Professor Mark J. Perry's Blog for Economics and Finance
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
40 Comments:
well, nice video, but the question is - is this cheaper then hiring some mexican for minimum wage (or less then that)? Obviously for some companies it works. but I would really like to see some cost-benefit analysis...
Increased productivity makes more monny for the company, but it does not necessarily do anything for the worker.
When does increased productivity lead to more time off, or does it just lead to more unemployment?
We are goin gto increase productivity until we need fewer workes, but we will still cling to the idea that everyone needs to work. Anyone who doesn't is a slacker who deserves no support.
Honza,
You have to include many more inputs than just wages to perform that analysis. Any business that can't figure out whether a machine or a human is more cost effective will not last in a competitive market.
Ray Hyde,
Productivity that eliminates dangerous or terrible job conditions is great (for those who are left). Mr. robot can have the job I had when I hired into GM. I had to stand in oil in hip boots and a rubber raincoat in a pit under a machine dripping oil hanging 400 crossmembers per hour weighing 60 pounds each on a moving overhead monorail system. Try that in July in a factory without air conditioning sometime.
Walt, your experience really puts and exclamation point on the benefits of automation. The number of worker injuries and long term stress injuries continues to be reduced as a result of automation. And who knows the number of injuries and fatalities that have been eliminated as a result of more uniform and predictable manufacturing of finished assemblies.
It's not all wine and roses, however. Much of the automation equipment is built outside the United States these days, and as a result, we in America are unable to completely benefit from this innovation.
What is supposed to happen, of course, is that the added productivity allows the company to open another factory, and hire back the laid-off workers.
Works out okay in the long run, but is hell on the laid off workers in the short run. The weakness of All economic models is they don't/can't model "Time."
In reality, it seems the factories, recently, have been added in China, or India. This stuff ain't easy.
And say good-bye to parking attendants at this high-tech garage in Budapest:
http://www.youtube.com/watch?v=rew-9Qs9NOg
In 1941 Robert Heinlein wrote a story that needed an outlandish future career for a character. He came up with game designer.
We have game designers today as a real career because people have been freed up (NOT unemployed!) from human intensive production. As a rough cut, I would say that half the careers we have today didn't exist in 1941.
See also Scott Grannis blog from July 17th on his Egypt tourist adventure. (Note that economist types are never off duty even when they allege to be on vacation.)
http://scottgrannis.blogspot.com/2010/07/egypt-inspired-thoughts-on-productivity.html
The problem is that when the author favors destruction over creation. They're more than happy to support the destruction of someone's job, but not give much thought to their next better job. Nor do they give much thought to the interim of what happens to the person, between those two points.
What I really enjoy is the new customer service Indian robots who now answer the phone. It's so much fun listening to all the options before speaking to a real person.
http://www.youtube.com/watch#!v=O30UcbcIaIk
If this system works and saves money then it is the classic productivity improvement that leads to a better standard of living. Jobs lost by the implementation of this technology would be offset by jobs producing the product. Much productivity today is outsourcing of the labor which reduces US man hours to make the product and is counted as labor savings when overseas labor is not counted. Jobs are lost with the implementation of the new technology without an offset in jobs to produce the new technology.
A system like this was tried at the Denver Airport. It failed because the designers did not allow for the wide range of baggage sizes, shapes, and weights that the real world actually used. Looking at the video this system can handle only small packages. There is a music and video distribution center in Simi Valley, California that has had a system like this for more than ten years. It works well but handles a limited number of small products.
I think everyone understands your point about automation increasing productivity and eliminating some manufacturing jobs. But that alone doesn't seem to explain why manufacturing jobs have declined to where they employ such a low percentage of our workforce.
Germany's manufacturing employment as a percentage of its workforce is about double ours, right? And Germany seems a lot better off for that, with an unemployment rate about two percentage points lower than ours, and a credible plan to minimize its fiscal deficits. Certainly Germany's manufacturing sector is highly automated.
So, since it seems we'd be better off with a German-level percentage (~20%?) of our workforce employed in high-end manufacturing, why shouldn't we try to achieve that?
@seth: I've been pretty vocal about the need for better employment policies in America. However, we must not and can not sacrifice innovation to maintain employment. That will result in a similar pickle to what we are in now.
America has been very competitive in terms of using the best technologies to manufacture, with some significant exceptions. And those exceptions, every one, has been a train wreck. The next train wreck will probably in Aerospace due to the strength of Boeing's unions.
We are far better off with policies that reward innovation and, simultaneously, incentivize businesses to create the replacement jobs here. No one else does it that way (Germany, Japan and China) and it would be the next great American economic expansion...
If our leaders would grow a brain.
Seth, if the author could tell you the next area of profitable investment in our economy, I promise you he would be doing something a lot more lucrative than posting on a blog and teaching.
Very few people know the next area of job growth in our economy. If it was widely known then jobs would immediately jump to the desired level then stagnate. This is one of the major libertarian arguments against central planning. In theory with perfect information on the future of technology you could plan an economy. But that doesn't exist. Information is typically dispersed and impossible to aggregate. This is one of Friedman's points on why wide scale Socialism will always lead to stagnation and failure no matter how much we keep tinkering with it.
Increased productivity makes more monny for the company, but it does not necessarily do anything for the worker.
Well, Ray, one thing increased productivity does for the worker is to allow him a raise in pay. Our annual raises don't come out of our employers' profits, they come from increased productivity.
Also, Ray, the increased productivity allows more production with less labor. That provides the opportunity to invest the greater profits in other lines of work -- those new products employ more people. You see, there is a benefit to everyone.
nates said...
Not sure what you're trying to say, but you're trying to link something in a not-so-straightforward way.
Jason said...
Not a good enough excuse.
Those whom want to "innovate" won't make do with what people this nation has. At some point, they may have to be forced to invest in a recovery in the US.
Not a false recovery, not a jobless recovery, but one that puts the unemployed back into work. Not something that puts them in endless, worthless, jobless "retraining".
Either start creating jobs in the US for the people who are unemployed with no "spoon shovel" snark, or just do infinite tiers of unemployment. I honestly do not care for all the BS that gets spewed around to justify people being put out of work for such a long time.
Sethstorm,
In the 1930's the U.S. had about 50,000,000 in farming and other food production. Today there are about 4,000,000 in farming using the widest net to count them all.
Simple math indicates we now have 46,000,000 unemployed farmers standing around on street corners.
Oh, the humanity!
Except, of course, the world doesn't work the way you think it does. You needn't be obnoxious about it.
"Oh, the humanity!"
Subsistence agriculture is crappy, low-paying work. Manufacturing jet airplanes, luxury SUVs, etc., is good, high-paying work. That sort of high-end manufacturing supports families, local tax bases, and hosts of ancillary businesses in a way that low-wage service sector jobs don't.
You got it Dave. A lot of the newly unemployed/displaced thirties era dust bowl farmers moved to California where, over time, many found work in new industries.
About the time California industry (oil, manufacturing, construction, aircraft, etc.) needed workers a whole bunch arrived in a cloud of dust stirred up by some big invisible hand.
It wasn't all Grapes of Wrath.
daveinhackensack: "But that alone doesn't seem to explain why manufacturing jobs have declined to where they employ such a low percentage of our workforce."
Why should we care whether a higher percentage of workers are employed in service jobs? Really, why should we care? Compared to 30 or 40 years ago, the U.S. today has many more nurses, computer programmers, cable installers, truck drivers, dental assistants, physical therapists, electronic technicians, insurance adjustors, and security guards. I could say the same about dozens of other service occupations. What difference does it make if robots are painting automobiles and computers are enabling one plant operator to do the work that previously required five?
The reason service jobs make up such a large portion of America's workforce is simple: relative to the rest of the world, Americans are rich and can thus afford to pay for all those services.
DaveinHackensack: "Manufacturing jet airplanes, luxury SUVs, etc., is good, high-paying work."
Driving a truck is good work which pays well.
Operating x-ray equipment is good work which pays well.
Writing a computer program is good work which pays well.
Assisting a surgeon is good work which pays well.
The American economy has many millions of rewarding service jobs which pay well.
DaveinHackensack,
A few more service sector jobs which pay well:
flight attendant
computer operator
dialysis technician
policeman
firefighter
air traffic controller
sonographer
plumber
crane operator
auto mechanic
embalmer
If you wish to be objective, you could find hundreds of other service sector jobs which pay well.
Walt G: "Productivity that eliminates dangerous or terrible job conditions is great"
Agreed. But that's mot the only productivity which is great.
One example is computer programming. Productivity improvements have enabled a single computer programmer to do the work formerly done by ten. Did that lead to few programmer jobs? Certainly not. Instead, it is now cost-efficient to apply computer technology to tens of thousands of tasks. The U.S. and the world need more programmers than ever before.
Over the past 30 years, computer programming work has been increasingly performed by contract programmers working for service firms. Prior to 1980, most large corporations directly employed most of their computer programmers.
Fix that problem by making it cost more to not hire directly.
You got it Dave. A lot of the newly unemployed/displaced thirties era dust bowl farmers moved to California where, over time, many found work in new industries.
About the time California industry (oil, manufacturing, construction, aircraft, etc.) needed workers a whole bunch arrived in a cloud of dust stirred up by some big invisible hand.
Except that it is simply not there, and businesses would rather weather a Grapes of Wrath this time around.
Yes, that is a huge problem.
"You got it Dave. A lot of the newly unemployed/displaced thirties era dust bowl farmers moved to California where, over time, many found work in new industries."
Right, but the opposite has been happening now. People getting laid off from high-paying manufacturing jobs tend to end up in lower-paying service jobs.
"Why should we care whether a higher percentage of workers are employed in service jobs?"
Because most of them tend to pay less than manufacturing jobs. Yes, there are also good-paying service jobs, but relatively fewer of them. What percentage of laid off auto industry workers, for example, do you think end up in higher paying service jobs?
DaveinHackensack: "Yes, there are also good-paying service jobs, but relatively fewer of them"
I don't think you are correct, dave. According to the BLS, the 2009 median weekly earnings of all workers in the manufacturing sector was $767. The 2009 median weekly earnings for all U.S. workers was $740. That's almost no difference.
DaveinHackensack: "What percentage of laid off auto industry workers, for example, do you think end up in higher paying service jobs?"
That's entirely up to the worker, isn't it? If he is smart enough to take advantage of the fine technical schools in this nation, and willing to relocate to where the jobs are, he should have no problem ending up in a well-paying service job. If he expects his union and his government to take care of him forever, then he'll probably end up in the low-paying job he deserves.
Yet another sethstorm nugget of nuttiness: "Fix that problem by making it cost more to not hire directly"...
So now sethstorm thinks that depriving everyone in the country of the services of computer programmers is a solution to a supposed problem...
sethstorm: "Fix that problem by making it cost more to not hire directly."
sethstorm, I gotta agree with juandos. Your statement is a little strange to me. What is the "problem" you are proposing to fix? Both employers and contract computer programmers are happy with the arrangement they have. Where's the problem, sethstorm?
The BLS has something called the 'Job Openings and Labor Turnover Survey' (JOLTS) and for a hue and cry out there about jobs as reported by the news media I was amazed to find out how many jobs are actually out there country wide...
Job Openings and Labor Turnover Survey News Release
Tuesday, July 13, 2010
Job Openings and Labor Turnover – May 2010
There were 3.2 million job openings on the last business day of May 2010, the U.S. Bureau of Labor Statistics reported today. The job openings rate was little changed over the month at 2.4 percent. The hires rate (3.4 percent) was little changed and the separations rate (3.1 percent) was unchanged. This release includes estimates of the number and rate of job openings, hires, and separations for the total nonfarm sector by industry and geographic region.
"That's entirely up to the worker, isn't it? If he is smart enough to take advantage of the fine technical schools in this nation, and willing to relocate to where the jobs are, he should have no problem ending up in a well-paying service job."
What if he's not smart enough to acquire the skills necessary for a good-paying service sector job? Not everyone in this country is smart. We haven't exactly been selecting for smartness with our immigration policy over the last few decades.
Also, even if he is smart enough to acquire the skills, he is likely to acquire the wrong skills at the wrong time. See, for example, "In Hard Times, Lured Into Trade School and Debt".
sethstorm, I gotta agree with juandos. Your statement is a little strange to me. What is the "problem" you are proposing to fix?
Disposability, or getting rid of it. If you want to do it, fine. If you want to use it as a dodge against some law, the problem exists there. No jobs are being deprived, just practices that slant in favor of the employer in a bad economy.
Both employers and contract computer programmers are happy with the arrangement they have. Where's the problem, sethstorm?
Where the fact is that they are largely unhappy with the arrangement, with the minority that have no problem finding work anywhere that might be happy.
"Where the fact is that they are largely unhappy with the arrangement..."...
Yet another factless by the sethstorm?
daveinhackensack: "What if he's not smart enough to acquire the skills necessary for a good-paying service sector job? Not everyone in this country is smart."
That's the elitist kind of thinking that leftists are constantly regurgitating. Do you have much experience with real people, Dave? The percentage of people who cannot function as a truck driver or delivery courier or dozens of other service sector jobs is very tiny.
DaveinHackensack: "Because most of them tend to pay less than manufacturing jobs."
That's simply untrue. As I showed already, with government statistics, there is very little difference between median wage in manufacturing and median wage in the economy overall. You may incorrectly believe that all manufacturing are like the outrageousdly overpaid GM and Ford workers who have been laid off. If so, you are unaware of what comprises the sector known as "manufacturing". You've got your facts wrong, Dave.
juandos said...
...and yet another baseless attack by juandos.
Jet Beagle,
How do you figure out if one group is underpaid or the other group is overpaid when you use the value-laden terms coupled with "outrageous"?
If you consider that productivity- per-worker has about tripled and the cost-of-living has increased 3%-per-year over the last 30 years, it could be argued that the average wage is too low now when viewed historically (substitute you own numbers if you have better ones). Should we expect a corresponding level of increase in pay? If not, why?
"...and yet another baseless attack by juandos"...
Gee! I'm sorry sethstorm, was their something factual hidden in your comment?
If so, well that's my bad and my apologies...
Walt G: "If you consider that productivity- per-worker has about tripled and the cost-of-living has increased 3%-per-year over the last 30 years, it could be argued that the average wage is too low now when viewed historically"
Well, perhaps the question is "Should we expect U.S. wages to continue rising proportionately to productivity gains just because that was true in the past?"
Hasn't globalization changed the world so much that viewing wage rates of U.S. workers in isolation is no longer valid? My guess is that global wages have kept pace with global productivity increases.
Even if globalization had not changed the world for the u.S. production worker, I'm not sure your implication would be true. I believe economic theory says, according to Greg Mankiw, that the measure of productivity to use for deterimining wages is the marginal product of labor - the amount of output an incremental worker would produce holding the amount of capital constant. Two points about that:
1. The measure you are referring to is, I think, average productivity rather than marginal productivity.
2. The amount of capital has not been held constant. Firm owners have invested huge sums of capital into robots, automated machinery, and conputerized logistics systems. Those owners rightfully expect to receive the lion's share of the return from that investment.
I also believe that wages of U.S. production workers were for many years artifically high due to government interference in labor markets. Modern air conditioning has made relocation of industries to right-to-work and business-friendly states feasible, and labor costs have declined as a result.
Jet Beagle,
You provided an excellent answer. I agree we can't use history to judge the present. A perfect indication of that is 20 years ago CEOs of major companies had an American flag and map in their office to show their operations, but today the flag is gone and has been replaced by a globe. The ones that do not think that way are gone.
The concept of globalization makes you wonder, though, why people are still getting shot to death under an American flag overseas. Is anyone ready for the "black helicopters"? Where does patriotism start and stop? My nephew had to re-enlist in the army after four tours in Iraq through two enlistments and go to Afganistan this time because he could not get a job here after his discharge. I suppose he is protecting our freedom to buy stuff from China.
If we are measuring manufacturing wages globally now, your statement about "overpaid workers" also applies to average-paid U.S. workers. Right? If so, that turns into a "how low can you go?" situation at some point. Those people who can adapt will prosper while those who cannot will ratchet their lifestyle down. That's not really much different than it was 50 years ago or so, but we have a lot more social safety nets now.
Yes, air conditioning. I teach that. Send me some students!
walt g:"If we are measuring manufacturing wages globally now,"
Just so you understand where I'm coming from, I prefer not to compare wages - either globally or historically - by sector. It makes more sense, IMO, to compare wages by occupation. That's because the jobs which comprise a particular section vary considerably from period to period and also from global region to global region. That was my point in my earlier post about a factory outsourcing security jobs and janitorial jobs to a service company. When it did so, those positions moved from the manufacturing sector to the service sector, even though the work being performed had not changed at all.
Walt G,
I'm not sure why we were ever fighting in Iraq or why we're still fighting in Afghanistan. I'm pretty sure the reason the coalition of nations fought in Afghanistan is because the Taliban government was aiding and abetting terrorists who killed over 3,000 workers on American soil. That seemed a pretty good reason for me back in 2001.
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