That there has been, at least in certain sectors of the economy, a labor shortage in the aftermath of the pandemic is undeniable, despite some — shall we say — interesting anomalies in the data, such as in the labor-force-participation rate, which declined from 63.4 percent in January 2020 to 62.4 percent this March, up from a 60.2 percent pandemic-era trough in April 2020, but still short of that recent peak.
Boomers retiring early?
Not really. Take a look at this chart from the St. Louis Fed, which shows the labor-force-participation rate in the 25-54 age group. No Boomers there anymore. In February 2020, following years of decline in the wake of the financial crisis, a decline which only started to reverse in late 2015, the participation rate for this age cohort stood at 83 percent. It bottomed out in April 2020 (at 79.9 percent), but had only recovered to 82.5 percent this March, still some way short of where it was just before the pandemic began to hit.
So, to the extent that there is a labor shortage, it must be one that is highly selective.
To understand what’s going on, perhaps it’s worth looking beyond, say, the impact of savings accumulated during the pandemic, and examining the impetus that Covid-19 gave to automation, including in sections of the service sector, where human contact became less of a virtue than it once was and where the advantages of machines (or, say, QR codes) seemed rather greater. They don’t get sick, nor do they infect others. And nor, as we live through what must now be described as Putin’s Price Hike™ do they worry about declining real wages.
Under the circumstances, this Bloomberg report made interesting reading:
A nascent trend of offering robots as a service — similar to the subscription models offered by software makers, wherein customers pay monthly or annual use fees rather than purchasing the products — is opening [automation] opportunities to even small companies. That financial model is what led Thomson to embrace automation. The company has robots on 27 of its 89 molding machines and plans to add more. It can’t afford to purchase the robots, which can cost $125,000 each, says Chief Executive Officer Steve Dyer. Instead, Thomson pays for the installed machines by the hour, at a cost that’s less than hiring a human employee — if one could be found, he says. “We just don’t have the margins to generate the kind of capital necessary to go out and make these broad, sweeping investments,” he says. “I’m paying $10 to $12 an hour for a robot that is replacing a position that I was paying $15 to $18 plus fringe benefits.” . . .
Even Robex LLC, a traditional automation systems integrator in Perrysburg, Ohio, whose main business is leasing equipment to customers, has decided to offer robots as a service, dubbed Robex Flexx, to expand its customer base, says President Craig Francisco. “I believe if we didn’t have something like this in place, it would hurt our business eventually.” Francisco says the services model could become a quarter of Robex’s business in a few years. “With minimum wages going up and the need for employers to pay a higher wage, it’s becoming really easy to justify the Flexx program.” Even large companies are interested in the financing model because of capital-expenditure constraints for buying or leasing the equipment, he says.
And, given the role that agricultural labor plays in our perennial immigration debate, it’s also worth noting this:
Robots are also moving into agriculture as vision and machine learning improve. Stout Industrial Technology Inc. in 2020 began selling a machine that’s pulled by a tractor and weeds large fields. The machine’s sensors distinguish between a desirable crop and the unwanted weeds after being fed thousands of photos to teach it the difference, and the device chops down the weeds with a hoelike blade. This is usually backbreaking work done by crews of about 25 people.
I could, of course, be wrong about the role that automation may already be playing in blunting current labor shortages, but throw in the short-term dangers of recession as well as the extra impetus given by the pandemic to the already rapid increase in automation, and it is hard to believe that the labor shortage will be with us for very long.