What motivates companies to replace workers with machines?
What motivates companies to replace workers with machines?
Yesterday was Beige Book day. That’s one of the eight days a year when the Federal Reserve releases its summary of regional and national economic conditions. It tends to be a big day here at Marketplace, because the Beige Book is always full of interesting little tidbits about where this economy is right now.
Two of those little tidbits in the one that came out yesterday caught our attention: The Minneapolis Fed reported that a manufacturer said, “I don’t expect to fill any of my open jobs. We are increasing our capital expenditures to adapt our processes to smaller headcounts.” Meaning more automation, fewer workers.
Meanwhile, the Boston Fed reported: “A large clothing retailer let go 150 workers by closing a call center, citing the shift towards more automated customer service technologies as the driver.”
Manufacturers have been dealing with a labor shortage for years. Some are frustrated either because they can’t find workers or don’t want to pay the higher wages workers want to fill open jobs.
“And as a result might be turning to available technology to substitute for additional hiring,” said Lonnie Golden, an economics professor at Penn State Abington.
He said there are all kinds of benefits to spending on machines, including “less PTO, less payroll taxes, less managerial motivation techniques.”
Right now happens to be a good time for manufacturers to be taking down their “done is better than perfect” signs.
Ron Wirtz, regional outreach director for the Minneapolis Fed, pointed out manufacturing has slowed down a bit.
That means company leaders can take a minute to think.
“And when you are really busy, you might not be able to afford the time component in terms of making that investment to get higher productivity and higher efficiency,” he said.
Capital expenditures can be pricey. And right now, even more expensive for manufacturers that borrow to pay for them.
Still, Gusto principal economist Liz Wilke said the labor shortage is a problem that isn’t going away.
“I think by and large, they’re looking at a future where they’re just generally going to have fewer and fewer available skilled workers,” she said.
Wilke said the dynamic is a little different with the retailer that decided to lay off its workers and use an automated system instead.
“I think generative AI has really been able to fill a lot of those gaps for things that are labor intensive, like call centers, right. And I think we can see that shift happening as a result of technology,” she said.
There can be downsides to trading people for machines.
Ron Wirtz of the Minneapolis Fed poineted out if demand goes down, it’s possible to let workers go.
But with a machine, if you bought it with borrowed money, you still have to make payments even if you turn it off.
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