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The Endpoint of Automation

For companies, it’s just a question of money.

by James Murray

Wolf Street (September 27 2016)

Earlier this year, Citi Global Perspectives & Solutions came out with a report on what computerization and automation in the US will do to jobs. It built on a study that Oxford University had produced in 2013. By looking at 702 detailed occupations, it found that about 47% of all jobs would disappear over the next ten to fifteen years.

There are certain things that you have to understand. About 53% of the jobs will not disappear, and no job on the list will disappear totally. Some jobs will lose a lot of people, some jobs almost no people, which makes good logical sense.

For example, furriers (people who shoe horses) are still in demand. Not nearly as many as 100 years ago, but there is still a need for furriers.

When companies look at automation, they use a simple formula. You take the initial cost, add in interest to borrow the money, add in the cost of maintenance, and divide by the number of hours of useful life. That gives you a cost per hour.

Then you look at the cost of a human (or humans) per hour to do the same job with all the perks, and compare the two numbers. The lower number wins.

The calculation varies due to a lot of factors. If you have an enormous bank that fields 1000s of phone calls per hour 24/7, the amount of money you can invest and save with an automated voice system is a lot different from a small company with seven employees that is open eight hours a day, five days a week and receives twenty phone calls a day, and they may not automate their phone system.

The problem comes in the mid-sized companies. Suppose that you have a mid-sized company and run the calculation and the numbers come up equal. You will probably do nothing. But, you can expect automation to get cheaper and labor costs to increase, so at some point, automation makes financial sense.

About fifteen years ago, a “basic” home computer system cost around $600 to $1000. Today, you can buy a basic system for half that amount but instead of an eighty-gigabyte hard drive, it comes with a one-terabyte hard drive, the CPU is five times faster and has four times the memory. In another fifteen years, who knows?

I expect that in fifteen years, you will not be able to buy a “desktop” as we know it today. Already sales of desktops are dropping like a rock, losing out to tablets, smart phones, et cetera.

The social implications of this are awesome to contemplate. Suppose that I have a company with ten people and automate them out of a job. They are gone and no longer my problem. But the government now has ten unemployed people to deal with. If they don’t find another job, they are now wards of the state. The government cannot just box those ten people up and ship them off somewhere.

Companies are going to keep automating anytime the numbers work in automation’s favor. The engineers of the world are going to keep coming up with new automation products to replace people. The price of automation will keep dropping.

The politicians keep saying they will “create jobs and grow the economy”, but are they talking about human jobs or automated jobs?

What happens when there are no jobs for a large portion of humans? How is that going to work? I’m sure that somewhere some very smart people are looking at this problem, but I don’t see any evidence that this is happening. Maybe they just don’t have a solution.

I’ve seen articles where some dreamer is saying that people will only work twenty hours a week and have all that free time for hobbies, education et cetera. If people are having trouble making ends meet working forty hours a week, how will they manage on twenty hours a week?

I’ve also seen a “basic income” scheme floated where everyone gets a monthly check. I’m all for free money, but where is the money going to come from? Certainly not from those people working twenty hours a week.

Technically, I can’t think of any job that can’t be automated eventually, provided you are willing to invest enough money into the project. The thing that keeps humans employed today is not that automation can’t do their job; it is that humans can do it cheaper. With the falling price of automation, that may not last very much longer. Then what happens?

_____

The impact on wages? There have been plenty of signs. And the fate of the consumption-based US economy? Not good. Read …  “Negative Growth” of Real Wages is Normal for Much of the Workforce, and Getting Worse: New York Fed

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http://wolfstreet.com/2016/09/27/endpoint-of-automation-computerization/

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