Thursday, March 19, 2015

When labor gets more expensive firms don't use as much

Today I had lunch at Applebee's and on the table I saw something that I had never seen before; a small touch screen computer was attached to the top of the table. The computer allows the customer to order food and pay without a waiter/waitress.  Apparently Applebee's announced this back in 2013 (I guess I don't go to Applebee's often enough.)

Now today we still had a waitress, but I imagine that during off peak hours the restaurant can cut back on their staff and simply allow the customers to type in their own order, which is then sent to the kitchen. When the food is ready, a staff of 3 or 4 food runners can deliver the meals to the table for the entire restaurant. The computer also had a credit card reader so no waiter is needed to settle the bill.

Eventually the computer may allow the customer to alert the staff when they need a refill or if something is missing from the meal, etc. This will also cut back on the staff needed, since customers can directly state when they need something rather than wait for an assigned waiter to come to their table. If the servers know exactly what a table needs and when they need it they will not make as many wasted trips to tables and thus be more productive. More productive servers means that a restaurant can get by with less of them.

Capital, such as the on-table computer, makes labor more productive. When labor is more productive less workers can produce the same amount of output. If the price of low-skilled labor increases, perhaps due to a minimum wage hike, there is an incentive for the firm owner to use relatively more capital and less labor. The author of the Slate article above understands that:

"Then again, of course these businesses are saying they won’t use the tablets to replace employees. Announcing layoffs along with the tablet move would be begging for a backlash. The fact is, if the tablets work, they’ll make the ordering process more efficient and cut the amount of human labor that these restaurants require. At that point, do you suppose they’ll keep the extra waiters around out of charity?" (my emphasis)

Also, high minimum wage states can impact low minimum wage states. New capital is likely to be developed and perfected in places with high labor costs. In low wage states it may not make sense economically to spend the fixed costs necessary to develop new machines. But once the costs have been borne by firms in high wage states it may make economic sense to simply adopt the technologies.

If people try to tell you that a higher minimum wage will not impact low-skilled employment simply take a look around. The computers at Applebee's are one more sign of the movement towards less labor and more capital, and higher minimum wages certainly play a role in that process.

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