Meet robot Ronald McDonald

This week I’ve written a couple of things about minimum wage laws. As I wrote yesterday,

When we talk about minimum wage laws, the fundamental thing to remember is that no employer will pay a worker more than they think that worker will add to revenues (their productivity). If they did, they would be hiring the worker in the expectation of adding more to their costs (wages) than their income (revenues). They would be losing money on the hire. This is not something a business with a bottom line to think about would do.

But what happens when politicians ignore all the theory and evidence and decide to go and hike them anyway? Employers can respond in a number of ways. They can increase the wage but lower other elements of overall worker compensation. Or they can hire fewer workers.

This second option becomes much easier when capital inputs are available to substitute for labor inputs; if you can get a machine to do it, in other words. This tends to become easier over time. When machines are first invented they are expensive and it makes sense to stick with the worker. But machines, whether they are DVD players, computers, or self service machines, tend to become cheaper and they tend to become better. If this falling cost of a capital substitute is combined with a rising cost of hiring labor, you have a recipe for jobs losses.

So, it is interesting to see a recent CNBC story titled ‘McDonald’s to add self-order kiosks to 1,000 stores each quarter

As McDonald’s seeks to modernize its business, the company is placing a big bet on mobile and other tech platforms.

McDonald’s has been systematically adding self-service ordering kiosks and table service to stores as it works to “build a better McDonald’s.”

“What we’re finding is when people dwell more, they select more,” CEO Steve Easterbrook told CNBC on “Squawk on the Street” on Monday. “There’s a little bit of an average check boost.”

In fact, the company plans to upgrade 1,000 stores with this technology every quarter for the next eight to nine quarters.

“If you think about only two years ago, if you were a customer there were two ways you can get served at McDonald’s,” Easterbrook said. “You walked to the front counter and line up and take your drink and find a table or you go through the drive through. We’re introducing many options. They can order through mobile, they can come curbside and we’ll run it out as well as the existing traditional ways. You can pay in different ways and customize your food in different ways. I think we’re trying to add more choice and variety.”

The technology Easterbrook is talking about would have been far too expensive and unreliable to consider a few years ago. But technology improves. And, in this case, as in others, it increasingly offering a viable alternative to labor. Minimum wage hikes are bad policy at the best of times. Technology is making them even worse.

John Phelan is an economist at the Center of the American Experiment.