Monday, October 04, 2010

Automation, Productivity Reduce U.S. Workforce

From today's LA Times:

"Forced to cut costs during the recession, employers across the country are looking at ways to avoid hiring. They've accelerated use of computers and technology, replacing administrative assistants with software, cashiers with self-service kiosks and laborers with machines.

These structural changes mean some jobs that disappeared during the recession may never come back. Productivity gains are good for company profits and help the economy grow over the long run. But in the short term, the shift is exacerbating America's jobless recovery.

"Recessions tend to act as ratchets; they'll often speed the pace of fundamental changes that were going on in the economy anyway," said Erica Groshen, vice president and director of regional affairs at the Federal Reserve Bank of New York.

Ditching workers is an appealing prospect to many California farmers. Few states have minimum wages higher than California's $8 an hour. The heightened focus on workers' immigration status has increased farmers' administrative burden.

With the help of machines, though, growers can continue to boost output while reducing headcount. Farm labor in California has fallen 11% over the last decade, yet cultivation of heavily automated crops soared over the same period: almond production has more than doubled, to 1.6 billion pounds.

"If cheap technology is available, you substitute technology for people," said Allen Sinai, chief global economist at Decision Economics in Boston.

Automation has been a steady progression since the Industrial Revolution. Still, laying off workers is never easy. Recessions give companies a motive to move more swiftly than they otherwise might have to cut staff, outsource work to cheaper locations and implement labor-saving technology, Sinai said. When sales pick up, companies can help profits rise quickly by keeping a lid on hiring.

That's part of the reason that earnings at some large companies have soared over the last year while job creation has lagged behind. In August, U.S. private sector employers added 67,000 jobs, far fewer than the 100,000 needed to keep pace with population growth."

MP: The chart above shows a trend in manufacturing that is consistent with the changes outlined in the LA Times article.  Since the end of the recession in June 2009, manufacturing output has increased by 9.6% (or by $270 billion) through August of this year, while manufacturing employment has decreased by -0.90% (or by 103,000 workers) during that 14-month period.  
 
HT: Tom Hemphill

17 Comments:

At 10/04/2010 5:17 PM, Blogger PeakTrader said...

However, the recession caused manufacturing productivity to decline initially, and then it rebounded back to the long-term trend line. The recession seemed to only disrupt productivity growth.

 
At 10/04/2010 6:12 PM, Blogger Benjamin said...

$8 an hour minimum wage is too much?

Jeez, in a free market, what would be the bottom?

 
At 10/04/2010 7:21 PM, Blogger juandos said...

"However, the recession caused manufacturing productivity to decline initially, and then it rebounded back to the long-term trend line"...

So it seems PT but let's see how long that lasts considering what might be coming our collective way...

"$8 an hour minimum wage is too much?"...

For some people 8 cents/hour is far to much money for a minimum wage...

 
At 10/04/2010 7:45 PM, Blogger jorod said...

Fastest way to get rid of illegals is put agriculture jobs under minimum wage. Force farms to mechanize, less labor.

 
At 10/04/2010 7:58 PM, Blogger Buddy R Pacifico said...

" Since the end of the recession in June 2009, manufacturing output has increased by 9.6% (or by $270 billion) through August of this year, while manufacturing employment has decreased by -0.90% (or by 103,000 workers) during that 14-month period."

Manufacturing Output has to have a solid definition. Do the manufacturing statistics include foreign inputs whose labor numbers are not counted in calculating producitivty statistics for U. S. products?

If foreign labor is not counted then productivity numbers for the U.S. are skewed and a false notion is being touted that automation and productivity are the chief drivers of U.S. manufacturing job losses. Substituting foreign labor for American workers might be the overshelming cause of job malaise. I am not clear on this.

 
At 10/04/2010 9:12 PM, Blogger Ron H. said...

"If foreign labor is not counted then productivity numbers for the U.S. are skewed and a false notion is being touted that automation and productivity are the chief drivers of U.S. manufacturing job losses."

Buddy, the labor in an imported item can't be included in US labor statistics. An imported item is subtracted (hopefully) from the GDP calculation as "net exports". See here.

we don't need to know what labor is included in an imported item, only the cost. In your previous example of a worker assembling an airplane from imported assemblies, the value added by the worker is the value of the completed assembly minus the costs of the imported wing and fuselage. If he now assembles the parts in 8 hrs instead of his previous 16 hours, his productivity has doubled. The cost of other inputs isn't part of this.

If instead of airplane sub-assemblies he was connecting two large imported rocks, you wouldn't be concerned with the labor involved in producing them, only their cost at the loading dock. If they were produced in the US, they would be counted as US GDP, but you would still only be concerned with their cost at the loading dock of the rock assembler.

 
At 10/04/2010 9:17 PM, Blogger Ron H. said...

"Jeez, in a free market, what would be the bottom?"

In a free market the lowest wage would be the lowest one mutually agreed on by a seller of labor and a buyer of labor.

 
At 10/04/2010 11:57 PM, Blogger Benjamin said...

Ron H.

Remember, Ron H., man is not only an economic, rational creature, but a social animal.

 
At 10/05/2010 5:56 AM, Blogger geoih said...

"Recessions tend to act as ratchets; they'll often speed the pace of fundamental changes that were going on in the economy anyway,"

That's because before the recession the government interfered with the economy causing businesses to invest in things that are not profitable. When the unprofitability and malinvestment become apparent during the recession, businesses change to what is profitable, to what was profitable before the government interference (unless of course the government interferes even more, thus prolonging the recession).

 
At 10/05/2010 5:58 AM, Blogger geoih said...

Quote from Benjamin: "Jeez, in a free market, what would be the bottom?"

That would depend on the work, the worker, and the product.

 
At 10/05/2010 6:05 AM, Blogger geoih said...

Quote from jorod: "Fastest way to get rid of illegals is put agriculture jobs under minimum wage. Force farms to mechanize, less labor."

Sounds more like the way to more costly food. You cannot legislate productivity, only unproductivity.

 
At 10/05/2010 9:36 AM, Blogger Buddy R Pacifico said...

Ron H, thank you for your thoughtful answer. I have looked at BLS sites for info and as you stated imports are "hopefully" subtracted from GDP figures. I think that it would be valuable for the U.S. government to better track foreign inputs into U.S. manufacturing output figures.

 
At 10/05/2010 9:51 AM, Blogger David said...

Ron H..."we don't need to know what labor is included in an imported item, only the cost"...this is correct, but do we know for certain that this cost has been subtracted from the "manufacturing value" number shown on the chart? Several economists, including IIRC BusinessWeek's former chief economist Mike Mandel, have asserted that analyses of this sort have been getting skewed by failure to do this.

 
At 10/05/2010 10:10 AM, Blogger Bill said...

This has definitely been true at my business. When one staffer quit at the height of the recession, we decided to see if the remaining staff could handle her job. As it turns out, we are able to fine with the reduced staff level and now save about $30,000 per year. It is a win for me but one less job in the economy overall.

If things pick up considerably I would consider rehiring someone but with all of the Obama headwinds, I doubt this will happen any time soon. Multiply my story times many thousands of other employers and you have the jobless recovery.

 
At 10/05/2010 10:42 AM, Blogger Ron H. said...

"but do we know for certain that this cost has been subtracted from the "manufacturing value" number shown on the chart?"

No, we don't know for sure, so this, like many other government numbers, shouldn't be taken too seriously, but only as broad indicators.

 
At 10/05/2010 2:03 PM, Blogger Sean said...

On the point of imports wrongly inflating manufacturing productivity numbers, Mike Mandel (http://innovationandgrowth.wordpress.com./) has had some concerns in the past about artifacts of the "subtracting out" process.

 
At 10/06/2010 10:16 AM, Blogger morganovich said...

a very interesting look at the current "output gap" and why current growth rates cannot reduce unemployment:

http://www.washingtonpost.com/wp-srv/business/the-output-gap/index.html

 

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