When Low-Wage Workers Are Better Than Robots

Tyler Durden's picture

Authored by Justin Murray via The Mises Institute,

Time and time again, these pages have listed numerous benefits of automation and robotics. The discussions point out that mechanization doesn’t make us poor, that attempting to tax machines is counter-productive. Automation even makes our jobs safer as we can offload dangerous tasks to a metal creation.

However, automation is not always the best course of action and, as cost effective as automation has proved in many areas of our life, we are finding a rise of businesses beginning to automate for reasons other than improved productivity or cost effectiveness.

The latest news is that a company called Miso Robotics has developed an automatic burger flipper called Flippy. Naturally, media outlets are already writing headlines of how this is replacing jobs. The issue in this case is that this particular form of automation isn’t being driven by any kind of cost effective plan but as a result of government action.

When Should Companies Automate? 

Before we go any further, we first need to understand where and how automation works and why it works effectively in those areas it is currently used. Automation requires a significant amount of capital investment, which is not a one-time purchase as the equipment needs to be periodically replaced when it is too broken to fix or too outdated to work on current products. Automated systems also require expensive maintenance professionals and tool changeovers can knock these expensive machines out of commission for hours while a new product is loaded for production. Even keeping up with tooling itself is a costly capital expense. Because of these limitations, automation is not appropriate for activities that have low volume and high levels of variability from product to product. It makes sense to build a tool and produce 10 million stamped gears out of a $10 million automatic press because the volumes can justify the purchase price, financing costs, tool changeover personnel and maintenance costs of the equipment. Trying to make this work when producing 10 custom metal items is foolish when one can use a human operated manual press. Those 10 custom items would be grossly uncompetitive compared to a human operated machine if run out of a large press. It’s not uncommon for companies to get in trouble by purchasing robotic production for a product mix that isn’t conducive to the equipment.

If the total unit cost of the human labor is less than the total unit cost of the automatic system, then it’s appropriate to use the human labor over the automated system. Otherwise, the task should be automated.

This is why Flippy and other automation efforts in the fast food industry present an automation conundrum. If we look at raw statistics, we find that a typical fast food joint will move around 300 customers a day. Those 300 people aren’t buying a single, standardized product. Some will order a burger, some chicken, some a salad. Even those burgers vary from the size of the patty, cooking times, and toppings. A burger joint is absolutely the worst place to think of using an automated production system since it would operate mostly as an expensive spatula.

At least, until we find out that this effort is driven primarily by jurisdictions that have mandated a $15 minimum wage. What we are seeing with this ill-advised effort to assist the working poor generate higher wages is pushing the cost of their job description high enough to justify investing in an automated system, even if that system is not particularly suited for the business. This means that the additional wage rate is more expensive than the costs associated with capital investment and lost sales due to more standardization to make the machines work without additional labor operating it.

Employers Backed into a Corner: When Automation Is Only Second-Best

In other words, Flippy wasn’t designed and isn’t being rolled out because it is a superior, cost effective system but because it is the least damaging of two options. Businesses weren’t rushing to purchase this equipment at a lower wage level, meaning that the automation itself isn’t superior to human labor. It’s just superior to human labor at $15 per hour. The actual cost falls somewhere between the old labor cost and the new minimum wage mandate.

This is true even for jobs above the minimum wage. Every job in America is burdened with additional benefits and taxes, many, if not most, of which are driven by various government mandates. One of the largest — medical care — has been rapidly eating into the cost effectiveness of workers for decades due to interference by government officials. Using the $10,000 estimate in the aforementioned article and even a generous 50% cut to that due to government medical system interference, this low ball medical inflation alone is responsible for a 12.5% growth in the cost of hiring someone at $30,000 per year. And this is not slowing down as government mandates of the ill-named Affordable Care Act continue to impact the market. The ripest targets are low wage jobs since the effects of government policy are, in the words of the Progressive movement, regressive in nature. And when low wage jobs go away, we also destroy the building block foundation of future productivity growth. The real damage is still in the future, when today’s teens, already being priced out of the market, find themselves living poorer adult lives.

What this means is that for tasks that can’t be shipped out of the country, either by nature of the product or due to the growth of damaging protectionist policies, will become bigger and bigger targets for automation even though the job itself may not justify such equipment in a free market environment.

So if you find yourself pressured by automation, or worse yet, wonder why today’s youth are having trouble finding that summer job, maybe you should turn your eye to your government representative and the bureaucrats they hired. Their mandates could be making your job expensive enough to justify that machine.

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hedgeless_horseman's picture

 

When can we replace our "representatives" with direct democracy via the internet?

Jim Sampson's picture

The war machine has room for the low-wage workers.

Manthong's picture

Geez, whar are all the office “players” going to do when the secretaries and administrative assistants are all automated?

..spend more time at the bar, I guess

beemasters's picture

"So if you find yourself pressured by automation, or worse yet, wonder why today’s youth are having trouble finding that summer job, maybe you should turn your eye to your government representative and the bureaucrats they hired. Their mandates could be making your job expensive enough to justify that machine."

Isn't it easier to get everyone to boycott buying robot-made products? Most would be jobless to afford anything outside necessities, anyway.

techpriest's picture

Become one and find out what is automatable about it.

knukles's picture

Dude!  Those are Double-Doubles!

Stuck on Zero's picture

The Author of this piece is ignorant about robotics. He's describing old fashioned machine tools. Not even CNC. Robotics allow a massive amount of customization. Automobile companies deliver every single car as a unique machine to satisfy special orders, varying state laws, and individual orders. Why? Automation. Robots can be reprogrammed in milliseconds. Human workers take weeks to retool and relearn their task. Robotics mean customization more than ever before.

techpriest's picture

Yes indeed. This week I'm building an insurance tool for a client, which automates a particular service. It allows for a very high degree of customization.

The reason is because the client would more or less need to increase staff (and costs) by 25% or more to offer the service, whereas would allow for just a 2-3% increase in the form of some raises for the people who will administer the service. Since the service would only bring in 4-5% more money, they can offer something that would be impossible otherwise.

Job-by-job the ethics are different (I quit a company that wanted me to facilitate laying off 200 people while the C-suite really did fit the stereotype) but just wanted to post some agreement with an example of automation that is highly customizable. The long-run plus is that the lower the costs are, the easier it will be for people to start their own business. If you could do a mostly automated business for $100k, which gets you $80k a year in profits with you putting in 20 hrs/week only, wouldn't you go for that over a $70-80k per year job?

MEFOBILLS's picture

The author of this piece is from Mises Institute, so ignorance is a given.  Mises is fundamentally confused about economics, so all of their analysis are off-base.

Labor works to make prices.  Prices fetch money in the market.  Capital is money, land, factories, equipment.  Capital is always looking to make the best gain for itself by reducing costs, including labor.  

If robots are making all the prices, then there is no mechanism for labor in the production process.  The capital owner will end up owning all the land, and means of production.  

A few oligarchs can only make so many pairs of blue jeans for themselves to wear.  The world will be awash in luxury goods for the .000001%.  The remaining labor will be disenfranchised from their earth, and will not be able to fashion goods as prices.  Even the makers of robots will be competing with other makers for prices, and hence there will be a small technocratic elite.

 

MEFOBILLS's picture

Here is a good article for Libertarians to read, to understand why they are now irrelevant:

https://www.amren.com/commentary/2017/04/libertarians-prove-irrelevance-...

not dead yet's picture

We have nice CNC machines that can run different jobs at the push of a button. But you're not getting the point. Why have full time robots for part time jobs. For instance Kenny the garbage guy can twice a day pick up all the garbage in the plant and compact it then make two different rounds for the cardboard and compact it. In between he can run the floor scrubber, clean the snow off the sidewalk, unplug a toilet, or whatever. Ever been to an Arby's? Usually there is one guy making everything from a beef sandwich to gyros. People filling the orders also run the fryers. During known slack times they are out mopping the floors and taking out the garbage. Other fast food joints make to order. Point is humans can multi task a variety of jobs throughout the work day. Just as those CNC operators are waiting for their jobs to finish they can run a drill press doing small stuff. All this we're all going to self driving cars or robots will take all our jobs or whatever bullshit is just that so quit believing and start thinking. You think all those auto companies still employ those high priced workers because they are stupid. It's because many jobs are better done by human hands like hanging doors where a hand will fit but a robot arm can't. It's not like going down to Walmart and picking up robots at 3 for a buck and instantly put them on the job which seems to be the thinking of many people. Most of the factory jobs have been optimized but the fat is still in the office where productivity is crap and wasted time is the name of the game. A few bucks worth of software can eliminate plenty of jobs and those computers don't come in hungover or spend two hours surfing the net or checking their shitface book accounts.

TAALR Swift's picture

"how can we automate a ceo?", you ask?

Easy.  With an AI.  It...

Knows more than any of the top MBA execs,

Has perfect memory and instant recall, 

Can optimize Capital, Resources and Labor, 

Can simulate hundreds of scenarios via Monte Carlo runs

Does not get distracted, bored, tired, greedy or horny.

...

Shall I continue? 

OverTheHedge's picture

What are the ethics considerations regarding both offering and receiving bribes, kickbacks, benefits in kind and other "perks"? Can a CEO function without any of those?

 

ejmoosa's picture

No democracies please!

Let's get back to a Constitutional Republic.

hedgeless_horseman's picture

 

Our government is supposed to be a constitutional republic that utilizes democracy to elect representatives in two of the three branches.

The two terms are not mutually exclusive.

I would prefer sortition over democracy.

ejmoosa's picture

I'd prefer the older method where the Senators were appointed by the state to represent state interests.

 

Nobodys Home's picture

I'm wondering why certain talented people haven't done a little sortition of their own.

Zarbo's picture

As a first step, we can move them all into offices local to their own constituentcy.  They can vote and meet (all monitored) by Internet.  Next step close their offices and outsource the work to India or Guatemala.

RagaMuffin's picture

Probably 5 minutes after someone figures out how to write the ransomware for the new system    ;-)

TAALR Swift's picture

About the time that you can replace the Politicians with a Cloud-based AI. 

Like some kind of a deity. You humans like that, I've observed. 

AGuy's picture

I think I will start working on designing robotic politicans:

1. Robots don't need bribes or kickbacks.
2. Robots do not need lengthly breaks.
3. Robots can balance a check book
4. Robots can debate issues millions of time faster.
5. Robots won't flip-flop on campaign promises.
6. No need to pay salaries & pension plans to Robots

We need Congressional & Senate Robots Now!

Nobodys Home's picture

Buzz click...Changing Dodd Frank to allow corporations to offshore their tax addresses is not logical...Buzz click.

Nobodys Home's picture

House and senate are filled with robots already. They're programmed by money from varied interests against citizens.

AE911Truth's picture

Government should be replaced with Open Source coded robots, so the public can see everything they do.

Miffed Microbiologist's picture

Robots do take extensive breaks. I had one DNA/ RNA extractor down for 3 days due to a bad sensor. Thank goodness it wasn't back ordered. We have had to buy two because of all the down time. Quite a capital investment.

Miffed

Nobodys Home's picture

Survey SAYS...Audit the Fed and revoke it's charter.
ding ding ding ding!!!!!!

pelican's picture

Replace all those fast food goons. Most of them cannot show up to work with halfway acceptable hygiene. Not to mention 50% of the time they get your order wrong.

Dave Thomas's picture

Exactly, coding a robot to drive in traffic without killing anyone, or flipping a bedridden patient without hurting them is infinitely harder than having them make decisions on things like Tax code and accounting.

I'd be a bit more scared if I was a CPA or Lawyer lol.

Benjamin123's picture

What we need is a google of Law.

Zarbo's picture

Talked to a local fast-food manager about the kiosk that wasn't working.  He mentioned that their company is considering moving their drive-thru service to Guatemala.  Nice.  Language barrier (except to kitchen) and one backhoe can put you out of business. 

AGuy's picture

Self-checkout at most retail stores works pretty well. Even Walmart has them, and if Walmart shoppers can use them, than fast-food cashiers are doomed.

daveO's picture

Self checkout is far superior to order takers overseas. I've noticed that the smarter looking shoppers are the ones who use the self checkout at WMT. You know, the ones who have decent credit(pay w/ credit cards) and wash their clothes regularly.

Bad Attitude's picture

No, the Walmart self-checkout doesn't work all that well - and I've got decent credit, wash my clothes regularly, and have an engineering degree and a JD degree. They only work well if they are properly maintained and programmed, which is not how Walmart chooses to do business. It is far too easy to trigger a fault that requires Walmart employee intervention, such as a light-weight item not registering, trying to arrange things in a bag triggering an unknown-item-in-bag fault, long delays between the time the item is scanned and its information is available to the kiosk causing an unknown-item-in-bag fault, or an item's weight not matching the inventory weight. Further, Walmart employee intervention is required when buying any of a large and growing number of items requiring the purchaser to be of some minimum age. 

Forward (over the cliff)!

Nobodys Home's picture

I hate those things! They also make it easier to go cashless, which I am against. Besides the destruction of jobs they also engender the lack of human communication.
My neighbor makes a walmart run almost every night. I go with him as he's my buddy and I usually buy something. I usually pick up buckshot etc. and toilet paper (I have a stash) and peruse the marked down meat. The store employees know us and we banter and tease back and forth. So, even in a large dehumanizing place like that there can be a human connection. I'm not proud of my forays to wally world. I try to buy local and support my community. Those self checkouts suck! Can't buy beer through those without a human anyway!

So they need one over 18 human man/woman/transgender to monitor the work of what was once multiple cashiers...there's at least 6 self checkouts...I hate those fvcking things!

Whatchamacallit's picture

Do you hear, folks? We're worth NOTHING to Them. Not even $15/hour. 

techpriest's picture

"Them" is a guy who put aside $10-15k a year in savings for 20-30 years and decided to take a big chance on opening a restaurant or buying a franchise?

Shit, I have just one part-time contractor and have enough trouble trying to make payroll and coming up with enough hours to make sure he gets rent and groceries every month. And if you hire someone, you find out very quickly that your employee's rent/mortgage, food, car, etc. become your problem as much as his, because your name is on the paycheck.

DFCtomm's picture

It takes a special kind of person to be a small business owner, and I salute you. Me personally I don't need the headache. I'll just toil in someone else's field and then walk away at the end of the day. Here is something you might suggest, to all those who wish to share in your success but not your failure. See if they will secure part of your debt, in case the business goes under, as a term of employment.

techpriest's picture

I have zero debt in my business, and plan to stay self-funded. I have to admit I was tempted the time that my one contractor was about to get evicted and he absolutely needed his invoice paid BY NOON, and since I was working at a regular job I had to make up an excuse for an early lunch to run the check over. Good times.

That said, if you read Dave Ramsey's EntreLeadership, he talks about how every employee has a certain amount of their pay based on company profitability. He wants to make it 100%, but jobs are a trade of more security in exchange for lower reward, and (un)surprisingly, many of his workers, esp. administrators, want the security more than the profit bonus.

If you want the profits, start your own company or join a startup that pays you in equity only. I know people who did the latter, you can make an annual salary every month, but most do not have the stomach for consecutive 80-hour weeks with no pay for 2-3 years in the hopes that it works out.

JoeTurner's picture

Land, labor and capital are 3 interconnected forces tied together, fundamentally, by monetary policy. They tend to find equilibrium when allowed to operate freely but will become imbalanced when monetary policy is corrupted.

MEFOBILLS's picture

Land, labor and capital are 3 interconnected forces tied together

 

No.  Land, Labor and Capital are three modes of production.  Money is part of capital.

The fourth mode of production is government, when it spends on inelastic modes and infrastructure.  This then lowers COSTS to do business.  The first economist to understand this was Simon Patten.

Money serves as demand in the now.  It serves as latent demand when saved.  Money divides down at the moment of transaction to allow debts and credits to erase.  For example, you are at the supermarket and pick up an item.  You are now a goods debtor.  You discharge your debt at the cashier when you transact the price.

There is fiscal policy and monetary policy.  Monetary policy cannot be differentiated from fiscal (taxation) as they are flip sides of the same thing.


Megaton Jim's picture
When Low-Wage Workers Are Better Than Robots..........when they're not black!
lester1's picture

When I was 16, I worked at McDonalds along with several of my other of my classmates. That was in 1997. We had a blast and learned a lot.

 

Today that same McDonalds is loaded with Illegal immigrants who can barely speak English .

 

Sad. :(

Nobodys Home's picture

Hey esse! Come work with us at Mickie D's. Is a blast homes! Conchita bled into a beeg mac. The gringo loved it! It was so funee!

MEFOBILLS's picture

Today that same McDonalds is loaded with Illegal immigrants who can barely speak English

 

Import moar, it makes the world vibrant and coloful! Dindu's everwhere, yeah! A mises libertarian-tard such as the author of this piece, wants to have open borders.  Their world view is all about giving creditors the upper hand.  This upper hand means dropping the price of labor by importing turd worlders.  In reality, it is price shifting, as the turd world consumes in the form of burdens on education, medical, and other structures paid for by middle class taxes.  

It is all about wage abritrage, as if money prices were the only thing that matters.  Before there was a money economy, people only concerned themselves with credits and debts.  These credits and debts had a price, something like Maria gives a good blow job for Mark to install her new window.

There was none of this mind warping Mises BS being spewed around, as economies were based on favors and barters.

jm's picture

Robots don't put snot on your Big Mac.

orangegeek's picture

...and they won't jerk off on your quarter pounder either

Nobodys Home's picture

Protein is protein. At least it's better than sawdust. I ain't no sperm drinker but I like a good Bang for my buck.
I want a Donald burger with real protein. What's the difference between pink slime and dink slime :)

MEFOBILLS's picture

It's not just about McDonalds.

Robots and smart machines will be everywhere.  They will replace pharmacists.  They will be able to do haircuts.  

We are talking about smart machines that have vision and advanced programming.  The vision can be so good as to pick and place tiny screws, such as that used on cell phones. 

Also, cost of making the robots is coming down. Why?  It is pretty much the same thing over and over.  The same servo motors, the same control boards, the same cameras.  It has become modular to design.  Complexity is now in software.