Perspective: What the Machine is Doing to Jobs!

 

The cover page of the July/August issue of the Atlantic states:

 

Technology will soon erase millions of jobs.

 Could that be a good thing?

THE END OF WORK

 

The jist of the Atlantic article is that half of the unskilled jobs that exist today will be lost to machines within the next two decades. The article goes on to speculate what life will be like when human labor is no longer needed. How will people live and what will they do when human work ends? But that is a story for another blog.

Today all you hear from the politicians and the media is that the poor are getting poorer, and their wages are flat, while the rich are getting richer. In fact that is exactly what is happening. But why? And what do the politicians say what can be done? The answers to these questions are (1) they have no clue what is going on and (2) their so-called plans, such as raising the minimum wage, are mostly counter productive.
 
Machines have been replacing humans for decades, and as the article points out, we are at tipping point where a machine can replace unskilled in routine jobs just about everywhere so that in the short space of two decades half of such unskilled jobs will go to machines. This is not reversible and virtually unskilled jobs in every commercial endeavor are in jeopardy.

 

Let me give you and example of how an owner might decide to buy a machine to replace the laborer. The product is the hamburger. A machine that can flip hamburgers has already been created by Momentum Machines. They claim that the robot is more consistent, more sanitary and can produce 360 hamburgers per hour. If a human could make a hamburger in 1 minute on average, this means that a human could make 60 hamburgers per hour. Therefore the machine could replace 6 humans on a shift. or 12 workers on a two shift day or 18 workers on a three shift day. Of course the machine will run 24/7/365.  

 

Now, let’s look at the business math the hamburger place owner sees. Let’s assume for this case that it takes 12 workers to make 360 hamburgers per hour for the two shifts the shop is open. This is equivalent to about 2.1 hamburgers per year. Assume that these workers are paid the equivalent of $10 per hour including minimum wage plus benefits. And let’s assume that the machine costs $300,000. Let’s also assume that the person who keeps the machine running costs $50,000 per year and that it takes two persons per machine to handle 24/7/365.

 

 

 

 

 

 

Based on these assumptions the business can be evaluted as follows.

 

CASE I                        CASE II                   CASE III

                                          Min Wage $7/hr          Min Wage $ 15/hr         Machine

INCOME                             $4,204,800                $4,204,800                 $4,204,800

$2 per hamburger

2.1 million per year

 

EXPENSE

Labor                                   $   700,800                 $1,261,440                   zero

Food, utilities etc.                $2,102,400                 $2,102,400                 $2,102,400

Machine Cost                                                                                             $   110,000

 

 

TOTAL EXPENSE             $2,803,200                  $3,363,840                 $2,212,400

 

GROSS INCOME               $ 1,401,600                 $   840,960                 $1,992,400

 

You can see that the owner can make a case for installing the machine even with the current minimum wage. That is why it is predicted that the number of ordinary labor will be reduced by half in the next two decades. Obviously if the minimum wage is doubled, as the liberal politicians want to do, the owner has the choice to raise the price for a hamburger, which he predicts will reduce the number of hamburgers sold. Or the owner could take advantage of the greater incentive to purchase the machine and leave the price alone. It should be noted however that the volume of burgers sold may decrease anyway, as there are fewer and fewer laborers who can afford to buy them. Meanwhile, we have not yet learned how to get the machine to eat hamburgers.

Also note that in every case the business is profitable, so as the owner reduces costs his profit increases. Meanwhile, the twelve employees that were let go are out of work, with no hope in sight since machines are replacing lowly trained workers everywhere. Then to exacerbate the problem for the laborer, the politicians want to let more immigrants into the already overpopulated workforce.

 

Thus the truism:

 

“THE RICH (OWNERS) ARE GETTING RICHER

AND THE POOR (WORKERS) ARE GETTING POORER”

 

Has any politician running for office of the president explained this? Of course not! They seem oblivious as to what is happening right under their noses, and go on blithely talking about raising the minimum wage for the very worker whose job is already in jeopardy. Worse none has a proposal of how to deal with it except for government to take money from the rich and distribute it unconditionally to the poor whether they work or not.

So what could be done? We could pass laws banning the installation of machines whose principal objective is to replace labor. Alternatively, we could create jobs the under trained could do that won’t be in jeopardy of being replaced by a machine. Unless we are willing to abandon capitalism and the free market, and become even more non-competitive with foreign companies, we should not choose the first idea. The second idea could and should be pursued.

One project that could be created for untrained workers would be to exploit our natural gas windfall. I have written about this in detail, but the essence of the idea is to take advantage of the 25% lower carbon footprint of natural gas versus coal and petroleum and create a national policy to construct the national infrastructure required to convert as much as possible of our use of coal and petroleum to natural gas. Our truck, train and automotive fleet can be converted from diesel and gasoline to compressed natural gas (CNG), for example. To do this will require millions of the very unskilled labor that is being displaced by machines. And it is hard to imagine a machine that can replace the gas and diesel fuel tanks on our automotive fleet with CNG tanks. And it is equally difficult to see how every gas and diesel station can be converted to CNG tanks by a machine. Every job would be mostly unique. Meanwhile, the worker will need two skills: (1) knowing how to show up for work on time, and (2) knowing how to put a nut on a bolt.

 

This idea isn’t even mentioned by one of the plethora of presidential candidates. Why at least one of them might mention a government/private industry program aimed at solving the two problems the politicians  seem to agree deserve priority, namely reducing our carbon foot print and finding jobs for the unemployed, underemployed, underskilled including undocumented immigrants. This plan would solve both environmental and labor problems, and it could be a free market program as well. All the government needs to do is set the program up by reducing regulations to a minimum and setting up a tax incentive that permits the private entrepreneur as well as the individual purchaser of the CNG tank a tax write-off on the capital and labor used for the job.

 

The ancillary benefit is that it would give hope that the American Dream is still alive!!