Minimum Wage and the Robot Employment Act

I was raised on a small vegetable farm near Tacoma, Wash. And Labor Day was a BIG holiday for me.

Not because of barbecued hot dogs, swimming at the lake, baseball games, or a family vacation. But because it meant that school was about to start.

You see, when you’re raised on a farm, summertime means getting up early and working late. So, school was a welcome change from three months of hard, physical work.

Labor Day weekend was no holiday for us. My farmer father had plenty of work for my siblings and me to do. Heck, I think he probably worked us extra hard because he knew that his quasi-free labor was about to vanish.

I say quasi-free because I remember getting paid 25 cents-an-hour up until I entered junior high school.

However, I overheard some of my father’s employees excitedly talking about a 20-cent increase in the minimum wage from $1.40- to $1.60-an-hour.

That was back in 1968. I was 11-years old at the time, and $1.60-an-hour sounded like a fortune to a little boy

Tony’ Sagami’s father, Ken Sagami, surveys his vegetable fields near Tacoma, Wash., in the mid-’60s.

who was making 25 cents-an-hour.

My father was one of the gentlest, softest-spoken men I’ve ever known. But when I asked him about a raise to $1.60, he acted like I had asked him for a million dollars.

“I feed you, I buy you clothes, and you live in my house. You are lucky that I pay you ANYTHING!”

Needless to say, I didn’t get a raise.

The Robot Employment Act

Of course, $1.60-an-hour sounds like nothing today. 

And I’m sure my father would be rolling over in his grave over the push in many jurisdictions to raise the minimum wage to as high as $15-an- hour.

In fact, 19 states have increased its minimum wage in 2017: 

Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Hawaii, Maine, Massachusetts, Michigan, Missouri, Montana, New Jersey, New York, Ohio, South Dakota, Vermont, and Washington.

Plus, Oregon, Maryland, and Washington D.C. plan to increase theirs later this year.

Hey, I know what it feels like to be poor. So I completely understand that an increase like this would feel like a great windfall.

But I believe the long-term effects of a substantially higher minimum wage would hurt the exact people who are supposed to benefit from it.

I say that because raising the minimum wage, combined with the improvements in automation technology (robotics), may, in fact, cause more harm than good to lower-wage workers.

How so? Businesses are replacing human labor with machines to reduce labor costs.

The National Bureau of Economic Research, a non-partisan economic think tank, studied the issue and concluded that many low-skilled workers would lose their jobs.

“We study the effect of minimum-wage increases on employment in automatable jobs – jobs in which employers may find it easier to substitute machines for people – focusing on low-skilled workers from whom such substitution may be spurred by minimum-wage increases.

“Based on CPS data from 1980-2015, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers, and increases the likelihood that low-skilled workers in automatable jobs become unemployed.”

Of course, the people who know best are the people who hire those low-skilled workers. Nation’s Restaurant News polled its readers (restaurant owners) about their biggest business challenges and the No. 1 response was rising minimum wages.

“With government driving up the cost of labor, it’s driving down the number of jobs. You’re going to see automation not just in airports and grocery stores, but in restaurants.”

-Greg Creed, CEO of Yum Brands

By the way, robots aren’t pure job killers. In fact, Forester Research predicts that the robotic industry will create 15 million new jobs in the U.S. over the next 10 years, equivalent to 10% of the workforce.

Minimum wage or not, the use of automation/robotics is taking off. According to the Association for Advancing Automation, robotic sales in North America reached record highs, growing by 33% in units and 26% in dollars over the first half of 2016.

But that’s just the tip of the iceberg. Barclays Bank predicts that robotic sales will increase by more than 1,000% between now and 2020 and that the value of that market will hit $82 billion.

So, if you’re really serious about keeping up with the robotic industry, you should regularly visit the International Federation of Robotics (IFR); especially during the last month of each quarter (March, June, September, and December) when the IFR releases its President’s Report. Click here to go to the IFR’s Web site.

How can you invest in robotics? The biggest players include ABB Ltd. (ABB), FANUC Corp. (FANUY), Kawasaki Heavy Industries Ltd. (KWHIY), Rockwell Automation Inc. (ROK), Cognex Corp. (CGNX), and Teredyne Inc. (TER).

If you’re an ETF investor, you should consider Global X Robotics & Artificial Intelligence ETF (BOTZ) or Robo Global Robotics and Automation Index ETF (ROBO), which are up respectively 32% and 25% so far this year.

One of my fellow Weiss Research editors, Jon Markman, just recommended a key robotic supplier that could be the biggest winner of them all. For more information on his Tech Trend Trader service, click here.

But whether you go the ETF or individual stock route, make sure you are onboard in what will be one of the most profitable investment megatrends there is.

Best wishes,

Tony Sagami