But Where Will the Jobs Come From?
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Recently, the Federal Reserve released a study, written by Dr. Ed Lazear of Stanford, that declared the current poor jobs market is secondary to cyclical business forces and not structural change. Therefore, the job market should respond to stimulus actions by the Fed. Notably, the study found that this past recession was so severe that it has exerted a greater impact on unemployment than previous recessions. The study implied, in time, employment will return to its pre-recession levels. No prediction was made regarding when this would happen. For me, the one big question the Fed or anyone else fails to address is: where will the jobs come from?
As I see it, the biggest job deficit is in the low skill or no skill job market, particularly manufacturing, that used to pay a middle class wage. It's been said US industry has shipped too many of these jobs overseas and there is likely true. However, there is no getting around the impact of automation. For example, there is 3D printing. The Motley Fool has predicted that 3D printing may spell the end of "Made in China." Investors seem to agree as the price of Stratasys (NASDAQ: SSYS) and 3D Systems (NYSE: DDD) are steadily climbing despite high earnings multiples. When you see what 3D printing can achieve, it's no wonder investors are buying these companies. While 3D printing may bring manufacturing back to the US, I'm not so sure it will generate the large numbers of high paying jobs this country needs.
Robotics have been displacing workers for years. Modern automobile manufacturing plants have rows on rows of robots assembling cars where humans used to work. Admittedly, mass production work is dull, but at least it pays a middle class wage. Now, Lincoln Electric (NASDAQ: LECO) and numerous private firms offer a broad array of robots that cut, weld, drill, bolt and assemble products. I was given a tour of a small kitchen remodeling firm that did its own carpentry, except they employed no carpenters. They have a machine that can take a piece of wood and make cabinet doors from it. Cutting, routing, drilling, whatever, all done by this one machine. Impressive, but I wondered how many carpenters are out of a job because of this robot?
Kiva, now being bought by Amazon (NASDAQ: AMZN) has automated warehouse operations. The company makes robots that can pull products off shelves and deliver them to a packing station. By one estimate, once an online order is received, the product can be pulled and delivered to a packing station in less than 15 minutes. Can you say "same day shipping?" The robots also help organize products in the warehouse depending on the popularity of products sold. This reduces labor costs and boosts efficiency which, in turn, allows ecommerce sites to offer free shipping. Before Amazon bought the company, Kiva allowed small ecommerce companies to compete with larger online firms. It's still early to tell how much impact Kiva's robots will have on Amazon's bottom line, but with more than 56,000 employees, my bet is Amazon's earnings will improve as its labor costs and workforce decline.
Two recent reports add to my jobs concerns. First, the NY Times highlighted a study by the National Employment Law Project that showed most new jobs created during the current recovery were low paid service jobs. The rise of so-called mid-wage jobs lagged. Second, CNBC featured a report by Deloitte Growth Enterprise Services that showed many American mid-market companies are optimistic about the future. They plan on expanding their operations and investing in new products and markets, but they won't hire new people. Their plan: retrain their existing workforce and improve productivity through technology. These trends do not bode well for middle class jobs, especially those in manufacturing.
Dr. Lazear has described the current economic recovery as the worst economic recovery in history. I'm inclined to agree. I disagree with his conclusion that the "jobless recovery" we are experiencing in not structural in origin. After World War 2, industrial production in America took off and allowed millions of Americans to enjoy a middle class lifestyle with just a high school education. Those days are gone. Politicians today are promising jobs, but any fool, Motley or otherwise, know government can't create sustainable jobs. As an investor, I'm long on automation. As a father, I'm advising my high school daughter to go to college and earn a science or engineering degree. As a taxpayer citizen, I'm bracing for a long haul of unemployment/underemployment as the country adjusts to more robots replacing workers.
dylan588 owns shares of 3D Systems and Stratasys. The Motley Fool owns shares of Amazon.com and 3D Systems and has the following options: short NOV 2012 $35.00 calls on 3D Systems. Motley Fool newsletter services recommend 3D Systems, Amazon.com, and Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
