Saturday, June 11, 2011

What Are People Good For, the Sequel.

A couple of months ago, I wrote one of my lengthiest essays entitled, "What Are People Good For", where I discussed the fact that automation is an underlying factor in the jobs crisis, and that economists and politicians are completely ignoring this fact. Well, a recent article in the New York Times confirms everything I wrote, and then some:

Workers are getting more expensive while equipment is getting cheaper, and the combination is encouraging companies to spend on machines rather than people.

I want to have as few people touching our products as possible,” said Dan Mishek, managing director of Vista Technologies in Vadnais Heights, Minn. “Everything should be as automated as it can be. We just can’t afford to compete with countries like China on labor costs, especially when workers are getting even more expensive.”

Two years into the recovery, hiring is still painfully slow. The economy is producing as much as it was before the downturn, but with seven million fewer jobs. Since the recovery began, businesses’ spending on employees has grown 2 percent as equipment and software spending has swelled 26 percent, according to the Commerce Department. A capital rebound that sharp and a labor rebound that slow have been recorded only once before — after the 1982 recession.

With equipment prices dropping, and tax incentives to subsidize capital investments, these trends seem likely to continue.

“Firms are just responding to incentives,” said Dean Maki, chief United States economist at Barclays Capital. “And capital has gotten much cheaper relative to labor.”

Indeed, equipment and software prices have dipped 2.4 percent since the recovery began, thanks largely to foreign manufacturing. Labor costs, on the other hand, have risen 6.7 percent, according to the Labor Department. The rising compensation costs are driven in large part by costlier health care benefits, so those lucky workers who do have jobs do not exactly feel richer.

Corporate profits, meanwhile, are at record highs, and companies are hoarding cash. Many of the companies that are considering hiring say they are scared off by the uncertain future costs of health care and other benefits. But with the blessings of their accountants, these same companies are snatching up cheap, tax-subsidized tractors, computers and other goods.

Hiring has some hidden costs, as well as the expenses of salary and benefits, Mr. Mishek added.

“I dread the process we have to go through when we want to bring somebody on,” he said. “When we have a job posting these days, we get a flurry of résumés from people who aren’t qualified at all: people with misspellings on their résumés, who have never been in the industry and want a career move from real estate or something. It’s a huge distraction to sort through all those.”

Culling the résumés takes three days. Then he must make time to interview applicants, and spend $150 for each drug test.

Once a worker is hired, that person must complete a federally mandated safety program, which Vista pays an outside contractor a flat fee of $7,000 annually to handle. Finally, Vista’s best employees spend several months training the new hire, reducing their own productivity.

Usually economists cheer on capital spending, and have supported Congress’s tax breaks for capital investment, like bonus depreciation, which lets companies expense the full cost of purchases immediately instead of waiting several years. That is because capital and labor can be complementary: a business that buys a new truck often hires a new driver, too.

You don’t have to train machines,” Mr. Mishek observes

But with the rising costs of hiring, companies like Vista are finding ways to use capital to replace workers whose jobs are relatively routine.

If you’re doing something that can be written down in a programmatic, algorithmic manner, you’re going to be substituted for quickly,” said Claudia Goldin, an economist at Harvard.

To add insult to injury, much of the equipment used to replace American workers is made by workers abroad, meaning that capital spending is going overseas. Of the four pieces of equipment Vista bought last year, one was made domestically. The others came from Israel, Switzerland and Germany. (all emphasis mine)
Employers Spend on Equipment Rather Than Hiring.

I have to admit, even I was unaware that not only do we turn a blind eye to the replacement of workers with machines, we actually subsidize the process! What's even more ironic about this is that our politicians, both Republican and Democrat, believe that the problem with employment is a supply-side problem, which in English means that there is not enough capital out there for growth. At least, that's what they claim to justify tax cuts and writeoffs to corporations and businesses. But as we see above, businesses and corporations will simply use their tax windfalls to make sure they can make ever more profit with less people by buying new automation equipment. So, in effect, the proposals being put forward will actually end up subsidizing unemployment.

The problem with the economy is structural, and I do not see any way out of it. Even suggestions to stimultate demand by, for example, giving tax cuts to workers as opposed to the super-rich, willl only stimulate demand for products that are created by automation or from overseas. That may boost corporate profits, but I don't see how it will lead to more jobs. In case you forgot the conclusion from WAPGF: There will never be enough jobs for everybody. The "invisible hand" will not fix this, and the problem will only worsen.


Via The Economic Collapse Blog:

So will things get any better soon? Well, there were only about 3 million job openings in the United States during the month of April. Normally there should be about 4.5 million job openings. The economy is slowing down once again. Good jobs are going to become even more rare.

There are millions of other Americans that are "underemployed". All over the United States you will find hard working Americans that are flipping burgers or working in retail stores because that is all they can get right now.

Most temp jobs and most part-time jobs don't pay enough to be able to provide for a family. But there are not nearly enough full-time jobs for everyone.

Sadly, the number of "middle class jobs" is about 10 percent lower than a decade ago. There are simply less tickets to the "good life" than there used to be.

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