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posted on 29 April 2017

Wiping Out Jobs Growth With Robotics

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In August of 2012, I penned a post on labor costs stating "labor costs are no longer a primary factor in determining where business should locate."

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This quote was framed within a general discussion of factors used in selecting business / manufacturing criteria for determining where to locate. In hindsight, a more precise statement would have been "automation / robotics are eliminating labor costs as the primary factor in determining where a business should locate".

In that post, I stated that robotic operating systems cost initially $250,000 per year, and concluded:

In a 24 hour / seven day a week environment, the robot would be advantageous in any environment where the cost of labor exceeded $1 per hour. Robots hardly get sick, do not sue their employer, and will work in terrible / hazardous conditions. Robots literally are making the cost of manufacturing labor $1 per hour around the world.

Five years later, robotic systems are now priced at $100,000 to $150,000 with reconditioned systems costing half that amount - and with maintenance would translate into a cost per hour of $0.50 if the robotic system was used 24 hours per day. We generally think of robotics to be associated with manufacturing but it reaches into services as well - especially when you stretch the definition to include automation and artificial intelligence (AI).

In the March 2017 BLS employment situation, retail employment declined and contributed to a surprisingly weak employment report. But cutting through the smoke, it was really the brick and mortar retail which caused the decline.

Looking at retail sales - it has been enjoying a trend of improvement (rising sales).

Historically, retail sales and employment trend in the same direction - but within the last year, the year-over-year growth rate of retail employment has been trending down whilst sales rate of growth has been gently improving. This effect happens with use of robotics / automation / AI - and in this case is caused by a shift to highly automated / robotic non-store retailers. These retailers do not need cashiers - and use robots to carry products to human workers, who then pick the items to be shipped. No need for retail space to showcase products or huge parking lots - non-store retailers operate from warehouses (eg fulfillment centers).

I no longer go on shopping quests to malls and box stores to find a product I need - but turn to the internet and Amazon to fulfill my needs. No wasted time or gasoline.

Robotics and artificial intelligence will take its toll in most industries - some much more and quicker than others. Seems like retail and transport are the two industries which will be most impacted within the next 5 years. Moderately impacted will be legal and healthcare (especially in records management and diagnostics). But the automation / robotics affect on healthcare may be missed as the demand for services is increasing due to the aging population.

I would bet 20 years from today the jobs situation will be radically different than today due to automation - with significantly fewer jobs for those who want to work for others.

Should I be worried that there will be no jobs in the future?

I have been pondering this question for many years.

Today, I would be twice as productive constructing megaprojects projects as I was 25 years ago. But I have yet to see a trend that would remove any work layer - just continuous productivity (doing more with less people). What tends to happen with all forms of automation - it is relatively easy to automate a large portion (say 80%) of each task, but the remaining 20% is difficult and costly.

The ratio of jobs available to the population will diminish. For the last two years, unfilled job openings to population ratio has remained near 1.8%. Year-over-year non-farm employment growth rate has fallen in the last two years from 2.2% to 1.5%.

On the other hand, the year-over-year population growth has fallen from 1.8% year-over-year in 1957 to around 0.7% since 2011. In 2017, the working age population is growing less than 0.2%.

If one believes there is direct correlation between jobs and population (if any productivity improvements are ignored) - the USA would currently need an annual jobs growth of 0.7% - much less than the 1.5% year-over-year employment seen in the latest BLS employment report. If the monthly jobs growth drops into the 0.7% range - few will be happy with less than 50,000 job growth each month.

The primary reason jobs growth is so high is because the damage to the workforce done by the Great Recession has yet to be fully repaired.

With the current high employment gains,the effects of robotics / automation / AI are not noticeable - and likely will not be felt for several years.

However, it is likely one will begin to notice the effects of robotics / automation / AI within the next 10 years - and if the current population growth trends remain in play - it does not take any imagination to see robotics /automation / AI wiping out 50,000 jobs a month.

Other Economic News this Week:

The Econintersect Economic Index for April 2017 improvement trend continues although the value remains in the territory of weak growth. The index remains below the median levels seen since the end of the Great Recession. Six-month employment growth forecast indicates modest improvement in the rate of growth.

Bankruptcies this Week from none

Weekly Economic Release Scorecard:

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