Capital Replacing Labor

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  • Businesses are replacing employees with equipment
  • Technology in the form of machinery and equipment will reduce jobs at an increasing rate

Anyone listening to the Nightly News knows that key issues center on job growth and economic recovery. The U.S. economy’s growth since the third quarter of 2009 can be primarily attributed to business investment and stimulus. For example, GDP dropped by 6.8% in the fourth quarter of 2008 and was negative by 4.1% from mid-2008 to mid-2009. The rebound in 2009 resulted in GDP peaking at 5% and average growth below 3%.

Normally, jobs grow rapidly in an economic recovery. In this recovery, business investment increased by 25% in the second quarter of 2010, but the consumer has been deleveraging, i.e., paying down debt and saving. The savings rate is now 6% of disposable income, up from a negative rate a few years ago.

A trend that has been below the radar screen but discussed by Jack Welch on CNBC is that businesses are replacing employees with equipment. On-ground evidence finds that only one in four May 2010 college graduates found permanent work. One might conclude that this was a result of Baby Boomers staying in the workforce longer. While this may be true, another paradigm shift is occurring. Businesses in America and worldwide are replacing people with equipment as technology increases and machinery and equipment becomes more sophisticated. What are some of the reasons?

 

  • Machinery and equipment do not require healthcare insurance.
  • Machinery and equipment have more favorable tax advantages.
  • Machinery requires no overtime pay.
  • Machinery and equipment do not file unfair labor practice charges.
  • The machinery can be started up or stopped by using a switch, instead of hiring and firing workers.

After World War II, machinery and equipment reduced employment and jobs, particularly in agriculture and manufacturing. Today and in the future, technology in the form of machinery and equipment will reduce jobs at an increasing rate.

 

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.

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