's coupled with a mandated increase to the federal minimum wage, Gates' claim that jobs could become more automated, could come true -- maybe.

What to watch
There's no way to know for certain what raising the federal minimum wage will do to robotic sales, or unemployment for that matter. However, I tend to agree with Tobe and Gates, in that raising it won't have a dramatic impact on robotic sales, but it could be a catalyst to more automated jobs. The good news is that as of Jan. 28, Robo-Stox passed $75 million in assets under management -- and that's after only three months of trading.

Moreover, Robo-Stox is the only ETF that's focused solely on robotics and automation-related companies. And while you do have to pay a management fee, it's currently priced at 0.95%, which basically means you'll pay $9.50 a year for every $1,000 invested. Plus, as Blake Bos, the Fool's industrials analyst, pointed out, Robo-Stox gives investors access to companies that are not on American exchanges, but are some of the biggest names in robotics. This includes, but is not limited to, Yaskawa Electric, Fanuc, and Kuka.

Consequently, if you're worried about robots stealing your minimum wage job -- especially if Congress increases the federal minimum wage -- investing in a company that specializes in robotics, or a robotics ETF, could help offset that loss of income.

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Read/Post Comments (9) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 08, 2014, at 8:48 PM, flick wrote:

    Maybe we should use robots for all of Congress, as well as the rest of the staff. We would be able to save so much money, we could afford to pay hard working Americans more money. They are not doing anything good for this country anyways.

  • Report this Comment On February 08, 2014, at 8:57 PM, Disgustedman wrote:

    If we hadn't shipped much of our industrial work overseas, then we'd have more jobs. But since we did, then we're left with a lot of service industry jobs which won't pay well, but are being filled with people who are able to do other work, just that the jobs for them don't exist any longer.

  • Report this Comment On February 08, 2014, at 10:14 PM, arcny wrote:

    Super-rich, beyond imagination, multi billionaire Bill Gates has expressed concern about raising the minimum wage. He fears we will lose jobs to machines and robots. Seems to me that's been happening ever since the Industrial Revolution and has continued with the onset of the Technical Revolution. And so with or without an increase in the minimum wage, we will probably be losing a fair amount of jobs esp. as robots become more sophisticated. As for the advice given to those in fear of losing there minimum wages jobs to robots, I have to wonder where these hard working folks will find the money to invest. Making $7.25 an hour you hardly have enough money to buy groceries and pay your monthly bills let alone have money left over to invest.

  • Report this Comment On February 08, 2014, at 11:08 PM, kennyhobo wrote:

    Look at the automakers!!! Unions pushed wages up and the robotics industry took off. Organized labor helped create robotics! Organized labor made robots work. I don't need a McD's worker to take my order. I would love to punch it in on a screen, swipe my credit card, and wait for the conveyor belt to drop off my meal.

  • Report this Comment On February 08, 2014, at 11:14 PM, jlclayton wrote:

    This article only addressed the number of workers currently making minimum wage, which is only one part of the equation. You can't ignore the effect raising the minimum wage will have on all workers. If it is raised to $10.00 an hour, those workers making between the current minimum wage and $10.00 are going to also expect an increase, and rightfully so, since their job responsibilities obviously require a wage higher than the minimum. The extra costs for those workers also need to be taken into consideration in any reasonable discussion about this subject.

  • Report this Comment On February 09, 2014, at 12:28 AM, Gotlift wrote:

    Automation is happening everyday. If a business can make more money using automation-- they will. With increasing wages and taxes on wages, insurance, vacation, sick pay--it will probably happen sooner as opposed to later.

  • Report this Comment On February 09, 2014, at 7:41 AM, foolsall wrote:

    Pure Spin! An attempt to justify keeping the Minimum Wage suppressed. The not-so-dirty-little-secret: Those Machines & Robots are coming regardless of what the Minimum Wage is. If Corporates have had no compunction about off-shoring 20 million jobs over the past 35 years; they won't think twice about replacing Human Workers with, "Bots!" And, dear friends; you can take that to the Bank!

  • Report this Comment On February 09, 2014, at 8:06 AM, GomerWumphf wrote:

    In general robotics will increase productivity and reduce costs and therefore prices - good deflation, Some new jobs will evolve but robotics and intelligent systems will likely significantly reduce the demand for and cost of labor. An issue is how should an economy function as the value of labor goes to zip? Increased leisure should not become a curse.

  • Report this Comment On February 09, 2014, at 12:44 PM, VegasSmitty wrote:

    I think we should pay people more then their worth, we do it to executives and CEO's all the time!

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Katie Spence

Katie Spence has been a financial journalist for The Fool since 2011. She specializes in defense companies, “green" technology, autos, and robots. Follow her on Twitter for breaking news in the defense, auto, and robot industry.

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