When the U.S. Bureau of Labor Statistics releases its Aug. 11 preliminary report on second-quarter labor productivity, let’s hope for improvement over the first quarter, when productivity declined at a 3.1 percent annual rate. This came on top of a 2.1 percent decline in the fourth quarter of 2014.
Year to year, from the first quarter of 2014 through the first quarter of 2015, there was a slight uptick: 0.3 percent. But this is not particularly reassuring: According to BLS, annual productivity gains in the nonfarm business sector averaged 1.5 percent in the 1980s, 2.2 percent on the ‘90s, 2.6 percent from 2000 to 2007 – before the economy tanked – and 1.4 percent from 2007 to 2014. Zero point three percent doesn’t cut it.
There are many possible reasons for the slowdown in productivity, typically one of the U.S. manufacturing sector’s strong suits – and one of the reasons, along with low-cost energy and America’s labor flexibility, that manufacturing has been returning to the United States from foreign shores.
One big reason, I think, may be the ongoing wave of baby boomer retirements. The baby boomers continue to leave the workforce at a rate of about 10,000 a day. When an employee with 30 or 40 years of experience leaves the workplace a business loses an asset that often can’t be duplicated.
As a practical matter there are only so many ways to increase productivity, or output per hour worked. Workers can work faster, harder, and smarter – or companies can substitute machines for humans, as they’ve been doing since the advent of the industrial age.
This substitution trend is about to accelerate, driven by advances in robotics.
What’s happening is this: Industrial robots are becoming more affordable at the same time that they’re becoming smarter, smaller, nimbler, and more adaptable and energy efficient. As the baby boomers continue to leave the workforce over the next decade, more and more companies – frustrated by America’s inadequate education system and overly politicized immigration policies – are going to replace such workers with machines.
Overall, industrial robots today perform about 10 percent of all manufacturing tasks, on average. Ten years from now, the percentage probably will have increased to about 25 percent – not just here in the United States, but worldwide – with annual spending on industrial robots more than doubling from about $11 billion today to more than $24 billion in 2025.
We’ll also see expanded use of robots in agriculture, medicine, construction and other industries, with spending in these areas increasing from about $5.9 billion per year today to as much as $17 billion per year by 2025.
This will be one of the major factors – perhaps the major factor – powering future productivity gains both here and abroad. By 2025, we estimate, the productivity gains stemming directly from the increased use of industrial robots will range from 10 percent to 30 percent, depending on the country and industry. This is what will give companies and countries a competitive advantage.
Driving the robotics boom are recent technology improvements, combined with declining costs. For example, the price of an advanced robotic spot welder – the type widely used in auto manufacturing (which, by the way, accounts for about 40 percent of all robots currently in use) – has dropped significantly in recent years, from an average of $182,000 in 2005 to $133,000 in 2014. Ten years from now, the price could be 20 percent lower still.
With prices continuing to fall and robots becoming more adaptable and user-friendly, small- and medium-sized companies are getting in on the action as well. The base price of a Baxter Robot, for example, is now just $25,000, an amount a smaller manufacturer can afford.
Robots are cost effective in other ways as well. As my colleagues Alison Sander and Meldon Wolfgang pointed out in a 2014 article, “Robots can … do without lighting, heat, air conditioning, supervision, food and bathroom breaks.” So what we’re seeing, and will see more of in the future, are “lights out” manufacturing plants, operating largely unsupervised for days at a time, at great cost and energy savings.
Couple this with improvements in the robotic systems themselves – better vision sensors, better gripping systems, easier-to-program computer technology – and the business case for robots becomes compelling. Leaders in key industries who think otherwise will pay the price.
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This article was written by Harold Sirkin from Forbes and was legally licensed through the NewsCred publisher network.