Low Wages Forever? The Dark Side of Automation

The toasty smell of coffee beans, a frothy beverage and a smiling barista are features of many people’s morning rituals.

It’s one of those sacred human customs that incorporates trade, friendly interaction and universal desire. In this case, it’s the addictive caffeine buzz that coffee brings.

So how would you feel if your favourite barista at your local coffee haunt was replaced by a cold, stainless steel robotic arm?

One that can whip up 120 drinks an hour, rarely makes mistakes, and charges you less than usual for your favourite beverage.

This is exactly the kind of automation that various US cafes like Intelligentsia, Ritual, and Equator are employing. In place of human staff, the robot barista developed by the technology company Café X, costs a one-time fee of $33,500.

Considering a café worker is generally paid upwards of $40,000 a year, this is an investment that drastically cuts down operating costs.

It’s also vastly more efficient, removes any inconsistencies in quality and will never ask for penalty rates or annual leave.

MAMW 25-05-2018

Source: Café X
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Watching videos of the robot’s operation, it’s almost a surprise that no one thought of this sooner. Yes, you would lose the small talk, the human touch. But when it comes to business operation, the hospitality sector stands to save billions.

Investors such as Jason Calacanis, who have supplied Café X with US$7 million in funding, are strong proponents of this view:

The idea of humans making coffee for 10 hours a day is as crazy in 2018 as a tollbooth collector sitting in a metal box on a freeway.

But while that may be true, there still remains the question of where those redundant humans would go.

The future of work

The International Monetary Fund (IMF) recently released a research paper which examined this very dilemma.

They looked at what would happen to wages and employment in economies with varying degrees of automation — ranging from modestly integrated automation, to scenarios where traditional technology is completely replaced.

To summarise, shattered are the ideals of automation removing the need for tedious work and allowing us all to prosper. It looks as if the future will be much more dystopian.

IMF’s management consultant, Warren Bennis, summed up the tone of the report in his bleak prediction:

The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.

The report went on to predict that the economy could react in two ways. It could respond with fervent optimism, adapting to the newly automated industries and growing exponentially. Or, as the IMF believes, it could descend ‘into a death spiral of perpetual contraction’.

This scenario is likely to occur if automation replaces jobs which require unskilled labour. This would result in wages decreasing dramatically both in the short and long term.

The IMF predicts that skilled wages could increase from 56 to 157 percent in the long run due to the positions becoming highly sought after and increasingly competitive.

But in contrast, unskilled wages could drop from 26 to 56 percent. Mainly because, to attain those entry level jobs, you would have to prove that you can work faster, harder and better than a robot can. Which, obviously, is easier said than done.

As the paper confirmed:

The magnitude of the worsening in inequality is horrific.’

And with investment advisory firm Cornerstone Capital Group predicting that between 6 to 7.5 million retail jobs could become automated in the coming years, this is no longer a dilemma confined to the realm of science fiction.

If these issues are not addressed, we could be left with a host of stranded workers. And certain jobs could keep wages low for the entire working lives of some employees. 

In discussing these questions, the Industrial Revolution is a good historical precedent to look at. Not only was it the largest production shift in economic history, but many parallels can be drawn between the issues that were confronted then, and those that we are facing now.

That said, we are truly entering the realm of the unknown when it comes to automation. Nobody knows what the world will look like in 2035, or 2050. And technology experts and economists alike are fumbling in the dark, trying to predict whether automation will only threaten unskilled labour, or if all sectors will be affected.

These are questions that will need to be addressed sooner rather than later, to avoid a crisis in wages and unemployment. But looking forward as investors, it’s not all gloom and doom.

After standing back and assessing the revolution that is about to take place, there is clearly a wealth of opportunities available to early investors. Opportunities which we cover extensively in our new publication, Wealth Eruption. So if you’re interested in automation, tech and the like, you can access the latest investment goldmines recommended by our very own Harje Ronngard, right here.

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Until next week,

Katie Johnson,

Editor, Markets & Money

Katherine Johnson, usually going by just ‘Katie’, is a member of Port Phillip Publishing’s editorial team, as well as the Editor of the Saturday edition of Markets & Money. Katie works with all of your editors to maintain the quality of their research and analysis. In her Saturday Markets & Money articles she specialises in cryptocurrency and technology stories, and brings you a recap of the week from your other Markets and Money editors.

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