Big unemployment numbers despite loads of job openings … how this is accelerating the Technochasm … what to do about it in your portfolio
In October, the number of unfilled jobs clocked in at 10.4 million. Meanwhile, there are 7.4 million unemployed workers.
At first blush, this is a head-scratcher…
With more open jobs than jobseekers, why aren’t we at full employment?
Obviously, with 7.4 million people in question, there are variety of reasons for the unwillingness to take open positions, so there’s no definitive takeaway.
However, here’s a broad perspective from The Washington Post:
American workers are increasingly seeking higher pay, more flexibility, and remote options as they flex their leverage in the current job market, but many companies are not necessarily being more accommodative, continuing to favor candidates with several years of experience in their industry, more availability to work evening or weekend hours, or a preference for those willing to work in-person.
Labor economist Aaron Sojourner recently built on the “higher pay” aspect of this argument, asking “why aren’t companies bidding up wages and working conditions fast enough to pull people off the sidelines?”
Well, many are.
From CNBC:
Wages have risen more than $1 an hour, or 4.5%, in the past year across all private-sector jobs, according to the Bureau of Labor Statistics.
Some sectors are up more — leisure and hospitality pay is up 11%, to $18.95 an hour, for example. The Bureau attributes the upward pressure on earnings to a rising demand for labor.
As one example, Starbucks announced that all hourly pay workers will make an average of nearly $17 an hour by this summer.
And this comes after the coffee giant has already increased wages throughout the pandemic.
From USA Today:
Including wage and benefit increases throughout the pandemic, the company estimates the increases total “approximately $1 billion in incremental investments in annual wages and benefits over the last two years.”
Sojourner counters this type of wage increase by saying that corporate profits are up more than wages over the past two years, so this indicates employers have room to raise pay further.
Both sides have their points, but the end of the day, it’s simple…
There’s a disconnect between what jobseekers want and what employers are willing to give, resulting in a “who will blink first?” impasse.
The odds don’t favor the jobseekers…
***Employers are increasingly solving their labor shortages by turning to technology
The Washington Post quote above referenced workers flexing their “leverage.”
It appears there’s a limit to this leverage – and it’s basically the line at which robotics can get the job done cheaper and/or easier with greater consistency.
More companies than ever are reaching this line.
From The Wall Street Journal last week:
Robotics orders by North American companies are on track for their biggest year, according to an industry group.
Total robotics sales for the first nine months of the year were $1.48 billion, topping a previous record of $1.47 billion set over the same period in 2017, according to the Association for Advancing Automation, or A3. Sales rose from $1.09 billion in the first nine months of last year.
A3’s data look at industrial robots, which often are used for assembling parts or transporting heavy materials in production settings, according to the association.
“With labor shortages throughout manufacturing, logistics and virtually every industry, companies of all sizes are increasingly turning to robotics and automation to stay productive and competitive,” A3 President Jeff Burnstein said.
In prior Digests, we’ve provided many examples of this increasingly robotic workforce…
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.
It’s happening across all industries and sectors.
***We’re witnessing an acceleration of the Technochasm
Regular Digest readers recognize this term.
It describes the vast, and growing, wealth divide in our world that’s being fueled, in part, by huge profits from tech companies. These profits are flowing from the masses to a relatively small group of key tech employees and tech investors.
To a bottom-line oriented CEO focused on profits, what do you think he/she is going to do when facing substantially-higher wage costs – while inflation is jacking up production costs?
You turn to a robotic workforce.
Even the current tax structure incentivizes this transition.
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 with obligations to shareholders, which option is more attractive?
***So, how do we respond as investors?
For that answer, let’s turn to Eric.
He begins by spotlighting how not all businesses and sectors are structured to adapt to a technological innovation, in this case, a robotic workforce:
A low-tech company operating in the midst of rapid technologic innovation is like a human being swimming in the open ocean.
No matter how well that human might be able to muscle through the giant swells, a cruise ship can do it better… and faster… and more securely – while also serving up chardonnay and sushi…
But integrating new technology is hard work, especially if you’re a big, fat, happy U.S. corporation that has enjoyed decades of success.
Often, the stewards of such corporations fail to recognize the competitive perils they face… and, therefore, fail to adapt quickly enough to save themselves.
Many great success stories later become infamous failure stories because they failed to innovate. As a result, they shuffled off into irrelevance and bankruptcy.
Eric goes on to provide a long list of companies that succumbed to this fate. Think Compaq, Polaroid, Blockbuster, Kodak, Hertz…
Given this “corporate Darwinism,” so to speak, appropriate portfolio positioning takes on two dimensions: offense and defense.
As to “offense,” it means giving your portfolio exposure to elite tech stocks that are responding well to the challenges of today’s economy – something Eric has been urging for months and doing in his model portfolios.
For “defense,” it means performing a cross-examination of all the stocks in your portfolio. How nimble are they in responding to wage and inflation pressures? To what degree are they adapting to accelerating pace of technological changes?
Both offensive and defensive strategies are necessary to navigate the Technochasm today.
Eric has put together a free research video that dives into this in greater detail. To watch, just click 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 complement our human workforce. Innovation creates new employment opportunities. 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 and robots, 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
