WSJ – Updated March 27, 2013, 7:06 p.m. ET
Can the Tablet Please Take Your Order Now?
As Wages Rise, Employers Consider Replacing Workers With Technology; Burger-Flipping Robot May Be on Horizon
By SARAH E. NEEDLEMAN and ANGUS LOTEN
Carla Hesseltine is considering buying a few tablet devices for her bakery so customers can place orders for her signature M&M cupcakes on their own, straight from the counter.
The reason: She fears the $7.25 an hour that she currently pays her 10 customer-service employees, mostly college students, could rise, perhaps to $9 an hour under a pledge by President Barack Obama earlier this month.
In order for her Just Cupcakes LLC to remain profitable in the face of higher expected labor costs, Ms. Hesseltine believes the customer-ordering process “would have to be more automated” at the Virginia Beach, Va., chain, which has two strip-mall locations as well as a food van. Thus, she could eliminate the 10 workers who currently ask customers what they would like to eat.
Matt Eich for The Wall Street Journal
Customers at Just Cupcakes, a Virginia Beach, Va., bakery, may be asked to use self-service tablets, helping owner Carla Hesseltine cut labor costs.
Small-business owners have long griped that increases in the minimum wage hurt their bottom lines by forcing them to spend more on payroll, related taxes and benefits. The president’s proposal is unlikely to pass, yet many business owners nonetheless feel threatened having seen the minimum wage increase in nearly every state in the past six years.
Some owners say they now see a possible solution to the problem: replacing workers with new and cheaper technologies designed to help employers simplify operations.
Hardware and software prices have come down in the past decade, making them more affordable to small firms. For example, the average price of a tablet—the kind Ms. Hesseltine is looking into—dropped to $394 by the end of 2012 from more than $1,330 three years earlier, according to IHS, a market research firm.
The combined cost of two such tablets, plus a customized application for displaying products with descriptions and processing orders, ranges from $5,000 to $15,000 to implement. But in recent years, online app-building tools have become available at substantially lower costs.
Unlike major corporations, which can often absorb increases in labor costs, small-business owners typically have few options for coping with higher wages, particularly when the economy is weak. They can raise prices only so much without decreasing sales, and many have already done so because of higher operating costs, such as commodity and gas prices and health-care premiums.
Supporters of the president’s proposal argue that the federal minimum wage is long overdue for an upgrade and that a higher rate would provide residual benefits, such as a reduction in turnover and increased productivity. Before rising to $5.85 in 2008, the federal minimum wage held steady at $5.15 for a decade.
Twenty-six states have a minimum wage equal to or lower than the current federal minimum of $7.25 an hour. And 19 states, plus the District of Columbia, require employers to pay an even higher minimum wage, with Washington requiring the greatest amount, $9.19 an hour, followed by Oregon’s minimum of $8.95 an hour. Ten states index their minimum wages to keep pace with inflation; for instance, Arizona, Missouri and Vermont raised their minimum wages earlier this year.
In all, one-third of low-wage workers are employed by businesses with fewer than 100 employees, according to estimates by the National Employment Law Project, an organized-labor-backed advocacy group for low-wage workers.
Mike Reis, 43 years old, who earns $7.25 an hour as a sales clerk at Hobby Works in Rockville, Md., says he’s not worried about losing his job if the minimum wage goes up. “In retail, it’s not like you can get a machine to replace someone on the floor,” he says. But he is worried about having his hours cut back and ending up with less cash in his pockets, he adds.
Just how many small firms will turn to technology to replace jobs in the face of a wage increase isn’t clear. Many studies about the effects of higher wages on overall employment tend to be politicized, clashing over whether the benefits of higher paid workers outweigh the costs of having fewer low-wage jobs.
To support President Obama’s case for an increase in the minimum wage, the White House cites a 2009 academic study that says any adverse employment effect from such would be of a small and possibly irrelevant magnitude. The president’s 2013 report, released this month, further states that “even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line.”
Owners of small firms tend to wear a lot of hats, but might not have the know-how to operate complicated technologies. Even simple technologies, such as tablets, bring other costs, including implementation, maintenance upgrades and repair.
Tarang Gosalia, of Cambridge, Mass., hopes he can get away with having fewer employees waiting on customers at the three hair-salon franchises and one frozen-yogurt outlet he owns by using Square, a three-year-old technology brand designed to streamline credit-card transactions. He is planning to test it out starting in June to see if it will make accepting payments easier and faster for his staffers—and therefore allow him to downsize. About 70% of the 35 employees who work for his combined businesses currently earn $8 an hour, the minimum pay required in his state. Raising prices to offset the higher payroll costs strikes him as too risky, because he worries his sales may suffer.
Some entrepreneurs see a promising market in selling technologies to small businesses that might help them to streamline operations and do away with low-wage workers, or retrain them for higher-skilled jobs. An automatic hamburger flipper currently in development could replace low-wage line cooks at a beachside burger joint, for example. A $22,000 six-foot-tall robot with flexible arms, a face screen and rolling pedestal might replace low-wage workers at small manufacturing firms that can’t afford traditional automation. The robot would likely require an employee to program it.
There are significant downsides to using technology to replace low-wage workers, too. At small firms, many employees tend to work a variety of tasks, such as answering customer questions, mopping floors and setting up displays.
Ms. Hesseltine got the idea for using touch-screen technology to eliminate most or all of her minimum-wage customer-service staff after seeing a nearby juice business do something similar. She figures she could install tablet devices that would display photos of her cupcakes, which she sells for $3 apiece, and their ingredients.
Customers could scroll through the options and select what they want, rather than have a customer-service worker jot down their order on a piece of paper and pass that along to another employee who fills it.
Ms. Hesseltine says she hopes her son, a 27-year-old computer engineer, will be able to do some of the setup work for free.
contributed to this article.
A version of this article appeared March 28, 2013, on page B10 in the U.S. edition of The Wall Street Journal, with the headline: Can the Tablet Please Take Your Order Now?.