Rise of the Robots: Technology and the Threat of a Jobless Future (4 page)

Factory reshoring dramatically decreases transportation costs and also provides many other advantages. Locating factories in close proximity to both consumer markets and product design centers allows companies to cut production lead times and be far more responsive to their customers. As automation becomes ever more flexible and sophisticated, it’s likely that manufacturers will trend toward
offering more customizable products—perhaps, for example, allowing customers to create unique designs or specify hard-to-find clothing sizes through easy-to-use online interfaces. Domestic automated production could then put a finished product into a customer’s hands within days.

There is, however, one important caveat to the reshoring narrative. Even the relatively small number of new factory jobs now being created as a result of reshoring won’t necessarily be around over the long term; as robots continue to get more capable and dexterous and as new technologies like 3D printing come into widespread use, it seems likely that many factories will eventually approach full automation. Manufacturing jobs in the United States currently account for well under 10 percent of total employment. As a result, manufacturing robots and reshoring are likely to have a fairly marginal impact on the overall job market.

The story will be very different in developing countries like China, where employment is far more focused in the manufacturing sector. In fact, advancing technology has already had a dramatic impact on Chinese factory jobs; between 1995 and 2002 China lost about 15 percent of its manufacturing workforce, or about 16 million jobs.
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There is strong evidence to suggest that this trend is poised to accelerate. In 2012, Foxconn—the primary contract manufacturer of Apple devices—announced plans to eventually introduce up to a million robots in its factories. Taiwanese company Delta Electronics, Inc., a producer of power adapters, has recently shifted its strategy to focus on low-cost robots for precision electronics assembly. Delta hopes to offer a one-armed assembly robot for about $10,000—less than half the cost of Rethink’s Baxter. European industrial robot manufacturers like ABB Group and Kuka AG are likewise investing heavily in the Chinese market and are currently building local factories to churn out thousands of robots per year.
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Increased automation is also likely to be driven by the fact that the interest rates paid by large companies in China are kept artificially
low as a result of government policy. Loans are often rolled over continuously, so that the principal is never repaid. This makes capital investment extremely attractive even when labor costs are low and has been one of the primary reasons that investment now accounts for nearly half of China’s GDP.
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Many analysts believe that this artificially low cost of capital has caused a great deal of mal-investment throughout China, perhaps most famously the construction of “ghost cities” that appear to be largely unoccupied. By the same token, low capital costs may create a powerful incentive for big companies to invest in expensive automation, even in those cases where it does not necessarily make good business sense to do so.

One of the biggest challenges for a transition to robotic assembly in the Chinese electronics industry will be designing robots that are flexible enough to keep up with rapid product lifecycles. Foxconn, for example, maintains massive facilities where workers live onsite in dormitories. In order to accommodate aggressive production schedules, thousands of workers can be woken in the middle of the night and set immediately to work. That results in an astonishing ability to rapidly ramp up production or adjust to product design changes, but it also puts extreme pressure on workers—as evidenced by the near epidemic of suicides that occurred at Foxconn facilities in 2010. Robots, of course, have the ability to work continuously, and as they become more flexible and easier to train for new tasks, they will become an increasingly attractive alternative to human workers, even when wages are low.

The trend toward increased factory automation in developing countries is by no means limited to China. Clothing and shoe production, for example, continues to be one of the most labor-intensive sectors of manufacturing, and factories have been transitioning from China to even lower-wage countries like Vietnam and Indonesia. In June 2013, athletic-shoe manufacturer Nike announced that rising wages in Indonesia had negatively impacted its quarterly financial numbers. According to the company’s chief financial officer, the
long-term solution to that problem is going to be “engineering the labor out of the product.”
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Increased automation is also seen as a way to deflect criticism regarding the sweatshop-like environments that often exist in third-world garment factories.

The Service Sector: Where the Jobs Are

In the United States and other advanced economies, the major disruption will be in the service sector—which is, after all, where the vast majority of workers are now employed. This trend is already evident in areas like ATMs and self-service checkout lanes, but the next decade is likely to see an explosion of new forms of service sector automation, potentially putting millions of relatively low-wage jobs at risk.

San Francisco start-up company Momentum Machines, Inc., has set out to fully automate the production of gourmet-quality hamburgers. Whereas a fast food worker might toss a frozen patty onto the grill, Momentum Machines’ device shapes burgers from freshly ground meat and then grills them to order—including even the ability to add just the right amount of char while retaining all the juices. The machine, which is capable of producing about 360 hamburgers per hour, also toasts the bun and then slices and adds fresh ingredients like tomatoes, onions, and pickles only after the order is placed. Burgers arrive assembled and ready to serve on a conveyer belt. While most robotics companies take great care to spin a positive tale when it comes to the potential impact on employment, Momentum Machines co-founder Alexandros Vardakostas is very forthright about the company’s objective: “Our device isn’t meant to make employees more efficient,” he said. “It’s meant to completely obviate them.”
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The company estimates that the average fast food
restaurant spends about $135,000 per year on wages for employees who produce hamburgers and that the total labor cost for burger production for the US economy is about $9 billion annually.
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Momentum Machines believes its device will pay for itself in less than a year, and it plans to target not just restaurants but also convenience stores, food trucks, and perhaps even vending machines. The company argues that eliminating labor costs and reducing the amount of space required in kitchens will allow restaurants to spend more on high-quality ingredients, enabling them to offer gourmet hamburgers at fast food prices.

Those burgers might sound very inviting, but they would come at a considerable cost. Millions of people hold low-wage, often part-time, jobs in the fast food and beverage industries. McDonald’s alone employs about 1.8 million workers in 34,000 restaurants worldwide.
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Historically, low wages, few benefits, and a high turnover rate have helped to make fast food jobs relatively easy to find, and fast food jobs, together with other low-skill positions in retail, have provided a kind of private sector safety net for workers with few other options: these jobs have traditionally offered an income of last resort when no better alternatives are available. In December 2013, the US Bureau of Labor Statistics ranked “combined food preparation and serving workers,” a category that excludes waiters and waitresses in full-service restaurants, as one of the top employment sectors in terms of the number of job openings projected over the course of the decade leading up to 2022—with nearly half a million new jobs and another million openings to replace workers who leave the industry.
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In the wake of the Great Recession, however, the rules that used to apply to fast food employment are changing rapidly. In 2011, McDonald’s launched a high-profile initiative to hire 50,000 new workers in a single day and received over a million applications—a ratio that made landing a McJob more of a statistical long shot than getting accepted at Harvard. While fast food employment was once dominated by young people looking for a part-time income while
in school, the industry now employs far more mature workers who rely on the jobs as their primary income. Nearly 90 percent of fast food workers are twenty or older, and the average age is thirty-five.
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Many of these older workers have to support families—a nearly impossible task at a median wage of just $8.69 per hour.

The industry’s low wages and nearly complete lack of benefits have drawn intensive criticism. In October 2013, McDonald’s was lambasted after an employee who called the company’s financial help line was advised to apply for food stamps and Medicaid.
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Indeed, an analysis by the Labor Center at the University of California, Berkeley, found that more than half of the families of fast food workers are enrolled in some type of public assistance program and that the resulting cost to US taxpayers is nearly $7 billion per year.
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When a spate of protests and ad hoc strikes at fast food restaurants broke out in New York and then spread to more than fifty US cities in the fall of 2013, the Employment Policies Institute, a conservative think tank with close ties to the restaurant and hotel industries, placed a full-page ad in the
Wall Street Journal
warning that “Robots Could Soon Replace Fast Food Workers Demanding a Higher Minimum Wage.” While the ad was doubtless intended as a scare tactic, the reality is that—as the Momentum Machines device demonstrates—increased automation in the fast food industry is almost certainly inevitable. Given that companies like Foxconn are introducing robots to perform high-precision electronic assembly in China, there is little reason to believe that machines won’t also eventually be serving up burgers, tacos, and lattes across the fast food industry.
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Japan’s Kura sushi restaurant chain has already successfully pioneered an automation strategy. In the chain’s 262 restaurants, robots
help make the sushi while conveyor belts replace waiters. To ensure freshness, the system keeps track of how long individual sushi plates have been circulating and automatically removes those that reach their expiration time. Customers order using touch panel screens, and when they are finished dining they place the empty dishes in a slot near their table. The system automatically tabulates the bill and then cleans the plates and whisks them back to the kitchen. Rather than employing store managers at each location, Kura uses centralized facilities where managers are able to remotely monitor nearly every aspect of restaurant operations. Kura’s automation-based business model allows it to price sushi plates at just 100 yen (about $1), significantly undercutting its competitors.
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It’s fairly easy to envision many of the strategies that have worked for Kura, especially automated food production and offsite management, eventually being adopted across the fast food industry. Some significant steps have already been taken in that direction; McDonalds, for example, announced in 2011 that it would install touch screen ordering systems at 7,000 of its European restaurants.
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Once one of the industry’s major players begins to gain significant advantages from increased automation, the others will have little choice but to follow suit. Automation will also offer the ability to compete on dimensions beyond lower labor costs. Robotic production might be viewed as more hygienic since fewer workers would come into contact with the food. Convenience, speed, and order accuracy would increase, as would the ability to customize orders. Once a customer’s preferences were recorded at one restaurant, automation would make it a simple matter to consistently produce the same results at other locations.

Given all this, I think it is quite easy to imagine that a typical fast food restaurant may eventually be able to cut its workforce by 50 percent, or perhaps even more. At least in the United States, the fast food market is already so saturated that it seems very unlikely that new restaurants could make up for such a dramatic reduction in
the number of workers required at each location. And this, of course, would mean that a great many of the job openings forecast by the Bureau of Labor Statistics might never materialize.

The other major concentration of low-wage service jobs is in the general retail sector. Economists at the Bureau of Labor Statistics rank “retail salesperson” second only to “registered nurse” as the specific occupation that will add the most jobs in the decade ending in 2020 and expect over 700,000 new jobs to be created.
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Once again, however, technology has the potential to make the government projections seem optimistic. We can probably anticipate that three major forces will shape employment in the retail sector going forward.

The first will be the continuing disruption of the industry by online retailers like Amazon, eBay, and Netflix. The competitive advantage that online suppliers have over brick and mortar stores is already, of course, evident with the demise of major retail chains like Circuit City, Borders, and Blockbuster. Both Amazon and eBay are experimenting with same-day delivery in a number of US cities, with the objective of undermining one of the last major advantages that local retail stores still enjoy: the ability to provide immediate gratification after a purchase.

In theory, the encroachment of online retailers should not necessarily destroy jobs but, rather, would transition them from traditional retail settings to the warehouses and distribution centers used by the online companies. However, the reality is that once jobs move to a warehouse they become far easier to automate. Amazon purchased Kiva Systems, a warehouse robotics company in 2012. Kiva’s robots, which look a bit like huge, roving hockey pucks, are designed to move materials within warehouses. Rather than having workers roam the aisles selecting items, a Kiva robot simply zips under an entire pallet or shelving unit, lifts it, and then brings it directly to the worker packing an order. The robots navigate autonomously using a grid laid out by barcodes attached to the floor and are used to automate warehouse operations at a variety of major retailers in addition to
Amazon, including Toys “R” Us, the Gap, Walgreens, and Staples.
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A year after the acquisition, Amazon had about 1,400 Kiva robots in operation but had only begun the process of integrating the machines into its massive warehouses. One Wall Street analyst estimates that the robots will ultimately allow the company to cut its order fulfillment costs by as much as 40 percent.
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