Tuesday, November 7, 2017

"Wages, salaries, and benefits are all just overhead that can be eliminated by use of machines"

That rather ominous statement comes from this very interesting article.  It reiterates something I've been saying on this blog for several years - namely, that automation is threatening almost every job out there.  Here's an excerpt.

The chart is a plot of oil rigs in the United States compared to the number of workers the oil industry employs, and it’s an important part of a puzzle that needs to be pieced together before it’s too late. (Click the image for a larger view.)

What should be immediately apparent is that as the number of oil rigs declined due to falling oil prices, so did the number of workers the oil industry employed. But when the number of oil rigs began to rebound, the number of workers employed didn’t. That observation itself should be extremely interesting to anyone debating whether technological unemployment exists or not, but there’s even more to glean from this chart.

. . .

... notice how quickly this all happened. It took TWO YEARS. How did it happen so fast? Because the oil industry didn’t really need the workers it lost in the first place. It’s the oil industry. It’s used to making lots of money, and when you’re making money hand over fist, you don’t need to focus on efficiency. Being lean and mean is not your concern. However, that changes when times get tough, and times got very tough for the oil industry as oil prices plummeted thanks to new competition from yet another technological advancement — fracking.

So once it became important to increase efficiency, that’s exactly what the oil industry did. It let people go and it invested in automation. In the summer of 2016, oil prices were no longer under $30 per barrel, and had gone back up to around $50 per barrel where they remain. That’s half of the $100 per barrel they’d gotten used to, which is fine as long as they’re able to produce at twice the efficiency. As a result, like a phoenix rising, they emerged transformed. Oil rigs returned to drilling, but all the rig workers didn’t. Those who were let go became simply unnecessary overhead.

Sleeping Through a Wake Up Call

This is a story of technological unemployment that is crystal clear, and yet people are still arguing about it like it’s something that may or may not happen in the future. It’s actually a very similar situation to climate change, where the effects are right in our faces, but it’s still considered a debate. Automation is real, folks. Companies are actively investing in automation because it means they can produce more at a lower cost. That’s good for business. Wages, salaries, and benefits are all just overhead that can be eliminated by use of machines.

. . .

A landmark 2017 study ... looked at the impact of just industrial robots on jobs from 1993 to 2007 and found that every new robot replaced around 5.6 workers, and every additional robot per 1,000 workers reduced the percentage of the total population employed by 0.34% and also reduced wages by 0.5%. During that 14-year period of time, the number of industrial robots quadrupled and between 360,000 and 670,000 jobs were erased. And as the authors noted, “Interestingly, and perhaps surprisingly, we do not find positive and offsetting employment gains in any occupation or education groups.” In other words, the jobs were not replaced with new jobs.

There's more at the link.  Highly recommended reading.

The impact of automation on jobs that everyone thought, until recently, were "safe" from such influences is growing by the day.  I think younger people today have every reason to be concerned as to whether or not they'll be able to find jobs at all.  In many cases, traditional avenues of employment are being closed off at high speed.

For a lot more related information, see The Shape of Work to Come 2017. It's a special edition of City Journal, with many useful articles. It'll certainly make you wonder about your own job security!



kamas716@yahoo.com said...

Yes, I expect automation to replace most current jobs eventually. History has shown us that as labor saving devices come into a field, the workers are displaced, there is a period of adjustment and the workers eventually find other occupations. Many times these occupations are completely different than what they were doing. In the end, society as a whole tends to end up wealthier because of this.

I'm dubious of their 670K few jobs claim. This link https://data.bls.gov/pdq/SurveyOutputServlet?request_action=wh&graph_name=CE_cesbref1 shows the total number of employed going up most years. Perhaps I'm misunderstanding what their claim actually is here though.

I have no idea what the comment about global warming is supposed to be about in this context other than some sort of virtue signalling. Global temps and sea level have ever so slowly been rising since the last ice age (with a brief hiatus during the Little Ice Age). I don't think anyone has disputed that. The debate is over what role humans have played, if any, in that rise.

Anonymous said...

It's a false equivalence which makes the authors claim dubious. Workers on and supporting oil rigs are a tiny percentage of overall oil and gas employment. The real losses were in the manufacturing and services that support those efforts. They are still laying off from those areas of the oilfield (used to be in it). There is so much equipment laying around already paid for and not being used that drillers are cannibalizing their own fleets instead of buying new equipment. This applies to the frac companies as well. There are still a few years to go before that excess equipment is consumed before manufacturing really starts ramping up again. This is the standard cycle of a downturn (been through 5 of them).

Old NFO said...

The first year or two, or three there are fewer workers, but as the equipment starts breaking, service techs are needed in increasing numbers to service it. That is the 'new' field people need to be moving to. Looking at maintenance cost per hour, and MTBF rates, one sees a steady rise in those, normally beginning in the 2nd year and continuing to ramp up until replaced.

Tirno said...

I noted this in a conversation elsewhere a few days ago, with regard to McDonalds fielding self-ordering kiosks in Seattle in the airport food court.

My thought was: in a world where self-order kiosks do not exist, there exists a government mandated minimum wage of $X that justifies doing the $Y cost of R&D to develop self-order kiosks. It's not a vague thing. Spreadsheet up wages, benefits, background check expenses for airport staff in the secure zone, and the overall workforce level to continuously man a counter position, and then compare it to R&D costs, manufacturing costs, maintenance costs. What we can say is that Seattle's $15 minimum wage tips the balance on that calculation, and a lot of people are discovering that the true minimum wage is always $0. Government imposed minimum wage actually translates as "minimum worker value in order to be hired/retained".

As a corollary to this, it occurred to me that in a world where self-order kiosks have already been developed, there exists a government mandated minimum wage of $Z that justifies replacing counter staff with self-order kiosks. $Z is much lower than $X, as the R&D costs and establishment of manufacturing lines have already been expended. $Z just need to be compared against procurement, installation and maintenance. It is quite possible that $Z is lower than the current federal minimum wage.

So, in a very real way, Seattle's pursuit of progressive politics devoid of economic understanding has screwed over not just the poor of Seattle, WA, but also the poor of Prosser, WA, on the other side of the mountains, and every other young person that could really use an entry-level job to establish their labor value so they can move up the ladder.

Next up: completely automated burger-preparing and potato-chopping-and-frying machines. Fast food never touched by no other hands except the eater-thereof. Self-cleaning modes, so maintenance consists of replacing the bleach, lettuce, potato and ground beef cartridges, and the knife and sharpener modules every 20K burgers. All of which will be ordered from the depot automatically and delivered by the same guys that do Amazon's same-hour service.

CDH said...

There is a huge difference between "Oil and Gas industry" and "Drillers" on a rig. Pipelines. Refineries. Petro truckers. All in the industry but NOT working on a rig. Pipelines are laid. Refineries are expanded. Capital budgets are back down to 'normal' levels after the boom. Fracked wells are tapering off. New wells to be brought online to maintain flow in existing infrastructure is the norm here in South Texas. So, more rigs working but not really much new work above and beyond that.

Aesop said...

Yeah, not so much.

You can replace some jobs with some automation, for some given amount of time.

So take a look at a mature technology.
Yes, there are far less farriers, buggy whip makers, mule teamsters, horse ranchers, and guys growing hay and shoveling horse poop now than in 1895.

And fewer horses used to move goods.

So, are there less people than the number displaced mining iron, making steel, building tires, assembling cars, drilling oil, refining gasoline, pouring roads, driving tow trucks, and fixing them when they break, or would the number of Group B be more than Group A?
Show your work.

Robots require guys to build the parts, then build the robots, then service and repair the robots, then write the software for the robots, then upgrade the robots, then swap out new robots for old robots, and load the materials into the robots so they can robot-work.

Even McDonalds will need people to load frozen patties into the cooking robots, top off the ketchup and mustard tanks, etc. We just won't have pre-literate Third World troglodytes and Common Core Trigglypuff grads trying to puzzle out how to input the burgers from pictures of same, and make change for a twenty without taking off their shoes. That's akin to telling me that the DMV will be replacing the fifty people doing make-work jobs with five machines that will actually work, without taking two-hour potty breaks, and don't come with a pre-loaded Entitlement Chip and surly attitude. (And, for the killer app bonus, machines don't rack up annual accrual deficits against the state's bankrupt pension fund. They also don't get promotions, or need family leave. They just get melted down for scrap when they quit working.)
Be still, my beating heart!

Back in the 1960s-70s, mom worked for Ma Bell. In accounting. Where computers(!) were going to decrease the amount of paper they handled. I went to every year of school from K-university using the back of reams of discarded paper as my art and scratch paper from that brilliant foray into automation reducing anything, other than trees.

Cars saved people money - on hay.
They do not, ergo, save you money overall.
(And unlike horses, if you leave two of them in the garage together, they do not make a new small car every year that you can subsequently use or sell.)

Computers, done right, by a corporation dependent on the safety of the data, do not reduce paper or paperwork. (I work in healthcare, which in the US went to EMR after 2008: ask me how I know this.)
Automation will not reduce jobs.
It can only reduce jobs that were formerly non-automated.

This will be true in perpetuity, until you can get robots to build the robots, in a vertically integrated manner, including acquiring and assembling the raw materials, service and maintenance, and programing them.

Skynet is a nice scary science fantasy, but it ain't happening, even in your grandkids' lifetime.

Self-driving cars? Sh'yeah, as if. It's funny when you have to re-try because a web page won't load. A lot less funny when, because of software/hardware/dead squirrel on a relay issues, your self-driving car doesn't load on the freeway, and your family is crushed, and the company(ies) responsible sued into bankruptcy. Or your self-flying jetliner flies into the ocean. Or a mountain, or a stadium full of fans.

Machines are tools. Tools are helpful.
But anybody who thinks you can get rid of shovels because of machinery should come help me put in sprinklers.
Or just go watch the segment of Fantasia accompanying Dukas' "Sorceror's Appretice" for a wee bit of enlightenment regarding the limitations of any technology.

zuk said...

Rigs, especially offshore, are dangerous places for people to be. It pays all kinds of dividends to get people off the rigs.

Chevron did so with a program called WellDec that moved as many jobs as possible to a specially built room on shore, with teleoperation, monitoring, and at one time, a tiny bit of VR.

I'm sure that reduced the numbers as well.


AB.Prosper said...

Nearly every single person posting replies here missed the key point, as automation increases all kinds of jobs are going to go away or be replaced by less skilled labor and there won't be replacements

This issues is why the Midwest has so many problems, automation and outsourcing killed jobs

Not wanting to deal with that is some combination of the Ayn Rand Uber Alles mind set, justified fear of Socialism and Complacency bias about automation I guess,

Still once this gets to a crisis point our capitalist market driven society and its prolonged peace are in great danger. Just the current minor changes in policy are driving people to violence, real hardship +diversity is a recipe for disaster

We already have leftist violence and sooner and Communism is becoming a thing again , we don't need that but given the demography and the fact that 90% White America made an authoritarian Social Democrat (Roosevelt ) defacto President for Life , its even more likely we'll chose this option again

Make sure we have a plan before its too late.

MrGarabaldi said...

Hey Peter;

My son who is 14 was talking to me about college and I commented"Whatever you get into, make sure that it is some kind of technical field, sociology, physiology and underwater basket weaving are cool in school, but will not pay the bills in the real world. Make sure that whatever you get into, you can parley into a good job." His response "Repairing robots that build cars?" And I replied "Yes, or something along that line. He knows that I am an aircraft mechanic and I an paid well, and automation will not be replacing my job, 3rd world economics perhaps....but not automation. And what I mean by 3rd world is "how many unskilled people can you throw at an airplane while it is on some MRO in Mexico, Singapore or other places and do repairs and still not equal my salary. That is my concern, not automation.

Peripatetic Engineer said...

For me, he blew the entire argument with his plea for a "universal income" not tied to labor at the end of his article. His comment about global warming is a clue to his political leanings.

ÆtherCzar said...

I don't know that business, but I imagine it takes less labor to turn on a mothballed well and get it producing than it take to drill a brand new one. The data are hard to interpret without more context.

TheOtherSean said...

Since I can't find much more details in the article regarding the oil & gas industry numbers, I will point out a potential problem with them. The graph appears to be a graph of rigs (upstream) vs. industry employment. There's no indication that the industry employment is restricted to upstream; it may very well include the midstream and downstream segments of the oil and gas industry, which remain rather flat at this time. Most oil & gas spending at this time is upstream (rigs and offshore platforms), routine maintenance in other segments, and possibly some regulatory compliance projects. For example, spending on new refineries or capacity improvements at existing ones is minimal at best.