Man vs. Machine, a Jobless Recovery

One of the themes that I have been stressing of late in this jobless recovery is the rise of the machine which has been the engine behind the increase in productivity over the past few decades, see posts [February 1, 2012 Making It in America] and [December 24, 2012 Robot Workers Take Over Warehouses].

Here is yet another supporting piece to that thesis from the WSJ, Man vs. Machine, a Jobless Recovery.  As the story details, even Sunny Delight the maker of juice drinks which I loved as a kid is heavy into the modernization of it's equipment in order to drive cost lower and improve productivity which = less people.

From the WSJ

• Billy Cyr, chief executive of Sunny Delight Beverage Co., a Cincinnati-based beverage company, says he is buying new machinery partly because it is a bargain. "When the cost of capital goes up, it is harder to justify an equipment purchase and may, instead, result in higher employment using existing equipment," he says, such as by adding shifts or overtime for existing workers. Today, the opposite is happening.
• Instead of hiring, companies such as Sunny Delight and chain-saw maker Stihl Holding AG are investing in technology or other ways to make existing operations faster and more productive. History suggests that investment that increases productivity eventually will create jobs and raise living standards. The mechanization of the farm and the automation of the factory both raised fears of permanent unemployment that were unrealized, as efficiencies in production of basic commodities created jobs in all sorts of services.

M. Scott Brauer for The Wall Street Journal

• Even as demand has drifted back, companies are keeping that ball rolling by spending more money on machinery that automate functions. "It's as if the economy had a pent-up potential for labor savings that hadn't been harvested until the recession," says Mr. Brynjolfsson, author of a new book on automation.
• Of course, the surge in capital spending isn't the only impediment to hiring. Some employers say they would hire more if there wasn't so much uncertainty, about everything from the durability of demand to tax and regulatory policy. Others complain they can't find qualified workers for the vacancies they have.
• Sunny Delight is spending $70 million to upgrade its five U.S. juice factories, a record annual investment for the company, which was split off from Procter & Gamble Co. in 2004.   Coming early next year: automated vehicles to replace the factory's fleet of forklifts and drivers.
• "Some people who drive forklifts now will shift to supervise the automated vehicles," says plant manager Dan Gray, leading the way through the cavernous facility, where the heated mix of liquid coursing through overhead pipes gives the air a sweet smell. "But others will have to move to other jobs in the plant."
• The upshot will be fewer people. Littleton will shed 30% of its original 140 workers by the time the renovations are done.

• The trend toward using labor-saving machines and software isn't limited to factories. W. Brian Arthur, an economist at Xerox Corp.'s Palo Alto Research Center, says businesses are increasingly using computers and software in the place of people in the nation's vast service sector. Many companies, for instance, use automation to process orders or send bills.
• "It's not just machines replacing people, though there's some of that," Mr. Arthur says. "It's much more the digitization of the whole economy."
• Peter Mueller, executive vice president of the U.S. arm of Germany's Stihl, says he would buy robots and other machines even if they were far more costly. In Virginia Beach, Va., he recently opened the company's most advanced factory for making chain-saw guide bars, the metal frames that hold the chains in place.
• The plant has 120 robots that run around the clock every day, with only seven workers on each shift. Next year, the company plans to spend $10 million for machines and software that will allow the plant to double its output. It will only need six more workers to do that.
• Mr. Mueller says companies that want to produce in the U.S. and compete globally against low-cost producers in places like China need the latest technology or risk getting steamrolled by the competition. Mr. Mueller says the cost for a chain saw made in Virginia is just 1.8% higher than one his company makes in China. "It shows you the power of automation."