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U.S. factories add jobs but could use more robots

In early 2008, the manufacturing sector was nearly five per cent more productive than the norm — today, that lead has vanished
Automation, robotics, technology
Tesla vehicles are assembled by robots at a Tesla Motors factory in Fremont, Calif., in 2016. REUTERS/Joseph White/File Photo

By Christopher Beddor

WASHINGTON (Reuters Breakingviews) - American factories are adding jobs, but they could use more robots. The U.S. economy added 200,000 positions last month, including 15,000 in manufacturing, the Bureau of Labor Statistics reported on Friday.

President Donald Trump often talks about boosting the sector, but productivity has been near-stagnant. While average hourly earnings rose 2.9 per cent last month – the fastest growth since 2009 – wage growth in the manufacturing sector remained weak.

In his State of the Union speech on Tuesday, Trump boasted that manufacturers had added around 200,000 new jobs since his election in late 2016. More than 12.5 million Americans are now employed in the sector, compared to fewer than 11.5 million in 2010. Even so, the industry remains a shadow of its former self. Factory jobs have declined from around 32 per cent of the U.S. non-farm total in the early 1950s to less than nine per cent today. Part of that decline is due to factories relocating to lower-cost countries such as China and Mexico.

Some economists and business leaders also point fingers at automation. The likes of Microsoft founder Bill Gates and Tesla creator Elon Musk fret about robots taking jobs. There is some evidence: Each additional robot per thousand workers cuts wages by 0.25-0.5 per cent, according to research by Daron Acemoglu and Pascual Restrepo for the National Bureau of Economic Research. That might explain why pay in the sector has shrunk from nearly four per cent more than the typical private-sector worker just after the last recession to barely better than parity today.

Employers seem stuck with lazy robots, however. In theory, replacing homo sapiens with machines should lead to a surge in output per worker. But that ratio has nearly flatlined since around 2011. Productivity in manufacturing has been weak even in relative terms. In early 2008, the sector was nearly five per cent more productive than the norm. Today, that lead has vanished.

At least part of the explanation may be that the robot conquest never really happened. The capital intensity in manufacturing, a measure of the use of assets in producing revenue — as opposed to the use of people —increased sharply between 2005 and 2010, according to the Bureau of Labor Statistics. In the five years thereafter, it barely grew, suggesting less investment in robots and the like. One consequence may be tepid productivity growth.

It’s not clear why manufacturers are investing so little. But the worriers should be careful what they wish for. The only thing worse than too many robots may be too few.

CONTEXT NEWS

- The U.S. economy added 200,000 jobs in January while the unemployment rate stood unchanged at 4.1 per cent, the Bureau of Labor Statistics said on Feb. 2. Average hourly earnings rose 2.9 per cent year-on-year to reach US$26.74, marking the strongest growth since 2009. The labour force participation rate remained at 62.7 per cent.

- The manufacturing sector added 15,000 jobs last month, while construction payrolls increased by 36,000 and health-care jobs increased 21,000.

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