At the recently concluded 2014 Connected World Conference, colocated with the Chicago Auto Show, Peggy Smedley, Editorial Director of Connected World magazine, announced the 13 global technology trends that will affect all of us who increasingly live in the “connected world.” These are the trends that Connected World will monitor and report on as developments occur.
One trend, the accelerated displacement of humans by connected technology, is drawing increasing scrutiny here in the United States. The essence of the trend concerns the friction between public policy moves, at both Federal and State levels, to increase the minimum wage, and the impact a more costly work force will have on businesses. Peggy called this an insidious “action-reaction” cycle.
The Congressional Budget Office recently issued an assessment of the impact of the new Federal minimum wage increase, the effect of which would, at a wage of $10.10 per hour, reduce the number of low-wage jobs by about a half a million workers by 2016. States and cities can set minimum wages higher than the Federal minimum, and presently, San Francisco, Calif., has the distinction of leading the nation at $10.74 per hour.
On March 3, 2014, The U.S. Supreme Court agreed to hear a labor law case that has significant financial consequences for companies such as Amazon that outsource labor requirements to 3rd party providers. As reported in the March 4th edition of the Wall Street Journal (“Court to Weigh Pay for Security Checks,”) Integrity Staffing Solutions, the staffing company that provides Amazon with workers used in its distribution centers, is coming under review. At issue is whether the time workers went unpaid while waiting for and undergoing theft screenings. They were required to “clock out” of their work shift, and wait up to 25 minutes, unpaid, to go through the screening process. Affecting about 600,000 current and former workers at Amazon facilities, the estimated range of the financial impact is $100 million- $300 million.
It is no secret that Amazon is moving to highly automated operations within its distribution centers, and as I reported in The New Patent Report update of Jan. 28, 2014, it has additional technology that can further reduce the number of humans it needs to process customer orders.
We spoke about the crux of the human displacement trend as the friction that develops when the cost to employ a human in a low-skill function comes within range of a machine that can do the same with a processing rate equal to or exceeding a human worker. Fast-food restaurant chain executives, as an example, make technology-based business decisions and use financial tools such as the ROI (return on Investment) analysis. Essentially, ROI tells an executive how fast the investment in a new technology can be paid back. In an ROI assessment, “hard” and “soft” costs are considered. Examples of hard costs are the acquisition, implementation and ongoing operation of the technology being acquired. Soft costs, when comparing robots to people, could include the elimination of overhead (also called “fringe” and is typically 35-40% of the wage paid to the employee), sick days, union issues, judgmental errors, variable processing rates between workers, language barriers and the negative side of human behavior.
If a robot can displace more than one human, then that is viewed as a hard cost reduction benefit.
If we pay close attention to the details of the story in the Wall Street Journal cited above, the security checks are conducted to ensure that employees are not stealing merchandise from the distribution center after the end of their shift. There is a polite term for this: “Shrinkage” and in the U.S. it is a significant problem. Globally, it is estimated to be about $112 Billion, or 1.4% of retail sales.
It is not hard to imagine the soft cost calculation in the ROI analysis for the elimination of shrinkage. Businesses know the annual dollar amount that employee theft costs them. Divide that by the number of workers to get a per person cost. How many people will the robot replace? Multiply the per person cost by the number of people and that becomes a soft cost avoidance benefit the robot replacement will provide.
While we’ll keep monitoring this situation and report key indicators to you as they occur, it is not too early to ask ourselves the question: Where do the half million people that will lose their jobs because of the minimum wage increase go? And, if they don’t have a job, how can they be continuing consumers of connected devices?