Mike Shedlock
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The federal Minimum wage in the US is $7.25 per hour. Ten states have higher minimum wages with Rhode Island clocking in 50 cents higher at $7.75.

Costs to the employer are higher of course, even if the employer ducks benefits by using part-time workers.

For starters, employer contributions to Social Security are 6.2% of hourly wages which adds another 45 cents to employer costs. That brings employer costs up to $7.95 per hour minimum, not counting training costs, vacation (if any), sick-time disruptions, and other such costs.

Of course, employers must also factor in the cost of Obamacare.

Small businesses do not have to provide health-care, but under employer responsibility provisions of the affordable care act, businesses that employ more than 50 workers will pay a steep penalty in 2014 if they don't.

Click on the preceding link to see a nice flow chart of the penalty process.

What IF?

What if companies, small or large, did not have to worry about Obamacare? What if they did not have to worry, about training, sick-leave disruptions and weather-related disruptions? What if companies only had to pay $3.00 per hour, rivaling wages in China?

Meet Baxter - The Automation Robot

MIT Technology Review discusses Baxter in Small Factories Give Baxter the Robot a Cautious Once-Over.

Chris Budnick, head of Vanguard Plastics, a small injection-molding operation in Southington, Connecticut is considering the use of Baxter for one process that is not yet automated: stacking and packing textured, plastic cups, which Vanguard sells for 2 cents apiece to a medical company.

It currently costs Budnick $9.00 an hour to have a staffer from a temporary agency to do the job.

Budnick is now considering Baxter to replace that agency job.

Let's tune in to the MIT story for additional details about Baxter and the job Baxter will replace.

Baxter was conceived by Rodney Brooks, the Australian roboticist and artificial-intelligence expert who left MIT to build a $22,000 humanoid robot that can easily be programmed to do simple jobs that have never been automated before.

Brooks’s company, Rethink Robotics, says the robot will spark a “renaissance” in American manufacturing by helping small companies compete against low-wage offshore labor. Baxter will do that by accelerating a trend of factory efficiency that’s eliminated more jobs in the U.S. than overseas competition has. Of the approximately 5.8 million manufacturing jobs the U.S. lost between 2000 and 2010, according to McKinsey Global Institute, two-thirds were lost because of higher productivity and only 20 percent moved to places like China, Mexico, or Thailand.

The ultimate goal is for robots like Baxter to take over more complex tasks, such as fitting together parts on an electronics assembly line. “A couple more ticks of Moore’s Law and you’ve got automation that works more cheaply than Chinese labor does,” Andrew McAfee, an MIT researcher, predicted last year at a conference in Tucson, Arizona, where Baxter was discussed.

Baxter comes with two arms, a vision system, and 360° sonar (which it uses to detect people nearby), but for the cup-stacking job it will also need a specially designed gripper, which Rethink is now developing. Rethink is also developing software so that the robot can communicate with other machines, such as a conveyor belt, telling it to move forward or stop.

So how important will Baxter really be to Vanguard? Budnick couches his answer in baseball terminology. “Baxter is a potential double,” he says. “Maybe a home run if it can use both its arms.”

60 Minutes Discusses Baxter

Inquiring minds are listening to a 13 minute video on 60 Minutes that discusses "The Age of Robots", and Baxter.



Link if video does not play: 60 Minutes on Robots

Please play the video. It's well worth your time.

60 Minutes Quotes and Idea

Percentage of Americans with jobs is at a 20-year low

  • Routine middle-skill jobs are being eliminated fastest
  • Software robots and physical robots replace wanted jobs
  • There are heavily automated warehouses where there are no human workers, right now
  • "You'd think the robots would run into each other but it never happens"
  • One robot saves 1.5 people
  • New Categories of jobs are in the sights of automation
  • eDiscovery replaces legal jobs
  • US manufacturing is making a comeback, but without the jobs
  • Investment in robots has increased 30% since the recession ended
  • Baxter costs $22,000 and can be trained in a matter of minutes
  • Baxter costs $22,000 and lasts 6,500 hours, about $3.40 per hour
  • Buying a robot is like hiring a Chinese worker
  • "Workers in China and India are more in the bulls-eye of the automation tidal-wave than the American worker"
  • Even if manufacturing returns to the US most of the jobs will go to robots
  • "Work as we currently think of it will be largely done by machines"
  • What people will do is the $64,000 question


Email Exchange With Friends

Here is an interesting Email exchange I had with a few friends, one of which sent me the MIT article.

"Bob" writes "Buy American is a big theme with the robotics guys. My future son-in-law won't even buy his tux from a Hong Kong tailor. He refuses to buy anything from China. They view themselves as abolishing Chinese slave labor by making it uneconomic."

"John" responded "What do those people then do to feed themselves?"

"Bob" replied "The easy answer is that it isn't our duty or problem to keep a slave state prospering and fed. You are not going to wipe out China's slave labor overnight. If China's elite sees that its low wage slave labor will no longer reap profits, they will do what other slave masters have done: educate its people so that they can compete in an economy where there are no slave conditions."

In Praise of Cheap Labor

"Mish" says, I fail to see where the above line of thinking goes.

We have come to a point where the minimum wage is 200% too much. How does hiring Baxter at $3.40 per hour prevent slave labor in China? Is no job better than some job?

Baxter is a hugely deflationary force. Increasing the minimum wage only exacerbates the problem.

Oddly enough, Paul Krugman agrees, or at least he once did before he became the "Conscience of a Liberal".

Want proof? Please consider In Praise of Cheap Labor; Are Bad Jobs at Bad Wages Better than No Jobs at All?

Taxing Robots Cannot Work

Economist Paul Krugman and others are now pondering heavy taxes on robots. Is that the answer?

How can it be? Paying more people to do nothing (or to do jobs robots can do cheaper) cannot possibly solve anything. Such practices encourage the birth of more people when there are fewer jobs to be had.

Two Realities

Either technology creates jobs long-term or it doesn't. I believe it does, and on that score I am an optimist (I just cannot say when it will happen).

Let's assume I am wrong. Then taxing robots to meet some artificial living-wage standard can hardly be the answer. Encouraging the birth of more unneeded, unproductive people is a sure-fire way to start a major war.

In either reality, Krugman is wrong.

Fed Cannot Win a Fight Against Robots

The problem is not that wages are too low. Rather, the problem is expenses are two high.

The remedy then is certainly not higher minimum wages (which previously encouraged more outsourcing and now encourages more robots), but rather making the dollar go further.

In that regard, it's a mad world in which the central bankers and the Keynesian clowns are both hell-bent on forcing wages and prices up, when every attempt to do so accelerates the use of more robots.

There is nothing wrong with falling wages provided costs fall as well. Who (other than Keynesian clowns and misguided union activists) does not want lower prices?

Moreover, falling prices as a result of increasing productivity over time is the natural state of affairs. For example, one farmer today produces as much goods as 100 farmers a few decades ago.

Certainly the price of agricultural goods is up over that time frame, but far less than the corresponding increase in money supply and credit (the true measure of inflation).

Robots an Invincible Force

Central banks are powerless to stop the advance of technology. Robots in particular are an invincible force.

Resistance is futile.

The Fed, central banks, and governments around the globe need to embrace technology and its deflationary forces. Otherwise, the result will be a sad combination of fewer jobs, rising population, higher prices, and a ultimately a major war.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.