A Blog by Jonathan Low


Feb 28, 2020

So Where Are the Robots?

The fear of automation creating a society in which there is not enough work for the human population appears to have been overblown.

Declines in easily automated blue collar jobs, the relative growth of white collar jobs more susceptible to AI-driven solutions than repetitive tasks as well as workforce incentives and algorithmic productivity schemes has meant that it may be less expensive to hire, retain and retrain humans than to invest in more technology.

That said, this may be a breathing period which will eventually lead to more automation of white collar tasks. JL

Gad Levanon and colleagues report in MIT Sloan Management Review:

Today, the fear of massive job loss caused by robots needs a reality check. Labor productivity growth, a measure highly correlated with automation, has significantly slowed between 2010 and 2019. This stagnation and the coincident slowdown in the offshoring of production jobs have spurred a hiring surge, resulting in the fastest employment growth since the 1970s.
Following the Great Recession, anxiety intensified over the prospect of automation causing permanent, widespread unemployment. Feeding on public alarm, a large number of studies assessed the likely impact of future automation on jobs. Although some touted the potential for job creation, others predicted catastrophic job loss.
Today, after more than a decade of continuous U.S. economic expansion, the fear of automation remains entrenched in the country’s psyche, dominating public discussions and political debates. The Pew Research Center found that 65% of Americans expect that, in the coming decades, robots and computers will do much of the work currently done by humans. Prominent figures like Elon Musk have echoed these sentiments, claiming that robots will outperform humans at every task and inflict widespread job loss.
The fear is not baseless. Advancements in AI technology have eliminated many routine office and administrative jobs. And from 1990 to 2010, in particular, technology replaced millions of jobs, especially in manufacturing, with devastating implications for workers, families, and communities.
Today, the fear of massive job loss caused by robots needs a reality check. Labor productivity growth, a measure highly correlated with automation, has significantly slowed in recent years. Between 2010 and 2019, it grew less than 1% annually — a historically slow pace, and well below the 3% rate from 1995 to 2005. If productivity growth in the last decade is any guide to productivity growth in the next, then automation doomsdayers can breathe a sigh of relief.
Automation anxiety distracts from a genuine, pressing problem afflicting the U.S. economy today: a lack of workers at a time of resurgent blue-collar job growth. Blue-collar and manual service workers — the same groups automation forecasters view as most vulnerable — are currently experiencing one of the tightest labor markets ever.
While a boon for workers, such shortages have cost blue-collar industries significantly. In the manufacturing sector, for example, profits have plunged by 46% since their 2014 peak. A 2019 Conference Board survey of mostly HR leaders echoed this pain point: 38% of respondents from mostly blue-collar industries said labor shortages hurt their profitability, but just 8% from mostly white-collar industries said the same.

The Perfect Storm

The convergence of several trends has caused gaping labor shortages. First, amid the proliferation of retiring baby boomers — a trend that will continue through 2030 — the U.S. economy has experienced almost zero growth in its working-age population. This unprecedented scenario is the most significant factor distinguishing today’s era of shortages from past instances.
Adding to the challenge, the already small batch of new workforce entrants is largely opting for white-collar rather than blue-collar work. The number of working-age people with a bachelor’s degree is increasing by a healthy pace of about 2% per year, but the number of individuals without a bachelor’s degree — the likely blue-collar recruits — continues to shrink.
Also shrinking, compared with earlier decades, is the number of less-educated individuals who hold jobs at all. A marked increase in individuals without a four-year degree absent from the labor force due to disability, and in those who have the capacity to work but simply choose not to (especially young men lacking college degrees), has decreased participation in the labor force.

Challenges for Employers

A dwindling source of blue-collar and manual service workers would pose no problem amid declining demand. But demand for these workers continues to grow as manufacturing labor productivity has remained essentially flat since 2010. This stagnation and the coincident slowdown in the offshoring of production jobs have spurred a hiring surge in manufacturing, resulting in the sector’s fastest employment growth since the 1970s. The swell of e-commerce has also fueled robust demand for workers. From 2013 to 2018, for example, employment in the transportation and warehousing industries soared by over 20%, compared with 9% across the total economy.
As a result of shrinking supply and growing demand, labor markets are tighter for blue-collar workers than for highly educated workers in management and professional occupations — the exact opposite of the prevailing trend in recent decades. How are these trends translating into real-world pain points for employers?
Take hiring and retention: The perceived difficulty of hiring qualified workers is already at the highest level on record. Meanwhile, retention rates are declining due to increased employment opportunities. And voluntary quit rates are already higher than rates that preceded the Great Recession.
For jobs that do not require a college degree, rapidly accelerating wage growth has eclipsed prerecession rates. For first time in recorded history, in fact, wages for management and professional workers are growing significantly more slowly than the wages for all other workers.
Such wage acceleration also contributes to declines in profitability. Indeed, over the next few years, with U.S. economic growth projected to remain around 2% and labor shortages projected to increase, the downward pressure on corporate profits will likely intensify. If the current trend continues, profitability rates will soon drop to historic lows.

Plugging the Gaps

Amid these seismic shifts, how are companies grappling with shortages? To find out, The Conference Board surveyed HR leaders at more than 200 U.S. companies, from small firms to large multinational enterprises.
A key theme emerged from the results: Given the financial constraints companies face — namely, slower revenue growth and a tight labor market that is raising labor costs — employers must innovate to attract and retain workers. Increasing wages and salaries can undoubtedly help, but only to a point. We identified a number of emergent practices as key tools for addressing blue-collar shortages.
Companies hardest hit by shortages are making tactical changes to the recruitment process by enacting tactical HR solutions. Often, talent acquisition teams can implement these low-cost strategies with relative ease and little coordination with other departments.
Ramp up referrals. Although referral programs have generally been used to recruit white-collar occupations, 51% of blue-collar-heavy companies indicated that they had added or modified an employee referral program in response to labor shortages, compared with only 21% of white-collar-heavy companies. To complement its existing program for salaried workers, one energy company we surveyed introduced a cash bonus referral program at local plants.
Double down on social media. Increasing social media efforts ranked as the second most popular recruitment strategy among companies with mostly blue-collar workers (69%), behind increasing wages and salaries (79%). For example, to recruit electricians, loaders, and other blue-collar roles for the 2019 holiday season, Lowe’s promoted a walk-in hiring day on LinkedIn, registered candidates via Facebook, and hosted a Facebook Live event for those unable to attend.
Shorten the recruitment process. As 37% of blue-collar-heavy companies have experienced candidates ghosting interviews, some are responding by shortening the recruitment process by requiring people to return for fewer interviews.
Relax hiring criteria. Surveyed employers of mostly blue-collar workers were more willing to lower experience requirements and to accept alternate credentials than those of mostly white-collar workers. Companies most affected by labor shortages were also increasingly willing to lower skill and degree requirements. For example, several manufacturers we interviewed had eliminated high school degree requirements for certain entry-level production roles. One plastics manufacturer has gone so far as to create a lower-level machine operator position that doesn’t require a high school diploma, an operator certification, or even prior experience. Rather, candidates must display a strong technical ability and willingness to learn.
Extend recruitment outreach. The most affected companies were increasingly recruiting underserved populations, including women, minorities, veterans, the disabled, and immigrants. Of blue-collar-heavy companies, 55% ranked expanding the target recruitment demographic as a key tactic for plugging shortages, compared with just 30% of white-collar-heavy companies. Women are making strong inroads in traditionally male-dominated occupations, including transportation, material-moving, construction, and extraction. One surveyed trucking company offers “female-friendly” incentives by providing ergonomic seats in vehicles, altering routes to get female drivers — especially those with families — home more often, and paying for lodging so that drivers can avoid the perils of sleeping in truck rest stops.
Increase workplace flexibility. Policies that support flexible and remote work are generally associated with white-collar workers. But our survey results suggest that blue-collar employers are almost as likely as white-collar employers to increase work schedule flexibility. One surveyed manufacturer models its scheduling approach on those of hospitals and restaurants, allowing workers to pick their own schedules, including half shifts and floating start times. Another manufacturer found that anticipated bottlenecks in production from letting workers choose their own schedules never materialized. Instead, the added flexibility boosted morale and reduced absences.
Don’t overlook retention efforts. The effects of a tight labor market may be more obvious in recruiting than in labor turnover. As a result, some companies may be less proactive in retention efforts, which can prove shortsighted. In many cases, the cost of losing a good worker is many times larger than the cost of retaining that worker, especially during a period of elevated labor turnover and historic levels of pay compression. In our survey results, providing new incentives to retain older workers in full or partial capacity ranked as the least popular retention strategy. For most employers, retaining mature workers was a lower priority than we had expected, partly because of benefit costs and productivity concerns. But research shows that employers that offer jobs with flexible work schedules, reduced stress, and lower physical demands can increase their supply of workers age 70 and over by 10% to 15%.
In recent years, labor shortages have spurred historic improvements in the job and pay prospects of blue-collar and manual service workers. On the flip side, these widespread vacancies have become a barrier for further expansion in several industries. To surmount this challenge, companies can consider leveraging the tactical HR strategies described above.
At the same time, they should consider further leveraging automation as a means of boosting their labor productivity. But if the past decade of progress on this front — or rather, the lack thereof — provides a clue about the 2020s, it is that vast shortages of human workers pose the more pressing risk to America’s economy than unemployment caused by technology.


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