Are Cashiers Getting Too Expensive?

Recently, I’ve been hearing about fast-food chains and other types of retailers adding self-service kiosks much like the self-serve check-out line at Smith’s and Walmart.  Spokesmen for these retailers, like Lisa McComb of McDonald’s, are claiming that the new technology “offers additional service options, giving customers the ability to control the way they wish to…engage with McDonald’s” (“McDonald’s shoots down fears it is replacing cashiers with kiosks”).  I, along with many others, suspect there are other reasons behind this movement away from labor towards technology.

The price of labor is rising, not necessarily because demand is rising, but also because of things like the Affordable Care Act and legislation about minimum wage and overtime requirements.  These topics could be posts all by themselves, but the result is higher labor costs.  We have learned (in Chapter Five of our text, Managerial Economics & Business Strategy, Baye, 8e), all inputs of production are variable in the long run, that there is a profit-maximizing point of input usage, and that as the price of a particular input rises, a firm should use less of that input and more of other inputs, establishing a new profit maximization point. It only makes sense then that as the cost of labor rises due to legislation or other reasons, the balance between labor and use of new technology is going to shift. As a result, retailers will explore and introduce new technology in effort to reduce costs and, in extreme thinking, move away from labor altogether.


Dr. Tufte said...

CChilds: 100/100.

This is a good post about which I have very little to say (because what's written doesn't require much redirection).

The real problem here is that they're legislating labor costs but not labor productivity. Employers must make sure that productivity exceeds costs. They could respond to all of this by improving productivity, but that's hard to do, and not cheap.

I'd also add that there are also back end costs to terminating employees, and these have been legislated upwards as well. If it's more expensive for the employer to potentially separate from the employee in the future, they'll be less inclined to hire them at all.

As a tip to others, you don't need to provide a cite to the text used in the class (unless you're making a direct quote).

Vickie said...

This post is interesting. I hadn’t heard that McDonald’s was claiming the implementation of the new technology was to solely offer additional service options to their customers.

What I did hear, was that in response to Seattle’s new $15.00 per hour minimum wage, McDonald’s immediately implemented self-serve kiosks. The news was all over social media during June of 2015. You can read about the news here: http://www.inquisitr.com/2135669/mcdonalds-self-serve-kiosks-a-response-to-higher-minimum-wage/

Dr. Tufte, I tried to make the link look pretty, but Blogger doesn’t seem to allow you to do so in comments.

I definitely agree that the cost of labor has recently increased for a variety of reasons. I like how CChilds applies the economic concept of profit maximization to this topic. It is frightening to think how many people will be out of jobs if the cost of labor continues to rise, but the cost of technology continues to decrease. However, it may be going too far to state that retailers may move away from labor altogether. To me, that does not seem likely to happen anywhere in the near future.

Dr. Tufte said...

Vickie: 50/50

There are directions in the bar at the top of the blog's main page on how to link. Inside that, there are directions about how to make a nice looking link in a comment. However, once you submit your comment, a student commenter can't go back and edit it (like you can with a post). So we'll just have to live with that URL instead of a link.

I think the message of the economic research of the last 20 years is that "It is frightening to think how many people will be out of jobs if the cost of labor continues to rise..." isn't really the correct response. The evidence seems to be that it isn't that frightening. That doesn't mean the textbooks are wrong — after all, they give qualitative rather than quantitative answers. It does mean that the quantitative answers show the job loss is not that large. Having said that, these proposals to increase the minimum wage by 60-100% are so large that they are bound to have large job losses.

John said...

I think this is a perfect example of why we shouldn't increase minimum wage. As labor increased in the manufacturing industry in the United States, firms improved technology and automated more manufacturing jobs. However, increased labor will force companies to automate jobs, which in turn, will decrease jobs. As McDonald's has added kiosks to decrease labor, so has Wal-Mart and other companies. This will most likely continue to happen as labor costs increase.

Dave Tufte said...

John: 41/50 (you wrote "has" instead of "have", dropped a "the", and I think you meant "labor costs increased" rather than "labor increased").

I'm going to let most of this comment slide, because I'm not sure where John meant labor and where he meant labor costs.

The one thing I want to point out is that there are a lot of ideas here that are different sides of the same issue: technological improvements, automation, reduced jobs. But all three of those are also what makes the remaining workers more productive, thus justifying the higher wages.

This is part of an old debate in economics about whether we should do partial equilibrium or general equilibrium analysis (sometimes called Marshallian or Walrasian). The Walrasian approach is that you've got to tie all those things together to see what's related and how they cancel each other out.

Without advocating for an increase in the minimum wage at all, I think a lot of opponents of minimum wage increases overstate their case by using a Marshallian approach.