How You Can Profit From the Demise of the Minimum Wage Worker

Will technological advances, and a federal minimum wage increase, annihilate minimum wage workers?

Jun 14, 2014 at 11:31AM

Robots

REEM-C and REEM. Photo credit: JosepPAL via Wikimedia Commons

Should the federal minimum wage be increased? This is a complicated question. On one hand you have the fact that despite the increase in the cost of living, the federal minimum wage hasn't been increased since July 2009. On the other hand, you have the fact that the Bureau of Labor Statistics, or BLS, estimates that of the 58.8% of workers making an hourly wage in 2013, only 4.3% made at, or below, the minimum wage.

Regardless of where you fall in this debate, one thing you might not have considered is the possibility that minimum wage workers could be a dying breed, and that raising the minimum wage could hasten this demise. Here's why.

The technology curse
There's no question that technological advances have made our lives easier and more efficient. But, the flip side of this is the fact that in certain situations, machines can now take the place of human employees. For example, in a restaurant in China -- appropriately named "Robot Restaurant" -- robots cook, wait, and entertain diners, all while cutting costs for the owner of the restaurant.  

Atlas

Atlas robot. Photo: DARPA via Wikimedia Commons.

In addition, San Francisco-based company Momentum Machines has developed a robot that can make 360 gourmet burgers per hour, all without human aid. More importantly, Momentum Machines says on its website(emphasis mine): "The labor savings allow a restaurant to spend approximately twice as much on high quality ingredients and the gourmet cooking techniques make the ingredients taste that much better." 

The above examples aren't the only robots in development, or use. Boeing (NYSE:BA) makes robots that are useful to the military. Unbounded Robotics is developing a "room service" robot that can deliver food, pick up trays, and inspect hotel rooms. And Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) recently acquired Boston Dynamics makes the Atlas: a humanoid robot that could be the platform for a first-responder robot.

More importantly, these are just a few of the robots in development and currently in use, but they're an example of what robots can be used for, and how technology is advancing at a rapid pace. 

Why this could affect minimum wage workers
According to the BLS, there are a number of characteristics that make up the typical worker making at, or below, minimum wage:

  • They tend to be young: "Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the federal minimum wage or less." 
  • They tend to be unmarried -- approximately 66.8% have never been married, compared to 20.7% who are married, and 12.5%, which are listed as "other." 
  • They tend to be less educated -- approximately 28.1% don't have a high school diploma, 29.7% are high school graduates with no college, 28.3% have some college but no degree, 6.1% have an associate degree, and 7.9% have a bachelor's degree and higher. 
  • They tend to be employed in service-related jobs: "Almost two-thirds of workers earning the minimum wage or less in 2013 were employed in service occupations, mostly in food preparation and serving-related jobs." 

The above characteristics are important because they show that most workers making minimum wage or less are high school to college age and not married (and thus less likely to be supporting a family). And two, most of the people making minimum wage are employed in a position that doesn't require advanced skill.

Consequently, there are two things that can be extrapolated from these points from the BLS study: One, those employed in minimum wage jobs aren't there for a career (thus increasing turnover); two, because the jobs themselves require minimum skills, robots could be a perfect way to cut escalating labor costs. As Bill Gates stated on MSNBC months ago: "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." 

The runaway technology train
Robots are playing an ever-increasing roll in everyday life. For workers making at or below minimum wage, this could be a problem. Labor costs are a significant portion of businesses' expenses, and increasing that could further encourage employers to look at the possibility of automating jobs, just like Gates said. That's not to say that raising the minimum wage is necessarily a bad idea, but it is to say that there could be unintended consequences in doing so. On the flip side, increasing the use of robots could be beneficial to higher-skilled jobs, thanks to a surge in demand for this type of technology.

Regardless of what happens, companies specializing in robotics stand to make a pretty penny as robots become more commonplace -- and it's almost inevitable that they will. Consequently, investors might want to take a closer look at the above companies specializing in robotics, or consider investing in an ETF such as Robo-Stox Global Robotics & Automation ETF(NASDAQ:ROBO), a stock index focused on robotics, automation, and related technologies.

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Katie Spence has no position in any stocks mentioned. The Motley Fool recommends Google (A shares) and Google (C shares). The Motley Fool owns shares of Google (A shares) and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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