Business & Economy

Will California wage hikes replace workers with machines?

Jot Condie, President of the California Restaurant Association, picks up his lunch at an automated restaurant in San Francisco.
Jot Condie, President of the California Restaurant Association, picks up his lunch at an automated restaurant in San Francisco.
Beatrice Katcher for CALmatters

After the city of Los Angeles passed an ordinance this summer to increase the minimum wage to $15 an hour by 2020, Richard LoGuercio spent the following weekend driving around a nearby city, looking for warehouses to move his business.

“I am just screwed,” said LoGuercio, owner and president of Town and Country Event Rentals in Van Nuys, which employs 450 people, more than half of whom earn between $10 to $13 an hour. Moving his shop to another county could help him escape the mandated wage increase.

“Labor has kind of become our enemy, because it’s just so high,” he said.

When the minimum wage goes up to $15 an hour, LoGuercio estimates his labor costs will increase by 62 percent. He says he fears his labor costs may rise even further because his more experienced workers will need to be paid more than a new employee.

“I’m in favor of (raising) the minimum wage, but not so much and not so fast,” said LoGuercio, who says he’s weighing his options for cutting labor costs.

“Wherever technology can help, that’s where we’re looking into.”

After the minimum wage ordinance was approved, LoGuercio invested in a $150,000 industrial dishwasher he had been eyeing to save on utility costs. The machine will also allow him to stop paying six to eight people who earn $10 to $11 an hour washing dishes. LoGuercio expects to recoup his costs in nine months, and save a couple of hundred thousand dollars a year going forward.

“It’s a start,” he said.

Employers: Minimum wage increases will put more machines in the workplace

Employer groups opposed to raising the minimum wage say labor costs are already driving decisions to replace human labor with technology. They say higher minimum wages will accelerate automation trends in the workplace.

Caption: Workers at Town and Country Event Rentals watch the installation of a $150,000 industrial dishwasher. The machine will do the work now being done by 6-8 employees. (Photo by Nancy Pastor for CALmatters)

But economists say even when jobs are replaced by technology, overall employment may not suffer.

Machines are already doing what humans had done for decades in supermarkets and some restaurants; shoppers can pay using self-checkout kiosks, and diners at Chili’s can order baby back ribs on a tabletop tablet.

The California Restaurant Association says self-ordering could become more common if the minimum wage is increased to $15 statewide, a scenario proposed in competing initiatives currently trying to qualify for the 2016 November ballot.

“When you’re talking about a 60 percent increase in the minimum wage over a short period of time, that absolutely is a game changer,” said Jot Condie, chief executive and president of the restaurant association. “They’re all planning” on ways to cut costs, including buying pre-chopped ingredients, sourcing food from international sources instead of local farmers, or hiring more discriminately.

“If they haven’t adopted technology, they are absolutely looking at technology as an option, a way to cut costs,” Condie said.

Kiosks and tablets are most likely to be seen in fast-food restaurants -- but that’s not just because of labor costs, Condie said. Technology helps deliver food more quickly.

Farmers may grow what can be mechanized

When it comes to agriculture, the California Farm Bureau Federation says it’s like any other industry that employs large numbers of low-skilled workers; growers look for “every opportunity” to cut labor costs, and technology is part of that.

Bryan Little, director of employment policy at the farm bureau, said for the past 25 years, more and more agricultural products -– including tomatoes, raisins and nuts -– are being harvested by machine. As labor costs go up, Little said, farmers decide what to grow partly on how easily production can be mechanized.

“There’s a lot more interest in growing almonds, walnuts, pistachios, other types of tree nuts that can be harvested with a crew of four or five people,” said Little, explaining that machines can shake nuts from a tree, without harming color or texture. Not so for a strawberry or melons.

He said if there were a statewide $15 minimum wage, farming would likely become more mechanized.

“You’d see more interest in developing commodities that can be machine harvested, or (growers) changing to commodities that lend themselves to machine harvesting,” Little said.