Labor Shortage Has Silver Lining

Anthony Melanson  -  Jan 16, 2018

Major economies are facing a labor crunch and this means corporations need to adjust their automation strategies in order to grow their businesses.

The U.S. Department of Labor reports that the country’s unemployment rate has continued its 2-year descent to 4.1 percent. Globally, unemployment is at 7.1 percent, with Singapore experiencing a labor crunching unemployment rate of 2.2 percent, Japan at 2.8 percent, China at 4 percent and the United Kingdom continuing to fall to 4.2 percent. Generally, low unemployment is good news for countries, but it’s having a negative side effect in the United States and around the world. Welcome to the new problem:  labor shortage. But there is a silver lining for both sides of the economic equation – increased need for automation to supplement unavailable human workers, and increased wages for workers of all skill levels.

In a recent Forbes article, ARC Advisory Group’s Steve Banker shares a conversation he had with a large North American logistics provider who said that a few years ago they had 10 applicants for every warehouse job, whereas now they have only one. “If an ex-con with a burglary record shows up, we say ‘We know you will steal from us, but we can really use the help. You’re hired!’”

Is there Really a Labor Shortage?

According to The New York Times headline: “Lack of Workers, Not Jobs, Weighs on the Nation’s Economy,” there is. The article highlights the plight of small businesses in a variety of industries that are unable to hire the workers they need to meet demand for their products and services. The article quotes Todd Bingham, the president of the Utah Manufacturers Association, saying “(low) unemployment is fabulous unless you’re looking to hire people. Our companies are saying, ‘We could grow faster, we could produce more product, if we had the workers,’” he said. “Is it holding the economy back? I think it definitely is.”

Mark Zandi, the chief economist at Moody’s Analytics, concurs. “Our problem going forward isn’t going to be unemployment,” he told The New York Times. “Over the next 20 to 25 years, a labor shortage is going to put a binding constraint on growth.”

For the past several years, business associations for manufacturers, small businesses and technology firms have been saying it’s getting increasingly difficult to find and hire qualified workers. The Conference Board, a leading global economic research organization, released a “Help Wanted” report in 2017 which documents emerging labor shortages in a wide range of industries across many regions of the country. The report predicts an astonishing 15-year labor shortage.

According to the Federal Reserve District’s July 2017 Beige Book, labor markets tightened further for both low- and high-skilled positions, particularly in the construction and IT sectors. Contacts across a broad range of industries reported a shortage of qualified workers which had limited hiring.

Gad Levanon, The Conference Board’s chief economist for North America, said the situation results from a confluence of demographic and economic factors, including:

  • Retiring Baby Boomers, especially in the skilled trades, manufacturing and health care.
  • Falling labor productivity
  • Business conditions, such as slow corporate revenue growth, high labor costs and a rising quits rate

The increase in e-commerce is key contributing factor in the need for warehouse labor. Historically, consumers went to stores and picked their goods off the shelves.  Now warehouse workers are increasingly doing the labor consumers use to do for themselves.

Labor Shortage is Global

And the United States isn’t alone in its need for workers. Speaking at the Foreign Correspondents Association in Singapore this Fall, Ravi Menon, managing director of the Monetary Authority of Singapore, said that the biggest challenge facing Singapore is continuing to grow in the face of labor shortages.

CNN Money reports that Japan’s labor shortage has reached a shocking 40-year high. The article states that Japan now has 1.48 jobs for every applicant — the highest number since 1974.

A study commissioned by J.P Morgan reports,

“China, global powerhouse and the world’s largest developing country, faces an acute skills shortfall along with the challenges of an ageing population and a shrinking labor force. Labor costs are rising, supply and demand is dangerously skewed, and vocational training is unable to fill the breach fast enough. Labor – more accurately, the quality of labor and the speed of training, transformation and transfer to where it is needed most – is the motor that needs to be fine-tuned to ensure that China’s growth does not grind to a halt.”

A similar shortage is growing in Europe, where The New Times reports that British employers are struggling to find workers, particularly in the agriculture, health services and hospitality sectors. Here it is a phenomenon tied to Britain’s decision last year to leave the European Union.  Since the “Brexit” announcement, thousands of Europeans have already left Britain or have decided not to return, causing a significant drop in migration to the country. Net migration in the year ending in June fell by about a third, the biggest decline in any 12-month period since records began in 1964.

The Silver Lining: Automation Growth & Increase Wages

So I promised a Silver Lining… Here it is:  the labor shortage is great news for the growth of automation technologies, and for increased wages for human workers. Read on.

When labor is difficult to find, growth in automation is a natural outcome.  With the demand for higher wages and increased benefits (more about this to follow) companies have no better return on their investment than automation technologies.  Additionally, automation increases productivity and accuracy, reducing expensive error rates.

In Singapore, the government reports that companies are faced with the option of investing in technology and in making their business processes more efficient, or coping with high labor costs and low profit margins.

“Running logistics as a labor-intensive business model is pretty much on its last legs,” said Hiratomo Miyata, the founder of Ground, whose software powers robots in the distribution center of Japan’s largest furniture maker. “What separates the companies is their ability to fill the gap left by human labor with technology.”

A recent report from Redwood Software and the Centre for Economic and Business Research (CEBR) analyzed the use of robotics and automated tools across 23 countries over the last 20 years. The analysis revealed that robotics currently adds more value to economic performance than similar investments in areas such as finance and transportation.

“Robotics and automation in manufacturing has been a contentious topic in the last 12 months – but the research shows that the sector is one of the best places to invest today, and the returns are likely to improve as time goes on,” the authors say.

While automation was once a costly expenditure available only to the largest companies, it is increasingly becoming a necessary and cost-effective investment for much smaller companies as well.

Reuters reports that mid-size Japanese companies are increasing their investment in automation technologies at an unprecedented rate. “The share of capital expenditure devoted to becoming more efficient is increasing because of the shortage of workers,” said Seiichiro Inoue, a director in the country’s Ministry of Economy, Trade and Industry.

Similar to the trend of manufacturing coming back to the U.S. and becoming cost competitive via automation, the supply chain of the future will be highly automated. In a recent article titled “Using Automation to Combat the Impending Labor Shortage,”   Industry Week offers four tips for harnessing the power of automation:

  • Change the perception of warehouse positions from one with limited growth opportunities to a launching pad for a career in operations management.
  • Shift the view of warehouse labor from a cost of business into a competitive advantage.  As the labor required for operations becomes flexible and skilled, retention of good employees becomes more important.
  • Embrace technology and automation now.  While the specific solutions will inevitably change in the future, the skill of being able to quickly identify and adopt solutions will serve companies well in the future.
  • Invest in talent in parallel with implementing automation solutions.  The best solutions in the world fall flat without people who have the technical aptitude and analytical acumen to execute them.

The Industry Week authors conclude, “while the impending labor shortage may serve as an initial call to action to implement automation and other technology solutions, the market will ultimately reward firms that react and adapt quickly to evolving customer demands. Supply chains across all industries must address the technology gap by becoming skilled at identifying, implementing, and operating automation and other innovative technologies.”

Increased Wages & Benefits

On the wage front, economist Gad Levanon predicts that as the U.S. labor market continues to tighten and the economy approaches ‘full employment,’ employers will be forced to offer higher pay to attract the skilled workers they need. Levanon said some employers may also have to hire workers who are less qualified, but provide more on-the-job training.

The New York Times reports that for the last couple of years, workers’ median earnings have been rising on a sustained path not seen in years. Reporter Eduardo Porter writes, “Still, the wage picture is looking decidedly brighter. In 2008, in the midst of the recession, the average hourly pay of production and nonsupervisory workers tracked by the Bureau of Labor Statistics — those who toil at a cash register or on a shop floor — was 10 percent below its 1973 peak after accounting for inflation. Since then, wages have regained virtually all of that ground. Median wages for all full-time workers are rising at a pace last achieved in the dot-com boom…”

Industry Week suggests that the improving U.S. economy will prompt workers to transfer back into higher-paying positions in competing industries. Also, an increased minimum wage could tighten the pool of available laborers as people transition into less physically demanding positions with comparable pay.

According to the Federal Reserve’s Beige Book, wages continued to grow at a modest to moderate pace in most Districts, and many firms attributed these wage gains to tighter labor market conditions. Wage pressures generally trended with employment conditions, and rising wage pressures were noted among both low- and high-skilled positions. A few Districts also reported rising costs of benefits and variable pay.

Affordable Automation Solutions

There no better time to invest in an automated solution for your organization.  From manufacturing to hospitality to healthcare, Aethon provides affordable means of automating the transportation & delivery of materials. We combine the TUG autonomous mobile robot technology with our sophisticated fleet management software system, integration to your internal systems and a proven track record of performance to reduce labor costs, improve safety, increase efficiency and enhance job satisfaction.