Labor Day In The Age of Industry 4.0

Labor Day became a federal holiday in 1894 after President Grover Cleveland signed new Labor legislation into law. This was at the height of the Industrial Revolution, when many workers put in 12 hour days, sometimes 7 days a week. Children, some as young as 5, worked in mills, factories, and mines across the country.

The idea of a "workman's holiday" started in the 1880's after a series of violent labor strikes. On September 5, 1882, an estimated 10,000 workers marched in New York City holding what many historians called the first "Labor Day Parade." It was only after the deadly Pullman Car strikes in 1894, when federal troops killed several strikers did Congress move to make Labor Day an official holiday. Today, most of us enjoy the day by hanging out with family and friends at the pool, or going to the lake, or kicking back at home. We sometimes forget why we have this day and how many actually died to finally get the recognition of those that made the United States the economic power it is today. We never seem to have a problem on Memorial Day or Veterans Day on what we are celebrating and reflecting on and who we should pay our respect to.

In 2020 maybe that changed a bit. We have a lot of "essential workers" to thank. If anything, this year has shown how important many industries and their employees are to us as a country. It has also exposed weaknesses in our supply chains and the need to make significant changes moving forward in a post-COVID world. So for Labor Day 2020, let's take a look at what is needed to help the American Worker today and in the future.

Workers in the Fourth Industrial Revolution

In the age of Robotics, AI, and Mass Automation, many people openly question if there is even a future for the American Worker. A recent MIT study showed that between 1987-2016, automation displaced 16% of the workforce, while only creating replacement positions for 10% of the workforce. MIT economist Daron Acemoglu, co-author of the study stated, “A lot of the new job opportunities that technology brought from the 1960s to the 1980s benefitted low-skill workers, but from the 1980s, and especially in the 1990s and 2000s, there’s a double whammy for low-skill workers: They’re hurt by displacement, and the new tasks that are coming, are coming slower and benefiting high-skill workers.”

Many use the MIT study as proof that the deployment of robotics and automation only hurt workers. However, in another study done by Acemoglu found that firms that did deploy robots over time ended up hiring more employees. Why? Because they were able to grow their market share through their investment in automation thus grabbing more share of the industry. In turn, they hired more people. The study of French manufacturers stated the following:

"The firms that did add robots to their manufacturing processes became more productive and profitable, and the use of automation lowered their labor share — the part of their income going to workers — between roughly 4 and 6 percentage points. However, because their investments in technology fueled more growth and more market share, they added more workers overall.

By contrast, the firms that did not add robots saw no change in the labor share, and for every 10 percentage point increase in robot adoption by their competitors, these firms saw their own employment drop 2.5 percent. Essentially, the firms not investing in technology were losing ground to their competitors."

So what is it? Do robots create or destroy jobs? For economists like Acemoglu, robots still destroy jobs. Just because some firms grow through automation, the overall impact is still fewer workers are needed. However, Acemoglu and others leave out one critical external factor in their calculations - the coming Silver Tsunami.

The Shrinking Labor Pool

It has long been recognized that by 2020, the number of potential workers would continue to shrink as the Baby Boomer generation (born between 1946 and 1964) retired out of the workforce. From the chart to the right, the annual births per 1000 in the United States continues to drop and will never replace the huge Baby Boomer generation. In 2020, the average age for a US Worker was 42.8, in 2010 it was 41.7, in 2000 it was 39.3. This "Silver Tsunami" as it has been coined by many is going to leave employers scrambling, because even in retirement Baby Boomers will still be consumers of goods and services. But who will provide those goods and services?

In the previously mentioned MIT study, it was stated that for every robot installed that 3.3 jobs were eliminated. However, the question that should really be asked is how many open positions will there be as Baby Boomers exit the workforce either through retirement or death. According to the Bureau of Labor Statistics, 28.7% of the US population in 2020 will be over the age of 55, this includes the entire Baby Boomer generation. If you were an employer and a huge part of your workforce could exit at any time in the coming days, what would you be doing to address that? You would probably start looking to hire replacements, but there is the rub - THERE IS NO ONE TO HIRE!!!

For months, people like myself have stated that we are not going to be able to hire our way out of the coming lack of people to employ. In 2019, the US population growth rate was the lowest in a century. The difference between birth and death rates was less than a million people and immigration numbers continue to decline. So where will employers find the "laborers" to replace those leaving the workforce through aging out? Once again, robotics and automation is going to be the only answer. If not, we will not be able to maintain the same economy output. Like our population growth stalling out, so will our economy.

COVID, Automation, and the Reshoring of Jobs

Before the pandemic, there was already some movement in some jobs returning to the United States via "Reshoring." However, the pandemic definitively sped that movement up as companies (and governments) realized how fragile their supply chains had become over decades of offshoring critical items. Now companies are bring their manufacturing back to be closer to home. They are doing this not only to be better prepared for future shocks, but thanks to advances in automation, they can do the work back here in a more economically favorable way.

A recent report by Bank of America found that reshoring is not only happening, but appears to be accelerating now as the price of robotics and automation continue to drop. Candace Browning, Head of BofA Global Research made the following statement:

What really did surprise us was the number of companies, particularly in North America and Asia, that intend to “reshore” supply chains to their own country or region. Firms in almost all industries plan to make the transition work using robots and automation. Our forecast that industrial robots will double to 5 million units by 2025 may be conservative—and the cost of automation and robots keeps going down.

So what is the future of the American Worker if robots and automation are going to do all this work? They are still needed, because someone needs to still take care of those robots and automation. The same Bank of America study found that every manufacturing job reshored has the potential to create up to 6 other jobs indirectly. So even though we may indeed need fewer people to run a modern day manufacturing floor, those jobs still create other jobs.

Time To Invest In The American Worker

So to recap everything we have discussed:

• Even though robotics and automation can displace workers, companies that invest in robotics and automation have been able to grow their market share and in time hire more people.
• The exit of the Baby Boomer from the US Workforce is going to create numerous openings for new entrants. However, there will still not be enough people to hire, therefore calling for more robotics and automation to fill the gap.
• US Businesses are reshoring more jobs to strengthen there supply chains and lower their costs using robotics and automation.

Do you see a theme there? Robotics and Automation is where all of this is going. So we as a country need to look at how we can prepare the American Worker to use robotics and automation to its fullest and make themselves the most productive worker in the world. There needs to be significant public and private investment in workforce development programs that work that allow the workers to build new skills, especially in the area of robotics and automation. We as a country also need to take on the mentality that our own personal development does not end when someone hands us a diploma. Lifetime learning needs to become the new norm. We need to continue to grow our own skills to adapt to changes in technology. We cannot fall into the category of being "low skilled." We all need to have a certain amount of high skills on our resume at all times.

A recent training partnership between READY Robotics and the Eastern Kentucky Advanced Manufacturing Institute was able to take a group of students with zero experience using robotics to "Lights Out" manufacturing runs in less than 15 days. So we know that the American Worker can be trained to use these automation technologies and run with them. It now comes down to business and political leaders to make the investment in similar programs so we can build the Super American Worker that will be needed now and in the future.

Robotics and Automation is only going to work if we have people that can make that technology work to their fullest. That cannot be done if we don't invest in that training. Just like how in the past we fought for a 5 day work week and safe work environments. Now we need to fight for more workforce training programs that allow the American Worker to remain the most valuable asset we have in our economy.