The Unintended Consequences of the "Living Wage" Movement

By ​John Giles, CEO Future POS
4111695170 5ce208654b bDuring the political season, we’ve all seen politicians using hard working, decent people as props to sell their message.  These politicians are promising to feed the hungry, cure disease, and make the world a fair place for everyone.  As soon as the elections are over, these politicians go back to lining their pockets and forget about all those inconvenient promises they made.  But this election season, one of the popular political sound bites is going to end up hurting lots of innocent people.

I’m talking about the “Living Wage” movement, where minimum wage employees were told that if they stomped their feet hard enough that their bosses would happily double their pay rates.  Now I’m not minimizing the challenges of raising a family on minimum wage – that’ obvious.  I’m also not here to tackle the subject of social justice.  The whole purpose of this article is to explain with real world examples the long term damage that will follow:

Unintended Consequence #1: The Rise of the Kiosk

I recently ran across an advertisement for a company that does kiosks for quick serve (aka fast food).  Two things jumped out at me.  The first was that the ROI of a kiosk versus a person at the counter (never wants a raise, never calls off, etc).  These points are somewhat obvious, but when you run the numbers, the kiosk pays for itself in a couple of weeks.  Not six months or a year – less than a month.  When you can show anyone a product that will pay for itself that quickly, expect any sane businessman to investigate further.  Even if it takes 10x that long to pay for itself, it’s still a great deal.  The second part of the ad that grabbed my attention is that there were quotes from major quick serve companies singing the praises of how this will transform their businesses.  When a company like McDonalds goes this route, you can expect Burger King and Wendy’s to follow suit.  You can also expect anyone who aspires to be like these quick serve giants to try to emulate this.  The net result will be more kiosks and fewer employees at the counter taking your order.

Unintended Consequence #2: Order and Pay at the Table

Don’t think this labor reducing move is limited to quick serve.  Chili’s has had Ziosk devices on every table in the restaurant for years.  Why?  Because you can pay at the table, thus saving the server one trip to the nearest point-of-sale terminal.  Yes, those units can also let your kids rent overpriced games, but make no mistake, the primary goal is to reduce labor and guarantee up-selling.  Now imagine if, instead of a Ziosk device on every table, they just had a handheld device for every server.  Much more cost effective to get started, and now there will be zero trips to the point-of-sale terminal.  A server could effectively serve several more tables simply because they don’t have to run back and forth to a point of sale workstation (and potentially have to wait in line to enter the order during busy times).  More tables being serviced by fewer servers equals a need for fewer servers.

Unintended Consequence #3: Kitchen Automation

Years ago I had a vision of a restaurant concept that would be completely automated.  You enter your order and pay via kiosk and your food is prepared without human intervention.  There was nothing standing in the way from a technology perspective back then, and there certainly isn’t now.  The only thing holding this back is practicality.  At an $8 minimum wage, you couldn’t justify potentially millions of dollars of equipment to do the job of a human.  Not sure where the break-even point is for this burger bot, but if you change that to $15 per hour, the break-even point just got more than cut in half.  We all know the cost of technology comes down over time, so these kinds of systems will eventually make business sense.  If the cost of labor goes up, it only means these systems will start to appear that much sooner.  I just saw an article the other day regarding a robot named “flippy” that does nothing but make hamburgers.  In the day of the self-driving car, don’t kid yourself that this isn’t going to happen.

So in conclusion, I hope I’ve given you some thought provoking takeaways.  Technology is destined to replace all mundane and repetitive jobs.  Those of you old enough to remember Bugs Bunny cartoons on Saturday morning can probably remember that in the days before we were born, they had elevator operators.  You didn’t just push the button for the floor you wanted – a person operated the elevator for you and took you to your desired floor.  That job is a thing of the distant past, and nobody laments the departure of the elevator operator.  Likewise, 20 years from now nobody will lament the fast food worker that has been replace by a machine.  But that fast food worker will probably lament the fact that they don’t have a job anymore.  How livable is that wage?

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