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.