Low-skill workers will be the have-nots of automation

Firms that are heavily reliant on low-wage workers are actively investing in robotics to replace them and being rewarded on the stock market for their successes.

Many of these firms strive to be “Amazon proof.” Right now, it looks like the likelihood of surviving will bifurcate around the “haves” and “have-nots” of robot technology, some of which is designed to replace low-wage workers.

Evidence pointing in this direction can be found in a report I recently prepared for the European Commission’s Directorate-General for Employment, Social Affairs and Inclusion.

{mosads}Estimates from 24 countries reveal that the automation of jobs over the next decade is not divisive along demographic lines (like age and gender). Rather, the largest shares of jobs that can be potentially lost belong to low-skill individuals who do low-income jobs.

This is different to what has happened before — a hollowing out of the middle of the distribution, mainly affecting male workers. Retrospective evidence that automation has already changed the type of work available for low-skilled workers is also commented on here.

So, the greatest overall losers in the advent of technology are likely to be low-skilled individuals who currently earn a low wage.

The stock market reacts positively to firms reliant on low-wage workers replacing them with technology. In Britain, online grocer Ocado entered the FTSE 100 for the first time this month. Ocado boasts innovations of cuboid robots that pack groceries for home delivery, robotic fruit pickers and trials of driverless delivery vans.

These are all direct substitutes for the minimum-wage workers they traditionally employ. A deal with Kroger in mid-May secured Ocado as a leader in technology in the grocery retail space. Shareholders have been well rewarded with a stock price jump. Ocado is now a revolutionary force in contemporary retail.

Walmart also uses robots to scan for out-of-stock items in their aisles developed by Bossa Nova Robotics, cutting down on tasks done by low-wage employees. Amazon Go allows customers to grab their groceries and pay via their personal phone, replacing cashiers entirely with automation.

In the U.S., 3.5 million people are employed as truck drivers. Trials for semi-automated trucks are happening on public roads in many regions, including the U.S. and the EU. These trials involve platooning, where trucks from the same company drive in a covey.

In steady state, only one driver will be needed per convey, dramatically decreasing the number of truck drivers on the roads. Suning Logistics in China has also created a fully driverless truck — Strolling Dragon — that has passed highway scenario trials. The company currently employees 100,000 truck drivers.

Many more low-wage workers engage in taxi driving. This is another area where technology will substitute workers in the next decade or less. Waymo’s recent successes in creating autonomous vehicles are in contrast to the fatalities caused by Tesla’s competing technology. Waymo continues to expand and reports tell us that Uber is looking to use the Waymo driverless car in its service.

Fastbrick Robotics has unveiled Hadrian X, a robot that lays 1,000 standard bricks in 60 minutes. Boston Dynamics and Cobalt sell robots that can perform some security guard tasks. Swedbank uses an AI personal assistant instead of call operators.

Lowe’s has introduced the LoweBot, which helps customers find what they need in some stores. All of these are examples of technology being a successful replacement for low-wage workers.

There are fantastic opportunities for investors to identify companies that employ a lot of low-wage workers and that are making strides to replace them with innovate technology. These investors will be rewarded with a higher share price — like Ocado — if innovation efforts are successful.

The jobs that will be taken by machines are likely to be replaced by other types of work. Non-cognitive skills and abstract reasoning are valuable as they are not directly substitutable by robotics. Trouble-shooting, creation and maintenance of technology are also valuable.

Notably, these are skills that are not usually found among the average low-wage worker. It is less likely that re-training options will be made available to older low-skilled workers, making them the potentially most vulnerable group to job loss and income insecurity.

Automation of workers has winners and losers. Policymakers need to think about real options to capture some of the rents created by these new technologies to buffer the negative effects of the fourth industrial revolution on its most vulnerable citizens.