Technology continues to displace workers… will jobs losses be as bad as some think?… why investors in technology win whatever the outcome
For 23 years, it was the same routine…
Tollbooth operator, Larry Collins, would greet drivers on the Carquinez Bridge in the San Fransico Bay area… perhaps make change as he collected the toll… maybe offer directions… rinse and repeat.
In March of 2020, as Covid-19 cases exploded, that routine ended.
Collins was told not to come in to work the next day. For health safety reasons, the tollbooths were closing. Instead, technology was taking over the job.
In this case, FasTrak tags mounted on windshields would enable drivers to pay bills automatically.
And though our society is battling back to some semblance of normalcy today, Larry’s tollbooth job is gone forever. In fact, all seven of the Bay Area’s state-owned bridges have permanently transitioned to all-electronic tolling.
This was hardly an isolated incident of the pandemic accelerating a shift to an automated workforce.
Last spring, we reported how clothing retailer Gap was speeding up its rollout of warehouse robots for assembling online orders so it could reduce human contact.
The goal? To more than triple the number of item-picking robots it uses in its warehouses. Each machine handles work typically performed by four people.
Then there was Tyson Foods.
Covid-19 infections of more than 17,300 meat and poultry processing workers in 29 different states led to supply-chain slowdown last year. In response, Tyson accelerated its focus on robots.
Here’s how the Wall Street Journal described it:
The work at Tyson’s Manufacturing Automation Center, which opened in August 2019, is speeding the shift from human meat cutters to robotic butchers.
Over the past three years, Tyson has invested about $500 million in technology and automation.
Chief Executive Noel White said those efforts likely would increase in the aftermath of the pandemic.
A McKinsey Global Institute study, as reported by Bloomberg Quint, notes “COVID-19 could accelerate some of the displacement once projected to take 10 years.”
***Machines replacing human jobs isn’t new – what might be new are the fewer jobs that will be available to replace the ones we’re losing
Some people hear “robots are taking our jobs” and dismiss it.
The reason often cited is agriculture. in the 1800s, about 80% of the U.S. labor force worked on farms. But as new technologies replaced laborers, this percentage plummeted.
And did it destroy the labor force?
Clearly not. Those workers found jobs as the Industrial Revolution transformed our economy. Meanwhile, the costs of farming dropped as its efficiencies climbed. It was a net win for everyone.
Some people point toward this and say, “See? Nothing to worry about.”
But there’s a difference between what happened then and what’s happening now.
When automation replaced the agrarian working population, those workers were able to retrain and find employment in other sectors. The difference today is that there are few sectors in which jobs can’t be automated or done by robots.
Robots are now cleaning the floors at airports… “Sally,” a salad-making robot has replaced dining-hall employees at hospitals and universities… robotic security guards from Knightscope patrol malls… call centers once filled with humans now use tech companies, LivePerson or Watson Assist… robots are now reviewing commercial-loan agreements… A.I. DJs can play songs just as well as human DJs… and transcription services are getting the boot as AI-based transcribers take over at a fraction of the cost.
Now, yes, these are more of the mundane, repetitive jobs, but that’s changing too. Though I hesitate to include this one, robots are even taking over some writing jobs.
From Financial Times:
Robots are being let loose to write investment reports for Morningstar, the research house that helps investors choose among thousands of mutual and exchange traded funds for saving and retirement.
See if you can tell the difference.
Below are four Morningstar quotes. Which ones are written by humans, and which ones are from computer generated research reports?
1 — “One of three managers has left, but Pimco Total Return still offers a manager juggernaut and a battle-tested process.”
2 — “Increased confidence in Strategic Advisers Large Cap’s management team is the primary driver of this share class’ rating upgrade to a Morningstar quantitative rating of silver from bronze.”
3 — “Management turnover at Janus Henderson Balanced reduces conviction in the execution of its process, warranting a downgrade of its Morningstar analyst rating to neutral from bronze across all share classes.”
4 — “T Rowe Price US Equity Research’s notable investment process and strong portfolio-management team underpin this share class’ Morningstar quantitative rating of gold.”
Two and four are your robot-authors.
Moving beyond operational efficiencies, the tax-structure incentivizes companies to ditch employees in favor of robots.
Consider that a business paying a human worker $100 is on the hook for about $30 in associated taxes. But a business that spends $100 on robotic replacement equipment pays about $3 in taxes.
If you’re a CEO, which option is more attractive?
***But let’s say we’re totally wrong, and robots merely augment human workers, leading to new jobs
There’s an argument for this. The classic example is automated teller machines (ATMs).
When ATMs were introduced in 1969, the popular belief was it would kill banking jobs. What actually happened is the cost-effectiveness of ATMs enabled banks to open up far more locations, leading to vastly greater banking jobs.
But let’s transition to the real point in all of this…
If robots replace human jobs, what is the end result?
Well, a cheaper labor force, which means more profits for the company employing the robots.
If robots merely augment the labor pool, enabling greater productivity and/or expansion for the company as the human workers take on new roles, what is the end result?
Greater revenues/profits for the company benefiting from this robot-inspired growth.
Either way, the companies investing in next-gen technologies that create new efficiencies win…and will do so with fewer employees relative to profits.
We’ve already seen this.
In 1964, the most valuable company in the U.S. was AT&T. It had 758,611 employees.
Today, Apple is the most valuable company in the U.S. It only has around 137,000 employees – just 18% of AT&T’s amount.
From Time:
Though today’s big companies make billions of dollars, they share that income with fewer employees, and more of their profit goes to shareholders.
“Look at the business model of Google, Facebook, Netflix. They’re not in the business of creating new tasks for humans,” says Daron Acemoglu, an MIT economist who studies automation and jobs.
***Regular Digest readers are well-aware of this dynamic – it’s something we call the Technochasm
That’s the term coined by our macro specialist, Eric Fry, to describe the sharp, and growing, wealth divide in our world.
Though the foundation of this wealth-divide is complex and multivariate, in recent years, the divide has grown even wider thanks to one thing…
Technology.
On one hand, cutting-edge tech products are simplifying our lives, making them far more convenient. This is why Americans are happy to continue opening their wallets for tech, even those who aren’t necessarily earning high incomes.
On the other hand, all of these consumer dollars flowing toward tech companies reduces to one thing…
A wealth transfer.
It’s from the masses… to a select group of technology business owners, key employees, and investors.
And despite well-intentioned efforts by politicians, it’s not going away.
So, you have a choice – recognize this shift and use it to your advantage…or be one of the millions left in its wake.
If you missed it, Eric recently sat down with legendary investor, Louis Navellier, during an event called the Tech Supercycle Summit. They discussed the Technochasm and its impact on the stock market and investors.
From Eric:
Many of you have watched my first video about the Technochasm on YouTube. It has been viewed nearly 20 MILLION times! That first video was about helping regular folks gain knowledge – and to protect them from ending up on the wrong side of the gap.
But the Tech Supercycle Summit is all about opportunity.
In the video, I reveal how you can capitalize on the Technochasm…
If you’re going to survive and thrive in the markets in the 2020s, you must be invested in tech, and ideally in the fastest growing, most highly disruptive, and most profitable tech companies that are available in the market today.
This free replay is still available for now. You can check it out by clicking here.
***Wrapping up, it’s going to be fascinating to watch how technological advancements impact our labor force in the coming years
On the dystopian end of the spectrum, there’s the potential for mass unemployment as an army of robots powers our economy…reaping the benefits for a select few technology companies.
On the more hopeful end of the spectrum, our economy integrates robots and they merely complement our human workforce. But even then, the primary beneficiaries will be the companies utilizing these technologies.
Either way, it becomes critical that investors make sure their portfolios are full of the companies that will benefit from tech, rather than formerly-great companies that don’t adapt.
On that note, I’ll give Eric the final word:
You can either take this information and leverage it to increase the worth of your portfolio… or you can do nothing and potentially watch your stocks struggle as they become the Technochasm’s latest victims.
Have a good evening,
Jeff Remsburg
