Higher Productivity is Not a Bad Thing

The need for social distancing led restaurants and grocery stores to seek technological help. That may improve productivity, but could also cost jobs. When Kroger customers in Cincinnati shop online these days, their groceries may be picked out not by a worker in their local supermarket but by a robot in a nearby warehouse.

The technology to pick and pack by robot was coming long before the Coronavirus was unleashed upon us. The Covid-19 pandemic may have accelerated its adoption, but it was coming anyway.

Gamers at Dave & Buster’s in Dallas who want pretzel dogs can order and pay from their phones — no need to flag down a waiter. And in the drive-through lane at Checkers near Atlanta, requests for Big Buford burgers and Mother Cruncher chicken sandwiches may be fielded not by a cashier in a headset, but by a voice-recognition algorithm.

Again, these technologies predate the pandemic. MacDonalds has been experimenting with AI order taking for a long time. The fact that they aren’t the ones deploying it means that likely Checkers became an early adopter due to the pandemic, but I doubt they accelerated this new technology. Ordering by phone has been common (for example, at Starbucks) for a long time.

An increase in automation, especially in service industries, may prove to be an economic legacy of the pandemic. Businesses from factories to fast-food outlets to hotels turned to technology last year to keep operations running amid social distancing requirements and contagion fears. Now the outbreak is ebbing in the United States, but the difficulty in hiring workers — at least at the wages that employers are used to paying — is providing new momentum for automation.

Difficulty finding workers and high wages are much bigger factors driving automation than social distancing was.

Technological investments that were made in response to the crisis may contribute to a post-pandemic productivity boom, allowing for higher wages and faster growth. But some economists say the latest wave of automation could eliminate jobs and erode bargaining power, particularly for the lowest-paid workers, in a lasting way.

Automatable jobs will be eliminated. Just as the typing pool and, to a large degree, personal secretaries were killed off by the word processor, jobs that can be done more cheaply by a machine or with the aid of one will be.

“Once a job is automated, it’s pretty hard to turn back,” said Casey Warman, an economist at Dalhousie University in Nova Scotia who has studied automation in the pandemic.

Why would you, unless automation leads to worse performance of jobs? Even this often doesn’t even matter. Just think of how much better human receptionists were than interactive voice recognition (IVR) systems are today.

The trend toward automation predates the pandemic, but it has accelerated at what is proving to be a critical moment. The rapid reopening of the economy has led to a surge in demand for waiters, hotel maids, retail sales clerks and other workers in service industries that had cut their staffs. At the same time, government benefits have allowed many people to be selective in the jobs they take. Together, those forces have given low-wage workers a rare moment of leverage, leading to higher pay, more generous benefits and other perks.

Demanding higher pay from restaurants, hotels, and stores that are coming out of a government induced recession seems like a dangerous game to play. Of course, if the market will support higher wages, go for it. But if demanding them leads to further automation to contain costs, don’t complain.

Automation threatens to tip the advantage back toward employers, potentially eroding those gains. A working paper published by the International Monetary Fund this year predicted that pandemic-induced automation would increase inequality in coming years, not just in the United States but around the world.

As the jobs that remain to those least able to learn and solve complex problems are automated, this will doubtless be true.

“Six months ago, all these workers were essential,” said Marc Perrone, president of the United Food and Commercial Workers, a union representing grocery workers. “Everyone was calling them heroes. Now, they’re trying to figure out how to get rid of them.”

Replacing cashiers with automated checkouts was happening long before the pandemic. The people who remain doing the jobs that can’t be automated are the ones who are essential.

Checkers, like many fast-food restaurants, experienced a jump in sales when the pandemic shut down most in-person dining. But finding workers to meet that demand proved difficult — so much so that Shana Gonzales, a Checkers franchisee in the Atlanta area,… contacted Valyant AI, a Colorado-based start-up that makes voice recognition systems for restaurants. In December, after weeks of setup and testing, Valyant’s technology began taking orders at one of Ms. Gonzales’s drive-through lanes. Now customers are greeted by an automated voice designed to understand their orders — including modifications and special requests — suggest add-ons like fries or a shake, and feed the information directly to the kitchen and the cashier. The rollout has been successful enough that Ms. Gonzales is getting ready to expand the system to her three other restaurants.

And McDonald’s is testing AI drive-through ordering, because they hate human beings, according to Microsoft News. Ironic, that headline coming from a company that has likely automated millions of jobs out of existence. Did Microsoft automate word processing because they hate women, who were by far the majority of those who had their jobs eliminated by Microsoft Word?

The push toward automation goes far beyond the restaurant sector. Hotels, retailers, manufacturers and other businesses have all accelerated technological investments. In a survey of nearly 300 global companies by the World Economic Forum last year, 43 percent of businesses said they expected to reduce their work forces through new uses of technology.

If your competitor automates and successfully cuts costs and you don’t, you will go out of business.

Some economists see the increased investment as encouraging. For much of the past two decades, the U.S. economy has struggled with weak productivity growth, leaving workers and stockholders to compete over their share of the income — a game that workers tended to lose. Automation may harm specific workers, but if it makes the economy more productive, that could be good for workers as a whole, said Katy George, a senior partner at McKinsey, the consulting firm.

It’s not that the shareholders are winning. China is winning. With their lower labour costs, the Chinese have been able to corner many markets, despite having to ship their goods across the world’s largest ocean to reach those markets. If automation can save companies and some of the jobs that would disappear entirely–effectively shipped to China–if they were forced to shut down, surely that half loaf is better than none.

Daron Acemoglu of the Massachusetts Institute of Technology said that many of the technological investments had just replaced human labor without adding much to overall productivity. In a recent working paper, Professor Acemoglu and a colleague concluded that “a significant portion of the rise in U.S. wage inequality over the last four decades has been driven by automation” — and he said that trend had almost certainly accelerated in the pandemic.

I’d be willing to bet that offshoring to China has hurt low income earners far more than automation has.

“If we automated less, we would not actually have generated that much less output but we would have had a very different trajectory for inequality,” Professor Acemoglu said.

Would we? Since when have Economists been able to accurately predict the future?

Ms. Gonzales, the Checkers franchisee, has raised hourly pay to about $10 for entry-level workers, from about $9 [before adding automated ordering… She] acknowledged she could fully staff her restaurants if she offered $14 to $15 an hour to attract workers. But doing so, she said, would force her to raise prices so much that she would lose sales — and automation allows her to take another course.

If she lost sales due to increased costs, she would then have to lay workers off. Margins aren’t high in the fast food industry, and you have to compete against others. By increasing the margins with automation, she was able to pay her workers more.

Technology doesn’t have to take over all aspects of a job to leave workers worse off. If automation allows a restaurant that used to require 10 employees a shift to operate with eight or nine, that will mean fewer jobs in the long run. And even in the short term, the technology could erode workers’ bargaining power.

Reducing the number of employees doesn’t make them worse off. Arguably, their jobs are improved as they’ll no longer have to do the less desirable tasks that were automated. Working in a company that is using the most up-to-date equipment gives you better bargaining power.

“Often you displace enough of the tasks in an occupation and suddenly that occupation is no more,” Professor Acemoglu said. “It might kick me out of a job, or if I keep my job I’ll get lower wages.”

Or the job will transform into something else. For example, draftsmen became computer aided designers. There are probably far fewer such designers, but they are far less replaceable, because they are doing more of the job that involves design, and less that is merely rendering the design.

At some businesses, automation is already affecting the number and type of jobs available. Meltwich, a restaurant chain that started in Canada and is expanding into the United States, has embraced a range of technologies to cut back on labor costs. Its grills no longer require someone to flip burgers — they grill both sides at once, and need little more than the press of a button. With more advanced kitchen equipment, software that allows online orders to flow directly to the restaurant and other technological advances, Meltwich needs only two to three workers on a shift, rather than three or four.

Double platen grills have been in use in MacDonald’s restaurants for decades. Online ordering is not new.

Such changes, multiplied across thousands of businesses in dozens of industries, could significantly change workers’ prospects. Professor Warman, the Canadian economist, said technologies developed for one purpose tend to spread to similar tasks, which could make it hard for workers harmed by automation to shift to another occupation or industry.

How are they being harmed? Not hiring someone does them no harm. In the majority of cases, automation doesn’t lead to immediate layoffs. People will have time to find other work. Technologies tend to spread slowly, as niches that most benefit from them adopt them. For example, high end restaurants are probably unlikely to adopt double platen grills or online ordering. It’s a rare technology that can truly cross the chasm and gain mass adoption across most industries.

“If a whole sector of labor is hit, then where do those workers go?” Professor Warman said. Women, and to a lesser degree people of color, are likely to be disproportionately affected, he added.

Are Women and people of colour less able to adapt to change? I don’t believe so. Is Warman saying automation is sexist and racist?

The grocery business has long been a source of steady, often unionized jobs for people without a college degree. But technology is changing the sector. Self-checkout lanes have reduced the number of cashiers; many stores have simple robots to patrol aisles for spills and check inventory; and warehouses have become increasingly automated. Kroger in April opened a 375,000-square-foot warehouse with more than 1,000 robots that bag groceries for delivery customers. The company is even experimenting with delivering groceries by drone.

The world’s most disruptive company, Amazon, has moved into their market. If Kroger weren’t making moves, they’d likely go the way of Barne’s and Noble and Sears Robuck. Kroger themselves transformed the industry last century with big box grocery stores, which doubtless killed a lot of jobs in smaller neighbourhood stores. Things change. Change is often hard.

Other companies in the industry are doing the same. Jennifer Brogan, a spokeswoman for Stop & Shop, a grocery chain based in New England, said that technology allowed the company to better serve customers — and that it was a competitive necessity. “Competitors and other players in the retail space are developing technologies and partnerships to reduce their costs and offer improved service and value for customers,” she said. “Stop & Shop needs to do the same.”

Or lose out, as A&P did to Kroger. As Jim Collin’s said in Good to Great, “Kroger was half the size of A&P but ended up doing eighty times better than A&P because they kept up with America’s desire for bigger, nicer stores with more choices. Both were over 75 years old, but Kroger changed, A&P didn’t.”

Patrice Thomas, [who] manages [a] store’s prepared foods department, said that he wasn’t concerned about being replaced by a robot anytime soon, and that he welcomed technologies making him more productive — like more powerful ovens for rotisserie chickens and blast chillers that quickly cool items that must be stored cold. But he worries about other technologies — like automated meat slicers — that seem to enable grocers to rely on less experienced, lower-paid workers and make it harder to build a career in the industry.

This is the “cutting off of the bottom rung” effect. Automation tends to take the entry level jobs first. This makes it more important than ever for young people to build their own skills and find things that they enjoy doing that can also make them money.

“The business model we seem to be following is we’re pushing toward automation and we’re not investing equally in the worker,” Thomas said. “Today it’s, ‘We want to get these robots in here to replace you because we feel like you’re overpaid and we can get this kid in there and all he has to do is push this button.’”

If you can be replaced by a kid who just has to push a button, you probably are overpaid. It’s essential to learn new skills and grow in your career. At some point, if you don’t, you’ll probably be overtaken by that kid, when they’ve learned the new skills that you haven’t. I truly feel for those who won’t be able to do the jobs of the future, but I don’t think we can simply stop automation.

I don’t think we should, either. The average standard of living in the western world is miles better than that of an agrarian society, and that’s down to automation of production. Increasing productivity has the potential to make all of our lives better. Those who use the political system to rig the game in their favour will do their best to make sure they enjoy all the gains. But you shouldn’t kill the goose that lays the golden eggs because the eggs are being stolen.

About jimbelton

I'm a software developer, and a writer of both fiction and non-fiction, and I blog about movies, books, and philosophy. My interest in religious philosophy and the search for the truth inspires much of my writing.
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