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Mark Yu
Mark Yu
Articles (375)  | Author's Website |

Will the Rise of Robots Threaten Jobs?

Restaurants are the latest industry to employ automation

Are people really losing jobs to the robots?

(Business Insider)

According to the image above, we are.

Business Insider forecasted a loss of 7 million jobs to the robots by 2018, while the World Economic Forum predicts the same amount, but by 2020. Further, WEF expects that 2 million jobs will be recovered so as to support the robotic industry, therefore resulting into 5 million net loss in jobs.

A direr situation of people losing jobs to robots was presented by Oxford in 2013. The study claimed that about 47% of American jobs are at "high-risk" of being automated in the next 20 years. The article also identified that as a job susceptibility to computerization increase, the lower the wages and educational attainment are required. The Oxford study, which is free, also went back to discuss several events in history. It goes back to the Glorious Revolution that occurred in 1688, resulting to transition of craftsmanship to Machinery. I highly recommend interested individuals to read through it.

Nonetheless, reviewing some information about certain industries that would probably hit by this technological shift would be interesting.

Cars

There are two areas I assume that can be affected by the transition to robotics: car manufacturing and self-driving cars.

Car manufacturing

(Quartz)

One may assume that because of robots, car manufacturing jobs may have fallen. Observation in the respective car manufacturers annual filings revealed otherwise.

Asia:

· Toyota (NYSE:TM) had grown its employees by 18%, from 2006 to 2014.

· Honda (NYSE:HMC) had grown its employees by 48%, from 2006 to 2015.

Europe:

· Volkswagen (VLKAF) had grown its employees by 82%, from 2006 to 2014.

North America:

· Ford (NYSE:F) had reduced its employees by 38%, from 2005 to 2014.

· General Motors (NYSE:GM) reduced its employees by 23%, from 2006 to 2015.

Interestingly enough, car manufacturers in the U.S. had reduced its employee count more when compared to emerging markets Asia and the European car manufacturers. With more technology coming online, observing the American car manufacturers’ contribution to hiring labor force would be interesting.

Self-driving cars

"At some point in the future – though not, in my view, for a long time – GEICO’s premium volume may shrink because of driverless cars," Warren Buffett (Trades, Portfolio) (p. 24 of Berkshire’s annual report).

As the Oracle of Omaha had pointed out, job employment in car manufacturing would not be the only one placed at risk. Car insurers are to be threatened, too. With less human error in the equation along with possible all-around chauffeur leasing services that would be "cheaper" (I'm forecasting here), there would be less demand for premium insurance deals accompanied by fewer car purchases.

Buffett’s GEICO insurance business, which primarily is involved in car insurance business, had been a cash machine and has been contributing well to Buffett’s float. Berkshire uses this float to acquire great companies at acceptable price, such as the recent $32 billion acquisition of Precision Castparts.

According to Berkshire’s recent annual report, its total float was at $87 billion. GEICO had contributed roughly 17% in the total amount or $15.1 billion. Eliminating GEICO’s contribution to the float since its acquisition in 1995 would yield a total float of $72.5 billion. I assume Buffett and Munger’s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) would definitely cruise along regardless of wherever the self-driving technology would bring.

Experts had already been predicting about 10 million cars are to be autonomous by 2020. Total vehicles around the world that are being operated, on the other hand, had hit 1 billion as of 2011. In summary, there would still be less than 1%, possibly, of total vehicles that would be self-driven by 2020.

Nonetheless, car companies are definitely seeking ways to catch up with Google’s leading self-driving technology. General Motors recently acquired Cruise Automation Inc. for $1 billion, as it is the biggest acquisition in the auto industry currently.

(Wall Street Journal)

Uber, valued at $62.5 billion, also has its own project of autonomous driving and is trying to create vehicles that may replace taxis.

(A test car from Uber’s Advanced Technologies Center (ATC) in Pittsburgh)

Farming

The transition to better technology in our food producers cannot be better explained by anyone else, but by the Oracle himself:

“…In 1900, America’s civilian work force numbered 28 million. Of these, 11 million, a staggering 40% of the total, worked in farming. The leading crop then, as now, was corn. About 90 million acres were devoted to its production and the yield per acre was 30 bushels, for a total output of 2.7 billion bushels annually.

Then came the tractor and one innovation after another that revolutionized such keys to farm productivity as planting, harvesting, irrigation, fertilization and seed quality. Today, we devote about 85 million acres to corn. Productivity, however, has improved yields to more than 150 bushels per acre, for an annual output of 13 billion to 14 billion bushels. Farmers have made similar gains with other products.

Increased yields, though, are only half the story: The huge increases in physical output have been accompanied by a dramatic reduction in the number of farm laborers (“human input”). Today about three million people work on farms, a tiny 2% of our 158-million-person work force. Thus, improved farming methods have allowed tens of millions of present-day workers to utilize their time and talents in other endeavors, a reallocation of human resources that enables Americans of today to enjoy huge quantities of non-farm goods and services they would otherwise lack.

It’s easy to look back over the 115-year span and realize how extraordinarily beneficial agricultural innovations have been – not just for farmers but, more broadly, for our entire society. We would not have anything close to the America we now know had we stifled those improvements in productivity. (It was fortunate that horses couldn’t vote.) On a day-to-day basis, however, talk of the “greater good” must have rung hollow to farm hands who lost their jobs to machines that performed routine tasks far more efficiently than humans ever could…”

(p. 21, recent Berkshire Hathaway annual report)

Finance

A New York Times article, which succinctly summarized the Oxford study above, also presented an article in February this year regarding Goldman Sachs (NYSE:GS) possibly requiring less working staff 10 years from now.

Coincidentally, a month later after the New York Times published article, Goldman Sachs announced a roughly 5% lay off of its employees, which were primarily in the Fixed Income business. The lay-off decision was made after the poor performance of the FI business, once contributing 40% to Goldman Sachs’ sales, and now just 15%. This poor performance was primarily brought by low interest rates, according to the article. Although there was no robotic-related discussion, being vigilant about the reasons why the big banks are cutting jobs would be time well spent.

(Inc.com)

Going back to the emerging threat in the finance industry, investments in the financial technology (fintech), had grown 692% between 2012 and 2015 to $19 billion. A record amount of $1 billion had also been invested in the technology behind Bitcoin, which is the blockchain technology. Blockchain technology will eventually enhance the banks’ record-keeping power, facilitate cross-border payments, and correspondingly reduce paperwork and more importantly, reduce fraud.

According to the New York Times article, decisions about loans are now being made by software that can take into account a variety of finely parsed data about a borrower, rather than just a credit score and a background check. So-called robo-advisers create personalized investment portfolios, obviating the need for stockbrokers and financial advisers.

Several robo-advisors had already risen:

(Investor Junkie)

An individual can open an investment account in Betterment with just $1 in deposit. The assets each of these robo-advisors handle is probably peanuts compared to those of well-distinguished group of fund managers, but one can anticipate more funds may flow into these vehicles secondary to lesser fees and ease of investment planning.

According to the table above, Betterment, Charles Schwabb, and Future Advisors were the only businesses provided automated investment advices.

Restaurants

No commentary made me paid more attention than the statement provided by the former McDonald’s CEO Ed Rensi: “It’s cheaper to buy a $35,000 robotic arm than it is to hire an employee who’s inefficient making $15 an hour bagging French fries."

(The ‘Fight for $15’)

McDonald’s appears to be one of the biggest employers in the U.S. As of December 2015, the company had 420,000 employees according to its annual filing. Accordingly, the U.S. had roughly about 157 million employed in the same time frame. If hypothetically McDonald’s decided to invest in robots and eliminate all personnel, "only" about 0.27% of the total labor force would be eliminated.

(A new self-service kiosk at a McDonald's in New York City)

Nonetheless, McDonald’s current CEO Steve Easterbrook has said that he does not see robotics as "a risk to job elimination."

(Getty Images)

In addition to this, McDonald’s has been observed to bring a new concept in terms of being a fast food restaurant through its ‘Create Your Taste’ initiative in Hong Kong. In the pictures above, McDonald’s seems to have not put in the "robotic" design in the turn-key system yet.

(Will Pizza Hut soon be run by robots? MarketWatch)

But how would it look if there was a restaurant that is serviced mostly by robots? A video from 2013 shows a sushi restaurant that had been operating with its robots.

McDonald’s is not the only business that is experiencing labor disputes recently. One may also have observed the big protest of more than 35,000 unsatisfied Verizon employees demanding better wages. Nonetheless, it ended just yesterday after the six-week parade.

(Verizon strikers)

Would it be better if we see flying drones installing and fixing a telephone line post, and or an interactive phone answering machine?

"Jousting (entertainment) used to be a sport, but it’s no longer here." - Michal "Carmac" Blicharz.

Happy investing!

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About the author:

Mark Yu
A doctor in physical therapy (DPT) with a passion for finance. Not a registered financial analyst. Value seeker. Long only. Global investing. Long-term investing.

Attempts to dissect company filings per day. Dislikes goodwill and intangible assets.

For quicker reading--jump ahead to an article's conclusion.

One company (review) a day keeps the speculation (hopefully) away.

Would typically invest $500 to $3000 of own money per buy recommendation.

"The only source of knowledge is experience"

"I have no special talent. I am only passionately curious." Albert Einstein

"To strive, to seek, to find, and not to yield." Alfred, Lord Tennyson

"We find one a year, that's terrific. You do not need a hundred or a thousand great investment ideas to do well. You need a couple. And, the discipline is the most important thing." Warren Buffett

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