Friday, May 5, 2017

America's Great Worker Displacement

Updated July 2017

While the American and Canadian employment pictures have improved since the end of the Great Recession, there is something different about this recovery that has not been experienced in previous economic expansions.  While several factors are at play, there is one significant factor that is preventing the creation of new jobs at the pace experienced in the past, particularly in the manufacturing sector as you will see in this posting.

Over the past forty years, the workplace has changed for the corporate world and it appears that we are on the cusp of even greater changes; the replacement of human labor with workplace robotics.  While many workplace tasks are still performed by hand, this will change over the coming decade as mechanical labor becomes cheaper than human labor.  According to the Boston Consulting Group (BGC), the world is nearing the inflection point where an attractive return on investment is possible when switching from manual labor to robots on a large scale.  Today, nearly three-quarters of all robots operate in four industries; appliances, electrical equipment and components, computers and electronic products, transportation equipment and machinery.  Additionally, 80 percent of the robots sold every year are sold to just five nations; the United States, South Korea, Japan, Germany and China although, admittedly, these are the world's largest economies.  Since robots are currently quite expensive, they tend to be found in only the world's largest factories as you can see in this video showing the Tesla factory which looks like something out of the Terminator movie franchise:

Here is a graph showing how global robotic installations are projected to increase over the period out to 2025:

According to BGC, annual shipments of robots will jump from 200,000 in 2014 to more than 500,000 by 2025; while this is a huge increase, it still accounts for only 25 percent of global manufacturing tasks and less than that amount in other industries showing how much potential capacity there will be for additional adoption of robotics on a going forward basis.

There are three things holding back wider adoption of robots:

1.) cost effectiveness of robots vs. human labor.

2.) technological barriers to adoption of robots in some sectors of the economy.

3.) lack of robotic systems that are affordable and applicable to smaller manufacturers.

Once these three barriers are overcome, the adoption of robots will grow very rapidly.  According to the authors of the report, companies start to adopt robotic automation when the cost of employing human labor becomes 15 percent higher than the cost of owing and operating robots.  That hurdle point is rapidly approaching.

Let's look at a sample industrial application of robotics.  Here is a graphic showing the dropping cost of an advanced spot-welding robot in used in the U.S. auto manufacturing industry:

The cost of a spot-welding robot has dropped from an average of $182,000 in 2005 to $133,000 in 2014 and is expected to drop to around $102,000 by 2025.  The price of robotics hardware and software is 40 percent lower than it was a decade ago and the cost of other associated equipment including safety structures, sensors and display also continue to drop.  In total, an investment in a spot-welding robotics system in 2015 bought a system that is capable of performing two times as much work as a system costing the same amount in 2005.  Today, a human welder earns around $25 per hour while the per hour operating cost of a robot welder is around $8 per hour including installation, maintenance, operating costs of all hardware, software and peripheral devices.  The authors project that this cost could drop to as little as $2 per hour over the next fifteen years.  This does not bode well for at least part of the welding sector of the economy.

Obviously, some workplace tasks are currently too complex for robots.  That said, improving technology has resulted in the creation of robots that operate very accurately at very high speeds, a necessity for the electronics manufacturing sector.  As well, the adoption of 3D visual inspection systems enables robots to perform complex cutting and trimming jobs in the meat processing sector.  Another advantage to robots is that they are being designed so that they can be reprogrammed to perform new jobs without the high capital cost of investing in a new robotic system.  Here's an example from the paper:

"Wiring accessory manufacturer ABB Elektro-Praga, for example, needed to increase throughput at its factory in the Czech Republic. The company wanted machines that could pick parts from a bin and orient them properly for assembly, a task that conventional robots could not perform at high speed and with precision. It also wanted robots that could work on different product configurations with minimal adjustment. ABB Elektro-Praga installed several of ABB’s IRB 140 robots on a new assembly line linked to a vision system equipped with digital cameras. The vision system enables the robots to orient parts and place them at a cycle time of 2.3 seconds per electrical socket, for example. It takes only 10 minutes to adjust the system to pick and place parts for different products, which are often changed up to 30 times each week. As a result of the new system, ABB Elektro-Praga says that it has boosted throughput of each shift by a factor of about nine. Only one worker is required to oversee the entire robotics assembly line." (my bold)

While all of these developments are fascinating, they are less than advantageous for workers in the United States, Canada and other nations.  As more companies adopt robotics, the demand for human labor will decrease or level out, resulting in the "Great Displacement" of American and Canadian workers and their peers in other nations.  It will also likely result in dropping (or flattened) compensation for remaining workers.  After all, robots don't call in sick, they don't require costly pensions and health benefits, they don't join unions and they don't go on strike.  That has to be appealing to the corporate world's corner office dwellers who spend their days concerned about their bottom lines.


  1. I dunno. History has a way of not working out as projected. Robots are also very fragile.

    If robots were to take over, there's a mountain of science fiction, from the 50s-70s, that explored how human society might deal with this.

  2. In legend, John Henry ultimately lost his battle with the machine. In television, all time Jeopardy champion Ken Jennings lost his battle with IBM's Watson.

    In Dodge vs. Ford Motor Company, the Michigan Supreme Court embraced the corporate goal of "maximizing shareholder value." As long as maximizing shareholder value remain the goal, every John Henry and every Ken Jennings will ultimately lose to the income statement advances that come from cheaper, smarter machines.