Labor market policies that restrict immigration or increase the minimum wage can increase automation.
On the plus side, automation reduces production costs, making goods more affordable and benefiting consumers. It creates jobs in the economy. In the short run, however, automation also eliminates some jobs, resulting in difficult adjustments for the displaced workers.
When hiring a new worker, businesses weigh the cost of the employee against the value of their contribution to a company’s bottom line. This needs to be compared with using alternative inputs, such as robots, to do the same job. Changes in the wage relative to the cost of other inputs play an important role in these business decisions. When labor becomes unavailable or more expensive, businesses end up using less labor and more machinery, such as robots.
Shifts in the productivity of workers and machinery also play an important role. As the productivity of an input rises, firms have a greater incentive to use it because this lowers costs and raises profits.
The Trump administration has prioritized reducing immigration to the United States. This reduces the supply of labor, producing labor shortages in some industries. This increases automation in manufacturing.
Using data from Denmark, work by Katja Mann and Dario Pozzoli found that immigrants were a substitute for robots. Ethan Lewis found that, in the United States, increases in the number of less-skilled immigrants reduced investment in machinery during the 1980s and 1990s. Once again, immigrants serve as a substitute for machinery and robots.
This means the president’s immigration policies hinder the expansion of manufacturing employment. Policies that reduce immigration will ultimately increase automation, eliminating some jobs in the short run.
State and local governments also pursue labor-market policies that cause businesses to increase automation. A prime example of this type of policy is the minimum-wage law. In 2026, 22 states and 66 cities or counties will raise their minimum wages to improve affordability in their areas. Increasing the minimum wage has been shown to reduce employment levels. However, there has been considerable debate among economists about the size of any reduction in employment caused by a higher minimum wage.
Given the rapid pace of technological change, the availability of more advanced robots may increase the extent of employment decline associated with a higher minimum wage.
The higher cost of labor creates an incentive for businesses to automate.
Recently, Erik Brynjolfsson and his co-authors examined this question. They used U.S. data for the period from 1992 to 2021. They found that increases in the minimum wage raised the likelihood that manufacturing firms would increase robot adoption in response to this wage change. They found that a 10 percent increase in the minimum wage raised robot adoption by 8 percent, relative to the average adoption over the period.
Grace Lordan and David Neumark also found that job losses could occur following a minimum-wage increase due to automation. Studies of the effect of a higher minimum wage on robot adoption in other countries have yielded similar results.
Automation of repetitive job tasks will grow in the future, making many workers more productive and better off. New types of work will grow from these innovations. As a result, businesses will expand, creating job opportunities for Americans and offsetting some of the job losses from automation.
Policymakers need to realize that some of their policy actions will destroy some jobs because they create greater incentives to use robots and automate many tasks formerly done by people. If expanding manufacturing employment is a policy goal, policies that restrict immigration and dramatically increase minimum wages will lead to more automation and work against this goal.
Changes in labor market policies must be carefully designed and evaluated before implementation to avoid failing to achieve policy goals.
