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Humans v. Robots: Who (or What) Is to Blame for Manufacturing Job Loss?

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Much has been discussed about the struggling manufacturing sector here in the United States, as several thousands are laid-off each year due to companies making fundamental changes to their operations.  The recent Presidential election highlighted much of these concerns in the states that are heavily dependent on the industrial sector.  States like Pennsylvania, Michigan, Ohio, and Wisconsin make up what is referred to as the “Rust Belt”, which are all states that have a significant number of blue collar workers.

In this year’s election, all of those states went to the Republican nominee Donald Trump, who has provided hope for those holding manufacturing jobs.  Mr. Trump has voiced that he would do everything he can to keep jobs from going oversees to countries like China and Mexico – two countries that attract companies primarily due to low wage requirements, lower regulatory burdens, and exchange rate advantages.

It is estimated that 2.4 million jobs were displaced in the manufacturing sector alone between 2001 and 2013 to China, according to the Economic Policy Institute.  During this period, all 50 states saw job losses, with over one-third of the total job loss originating in the computer and electronics industry.  Other manufacturing based industries also took a hit as apparel, textiles, metal products, equipment, and more saw thousands of jobs lost as a result of competitiveness with China.

One recent example is the air condition company Carrier that recently stated that it would be laying-off 1,400 workers in its Indianapolis plant and moving operations to Mexico. President-elect Trump and Vice-President Elect Pence negotiated with Carrier and was able to save 1,000 jobs from moving to Mexico. In return for the company to keep most of its jobs at the Indianapolis plant, the state of Indiana reportedly agreed to provide $7 million worth of subsidies over a ten-year period.

As described, manufacturing jobs have in fact gone overseas in the past and will probably continue to do so.  However, technology and automation is a very important factor that is frequently omitted from articles discussing manufacturing employment loss. Allow us to discuss why technology and automation in the manufacturing sector share a larger portion of the “blame” for joblessness in the volatile manufacturing sector.

Labor productivity growth is one statistic that we can mostly attribute to advancement in technology.  We analyze productivity growth by looking at potential employment to a specific time period’s productivity level.  Economists at Ball State University’s Center for Business and Economic Research did precisely this, by comparing 2010 employment at 2000 productivity levels.  The results determined that there would have been almost 21 million manufacturing workers in demand in 2000. However, during that year, employment only reached just over 12.1 million.  Outside of the estimations, we looked at the manufacturing sector’s real output compared to all employees in the manufacturing sector, and the data confirms that real output has increased despite declining employment in the sector.

Today, robots and machines are able to do almost the same work as a human, without sore backs and feet, lunch breaks, and at competitive costs.  This is resulting in increased demand for automation. It is estimated that growth in the installation of robots in manufacturing will increase by 10 percent annually in the next 10 years, as costs of maintaining robots continue to decrease and ultimately become cheaper than manual employment (hourly cost is estimated to be less than $20 by 2020, which is below the average human wage). Companies in North America have already started spending on industrial robots.  In 2009, over $500 million was spent on robotics in manufacturing and it reached nearly $2 billion in 2015. China has invested over $3 billion in 2015 on robots alone, which has also put into question China’s manufacturing sector.

Carrier, the company that Mr. Trump recently negotiated with to keep several jobs in Indiana, is already planning to invest in such technologically advanced machines by contributing $16 million in automating the manufacturing plant.  As a result, the CEO of United Technologies (the parent company of Carrier) explained that this will eventually result in fewer jobs at the plant. Therefore, the subsidies that will be issued to the company will help ease the transition to automated production instead of investments in its workforce.

Technology, not international trade, is primarily responsible for employment loss in manufacturing.  Specifically, 85 percent of the total employment loss is due to technology, and as productivity, real output, and investment in robots continue to progress as they have to date, unfortunately, manufacturing employment will continue to diminish.

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