Productivity and Robots

 

For decades the US economy has suffered from stagnant wages and stifled productivity. While the economy has grown in GDP since 1970 growing from $1 trillion to $18.5 trillion in 2016 the American worker has not enjoyed commensurate benefits. Wages have remained flat for decades. 

 

In the past, studies have shown that part of the reason for this was the development of the computer and its influence on businesses improving efficiency. 

 

In a new study from London’s Center for Economic Research, the analysis offered by George Graetz and Guy Michaels of Uppsala University and the London School of Economics, respectively, offers some of the first rigorous macroeconomic research and finds that industrial robots have been a substantial driver of labor productivity and economic growth.

 

“Consider that between 1993 and 2007 (the timeframe studied by Graetz and Michaels) the U.S. increased the number of robots in use as a portion of the total hours of manufacturing work (a standard measure of economic output) by 237%. During the same period the U.S. economy shed 2.2 million manufacturing jobs.

If robots are a substitute for human workers, then one would expect the countries with higher investment rates in automation to have experienced greater employment loss in their manufacturing sectors. For example, Germany deploys over three times as many robots per hour worked than the U.S., according to Graetz and Michaels, largely due to Germany’s robust automotive industry, which is by far the most robot-intensive industry (with over 10 times more robots per worker than the average industry). Sweden has 60% more robots per hours worked than the U.S. thanks to its highly technical metal and chemical industries.

 

Despite the installation of far more robots between 1993 and 2007, Germany lost just 19% of its manufacturing jobs between 1996 and 2012 compared to a 33% drop in the U.S. (We introduce a three-year time lag to allow for robots to influence the labor market and continued with the most recent data, 2012). Korea, France, and Italy also lost fewer manufacturing jobs than the United States, even as they introduced more industrial robots. On the other hand, countries like the United Kingdom and Australia invested less in robots but saw faster declines in their manufacturing sectors.”

 

Fast forward to 2017 and we are seeing the third technological revolution…. the development of AI and robots.  While there has been a great deal of work in this field for decades, things accelerated in 2016.  

 

Most important has been the development of ROS. An open source robotic operating system. This system allows robots to be created and fit out quickly with a standardized operating system. Previously operating systems had to be created anew with each project. This open source operating system also has the benefit of pooled learning… robots can effectively learn from the experiences of other robots. 

 

This is rapidly lowering the cost of robotic installations and improving profitability. More sectors are seeing applications of robotics and AI. This will have a very real impact on corporations and on workers over the next 5 years. 

 

The nature of work is changing, and it is critical that people understand that they need to adapt. They need to learn new jobs skills. They need to be more entrepreneurial. Corporations can replace most human workers, reduce expenses and legacy costs, and improve performance. In such a world people need to be able to build their own businesses… they need to be able to embrace a different way of thinking… one that most are not used to and most are not prepared for. 

 

In a speech on July 17, 2017 President Trump said the following:

“… we must also fight the unfair trade practices that have gutted our industry, and that includes cracking down on the predatory online sales of foreign goods, which is absolutely killing our shoppers and our shopping centers.  If you look at what’s going on with shopping centers and stores and jobs in stores, it’s been very, very tough for them.  They’ve had a very hard time.  Closing at numbers and records that have never been seen before.  So we have to stop that — the online predatory practices.”

 

The only company referenced by retailers as a danger to brick and mortar retail is Amazon, an American company, selling the same goods that brick and mortar retail establishments are selling. Trump’s statement is nothing short of Luddite thinking. Amazon has a superior business model compared to old school businesses. Automation and efficiency, powered by massive data and the internet, will swamp companies that fail to innovate. Wishing it were different won’t make it so. 

 

Technology is advancing quickly and is changing the nature of business, capitalism and the economy. As humans in such an environment, we need to change as well. We need to be more adaptable. We need to protect ourselves, because no one else will… corporate jobs of the past provided health insurance, life and disability insurance, vehicles for retirement savings. 

 

Since the Great Recession a great many people have moved from being w2 employees to being contractors, still working for the same company, but the company no longer obligated to cover such expenses for the employee. 

 

The growth of consulting and contracting in the economy over the past 10 years is a sirens call for what is to come. 

 

William Studdebaker of CIO at ROBO, said in an interview with Bloomberg’s Corey Johnson that “robotics is spreading in every sector, in every country, right now.” As a sign of the real growth in this field in 2016 there were 600 start ups focused on robotics. Since 2005 there have been 1100. That is exponential growth. 

 

It’s clear that the economy is changing. The question is are you financially positioned in your life to manage the transition to this new economy? 

 

If you want to discuss these issues or learn more please feel free to contact me.

 

Retirement Income. Tax Efficient Planning.

Life Insurance. Disability Insurance

Socially Responsible Investing

 

To learn more contact:

James Cox

Cell: 215 768 5883

Email: james_cox@devon-financial.com

http://jamesacox.com

Devon Financial Partners 744 W Lancaster Av Suite 235 Wayne, PA 19087

 

This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.

 

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 7 Hanover Square, New York, NY 100034. 888-600-4667. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Devon Financial Partners, LLC is not an affiliate or subsidiary of PAS or Guardian. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. 2017-43732 Exp. 07/19

 

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