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Corena Golliver

June 2014

Our Thoughts on the Shifting Value of Labor Versus Machinery

A recent article in Pieria made some interesting points on how the recession has impacted worldwide use of automation versus use of labor.

The author of this article, Simon Wren-Lewis, describes his recent experience at a car wash that was utilizing human labor rather than an automated car wash system. Indeed, it is very unusual these days to come across a manual car wash, and as Wren-Lewis notes, this likely suggests that in an unusual turn of events, human labor in this market had actually become more cost effective than repairing and replacing the old machine.

The logic behind this is as follows: when a recession begins, people begin to cut down on their expenses on luxury goods and non-necessities. Washing your car would, for most, be considered a non-necessity. So, as customer demand for car washes go down, there begins to be less money available for the upkeep of the machinery. When the machinery becomes too old, if there is still low demand, the gas station owner becomes less likely to be able to afford the high upfront cost of a large piece of new machinery. If in doubt about the demand, it is much easier for the gas station owner to hire a few employees who would require a few years of salary before they became more expensive than the machinery. And, when there are not enough people who want car washes, these employees can be put to other tasks, or if demand drops altogether, these employees can be put into other positions or let go at a far lower cost to the owner than the cost of replacing an automated car wash.

So at present, there are more car washes using human labor because, in a strange turn of events, human labor is not often cheaper than machinery.

However, this is truly a reflection not on the cost of automation machinery, but on the unfortunate state of unemployment. Part of the purpose behind developing automated machinery is in that it should ultimately be cheaper and more efficient than people doing the same job. However, this is only true in cases where there is a dramatic difference in productivity between the machine and the person. Machines could be much faster at cleaning cars than people are, but there simply is not enough demand for them to be faster.

Thus, though we may have the technology to automate this process, we have in some ways gone backwards in that human labor has become the less expensive option compared to the technological option. This suggests that in the future, we may be witness to an interesting balancing act as we try identify when we can automate but it does not actually make financial sense to do so.