Businesses spend money on automation, not employees

“Down at the well they got a new machine
The foreman says it cuts man power by fifteen.”
Country Comfort, by Elton John and Bernie Taupin

By now, you’ve probably heard about a New York Times story last week that reported what everyone in the materials handling business has known for the past year: businesses are spending money on automation, not employees.

“Workers are getting more expensive while equipment is getting cheaper,” the Times reported, “and the combination is encouraging companies to spend on machines rather than people.”

What struck me most was a quote from Dan Mishek, the managing director of a Minnesota company that makes plastic products for equipment manufacturers. According to the Times, Mishek’s company spent $450,000 on new technology last year, but hired just two new workers, whose combined annual salary and benefits are a third of what he spent on technology. Of course, the technology and equipment spend is a one-time investment while the salaries and benefits keep recurring and get more expensive every year.

Explaining the disparity between the two numbers, Mishek said publicly what a number of individuals have said to me privately. “I want to have as few people touching our products as possible,” Mishek told the Times, “… especially when workers are getting even more expensive.”

Part of what’s driving these investments is the tax credits and depreciation bonus passed by Congress last year. At the time, a panel of experts on CNBC predicted it was a great deal for American competitiveness but not for the American worker. “A company can buy new accounting software that makes them more competitive,” one of them said. “But they also layoff two accountants.”

But I think there’s something else going on, and it’s not pretty. We are at the start of a long-term and painful structural change away from providing lots of jobs that require little skill towards a few jobs that require a reasonable degree of technical skill. Caught in between are the unemployed who don’t have the skills needed to fill the jobs that are going wanting.

“People don’t seem to come in with the right skill sets to work in modern manufacturing,” Mishek complained to the times. “It seems as if technology has evolved faster than people.” That too is a complaint I have heard over and over in private conversations with end users, consultants and solution providers in our industry.

As we enter the political season, I hear politicians from both sides of the aisle proclaim that what we need are policies that will bring back manufacturing to the United States. That will put the unemployed back to work.

I think that’s great. But without education programs and policies to develop the skills in demand from businesses like Mishek’s company, those policies will be for naught. And that won’t happen over night.

Not so great for the unemployed. In the meantime, it’s good to be in the automation business.