Monday, August 3, 2015

Enter the Robots

Some say it’s a matter of justice. Workers should receive enough pay to sustain themselves. If businesses refuse to comply, the government will have to dictate the minimum wage.

This argument overlooks the relationship between wages and the value a worker can add to an enterprise. Certainly, companies have been known to overpay, but there are limits to how much they can overpay without either raising prices or laying off workers.

Tyler Durden (via Maggie’s Farm) explains the issue:

Proponents of raising the pay floor argue that it’s simply not possible to live on minimum wage and indeed, there’splenty of evidence to suggest that they’re right. Opponents say forcing employers to pay more will simply mean that companies will fire people or stop hiring and indeed, as we highlighted on Friday, it looks as though WalMart’s move to implement an across-the-board pay raise for its low-paid workers may have contributed to a decision to layoff around 1,000 people at its home office in Bentonville.

"The reality is that most business are not going to pay $15 dollars an hour and keep their doors open," one Burger King franchisee told CBS. "It just won't happen. The economics don't work in this industry. There is a limit to what you're going to pay for a hamburger." 

And then there is the problem of competition. Not the competition presented by low-wage workers in certain foreign countries, but the problem posed by non-unionized, non-voting, non-human employees, like robots. What happens when these robots are more efficient, more productive, more effective and don't get a pension or health insurance?

What good does it do you to gain a higher minimum wage if you lose your job? The same question arose when people were asking what good it does you to have a union job, with generous salary and benefits, if it forces your company to close the factory and move the job overseas.

Durden quotes the following article from TechRepublic:

In Dongguan City, located in the central Guangdong province of China, a technology company has set up a factory run almost exclusively by robots, and the results are fascinating.

The Changying Precision Technology Company factory in Dongguan has automated production lines that use robotic arms to produce parts for cell phones. 

The factory also has automated machining equipment, autonomous transport trucks, and other automated equipment in the warehouse.

There are still people working at the factory, though. Three workers check and monitor each production line and there are other employees who monitor a computer control system.Previously, there were 650 employees at the factory. With the new robots, there's now only 60. Luo Weiqiang, general manager of the company, told the People's Daily that the number of employees could drop to 20 in the future.

The robots have produced almost three times as many pieces as were produced before. According to the People's Daily, production per person has increased from 8,000 pieces to 21,000 pieces. That's a 162.5% increase.

The increased production rate hasn't come at the cost of quality either. In fact, quality has improved. Before the robots, the product defect rate was 25%, now it is below 5%.

Is the movement to raise the minimum wage a scheme to buy votes? Perhaps it is. Does it suggest a failure to understand even the most elementary principles of economics? It seems to.

Obviously, robots have been around for a while now. It appears that they are becoming better at their jobs and probably can do more jobs. Who knows how far they can go?

If robots are so much better and so much cheaper at certain jobs, what will that do to the job market? What will it do to the cost of goods and services? The questions should be addressed, perhaps before we decide that the government, in its wisdom, should dictate wage levels, regardless of the cost of doing business and regardless of the alternatives.


David Foster said...

For starters, something is wrong with these numbers. An increase of production per person from 8000 to 21000 (less than 3:1) does not support a decrease in personnel from 650 to 60 (more than 10:1) for the same production quantity.

If the factory had 650 people and a production rate of 8000/person, that would be 5.2 million of whatever item is being made. If they now have 60 people and a production rate of 21000, that generates 1.2 million items.

Ignatius Acton Chesterton OCD said...

"Is the movement to raise the minimum wage a scheme to buy votes?"

It sure won't yield the results of those voters desire. This is what happens when people focus on intentions rather than results. Ideas have consequences.

Simply put, we are moving at breakneck pacers make it more and more expensive to hire human beings to do low-skill jobs. Laws and regulations that continue to bore deeper into the smallest areas of work rules, etc. Employment benefits that continue to rise at five times the rate of inflation because of government meddling and mandates. We are fast closing in on micro-supervision of work.

I remember when I first heard Jeff Bezos talking about Amazon's investments in drones for parcel delivery. I reflexively thought it was nuts. Then I considered who gets Amazon's biggest checks: freight companies like UPS. Bypass the current distribution system? With its manpower, unions, etc.? We're talking trillions. Why can't a drone deliver a pizza to your doorstep?

Sam L. said...

The deciders (politicians) won't let us decide. Until they have no other choice.

priss rules said...

Stop immigration and wages rise.

priss rules said...

In the long distant future, universal aristocracy will be the only answer.

Robots will be our serfs, and we will all be aristocrats living off robot labor.

When aristocrats did this in the past, it was unfair because other humans had to toil.
Aristocracy then wasn't universal. Some could live the life of leisure but others had to toil.

But robots will never complain about their serfdom and slavery. Robo-slaves will just work and work for mankind. Thus, universal aristocracy will be possible.

Anonymous said...

Deflation is driven by too much investment in capital equipment compared to too little income and debt offered to the working class to purchase the economic output. There is no way that a modern industrial nation can function without some sort of mechanism to ensure sufficient wages and stable cash flows for the working class.

KCFleming said...

David Foster: that assumes all increases in productivity affect unit production equally. Some increase may in fact have a multiplier effect.
That said, China is unreliable when it comes to statistics about performance. Propagandists are heavily employed.

There may be little left in the First world for unskilled to do for money, unless they can do it cheaper than robots.
Yet Westeners have come to believe that they do not need to work to live, at least welfare has taught them that.

The question is like the movie Elysium.
If the skilled can work anywhere, they will likely segregate away from the great unwashed.
And then who will pay them to do nothing?

Ares Olympus said...

I can see both sides of the minimum wage debate. Apparently economists also diverge in their opinions too. Want to watch economists fight? Bring up the minimum wage

Talk of robots taking over jobs sounds like the 1990s when Japan was trying to build robots for everything. I'm not sure how realistic it is. So far apparently the world still has a labor surplus, people who are willing to work for a few dollars per day, at least for manufacturing jobs, so exporting such jobs to China.

re: "The reality is that most business are not going to pay $15 dollars an hour and keep their doors open," one Burger King franchisee told CBS. "It just won't happen. The economics don't work in this industry. There is a limit to what you're going to pay for a hamburger."

Perhaps the future of "fast food" will be large automated vending machines where "robots" can build any meal package from premade meal components from another factory. They'll keep careful statistics on demand times, and premake food with a minimal weight time, and they'll have AI heristics to test "supersize me" pricing formulas that extract a maximum net daily profit from a given locale. Perhaps it'll even learn how to do "price wars" when demand suddenly drops because a competitor arrives, and do price wars to sell at a loss for 6 months until the competition drops out. While the supplier warehouses will be working hard too to get the lowest cost food sources, and decide how finely chicken feet and beaks need to ground up to be edible.

Yes, the sky is the limit. Such food might be cheap enough that even families on a $7.50 minimum wage can afford to buy it, and don't forget the kids toys, and playgrounds, much better than the city park playgrounds.

Oh, it is rather depressing to me. I was definitely spoiled when I was young, starting with a paper route through my teens, and then straight to lab assistant and computer programmer at the university as an undergrad. I did a couple months of night stock work at a local supermarket between jobs after graduation, and supermarkets themselves kind of overwhelmed me at times, with so many choices, but maybe the abundance itself felt somehow wrong to me.

I felt better when I started to garden and learned to cook, and shopped bulk at the food co-op, but still not loyal enough to pay organic prices. Our local food co-op is in the process of a $5 million dollar expansion, but I do wonder about long term viability. And it does seem maybe only 10-15% of the population is willing to pay premium prices, even under the promise employees are treated well by wages.

But the good thing about small local businesses is people are real, and where decisions can be made that benefit communities, rather than the 1% who have capital to install mass produced vending machines that extract a maximum of daily profits while giving back as little as possible.

There's probably no fair analysis, but I'd have to imagine in the future, once the "trust horizon" fails after the next economic crisis, that more people will pay attention to where their money is going and how it stays in a community and how it leaves a community, and perhaps import taxes will help keep certain jobs local, under local control, for quality and affect on the community.

It's something we've not seen, and which all trade liberalizers categorically reject, and there are costs to limiting trade. If energy is assumed to always be cheap the industrial ideal would be one factory in the world for every product, located where ever labor and pollution laws are cheapest.

So there are complicated decisions to be made in the future, once it becomes clear living in a land without jobs isn't a viable future.