Here’s a thought: we will all be unemployed at one point in the future!
100% unemployment rate? Sounds crazy, I know. Even I was surprised by this conclusion. But, please, bear with me as I explain my thought process…
Priority #1: profit maximization
Let’s start with business owners. All business owners have one thing in common: their desire to maximize profit.
Now, simplified, profit is the difference between money collected and money spent for delivering a product or service.
And, there are only three ways how profit can be increased:
1. Sell more units
2. Charge more per unit sold
3. Reduce costs per unit sold
Profit maximization requires cost reduction
Now, of the three above, the last one—reducing costs—holds the biggest potential because it allows for the biggest leverage in the marketplace. If you can produce cheaper than your competitors, you can undercut their prices and, effectively, price them out of the market. Or, you can spend the extra money on branding and advertising. Or, you can use it to acquire your competition. Or, you can do all of the above.
Therefore, it is only natural that business owners will try to reduce their costs to the best of their abilities and potential. They really have no choice. If they don’t try to reduce costs, chances are that somebody else will. Then, they will undercut their prices and ultimately push them out of the market (and, potentially, out of business). It’s how cut-throat competition got its name.
Cost reduction through reducing labor costs
Labor is usually a significant cost item among business expenses and, therefore, a frequent target for cost reductions. Cost of labor can be reduced in many different ways. For example:
- Design processes that require less work hours.
- Design processes that require less workers.
- Design processes where most work is done by the cheapest workforce.
- Carry out processes more efficiently (less time wasted).
- Create an environment where people are happy to stay and perform well even with lower pay.
- Move business operations to places with cheaper workforce.
- Replace humans with technology.
Whole industries were born out of the desire to reduce the labor costs. The logical consequence of those efforts is inevitable:
- Less and less people are needed to produce more and more goods/services.
- Jobs move geographically to areas with cheaper workforce.
- Jobs cease to exist because they are no longer part of the process.
- Jobs previously carried out by humans are now performed by machines.
No humans? No problem!
If work can be done cheaper without human involvement, it will be done. It’s only a matter of time before computers will think independently and have more intelligence than the brightest of humans. Consequently, it’s only a matter of time before all humans will be replaced by machines in the production process.
When that time comes, we all will find ourselves out of jobs. Unemployed and unemployable. Forever.
What that will do to our economy (and the humanity) is a topic for another post.
Is there data to support this?
I’m always looking for new data. If you come across something interesting, please let me know by leaving a comment below.
Less people are needed to produce more goods — YES
The output per hour in all non-financial businesses in the United States, increased by 453% between 1947 and 2012. It means that the same number of employees can nowadays produce 4.5 times more goods than they were able to produce 65 years ago. It also means that instead of 9 employees in 1947, only 2 were needed in 2012 to produce the same amount of goods.
The same trend can be observed internationally:
Jobs move to cheaper countries
Jobs no longer part of the process
Human are replaced by machines
What do you think?
Am I going too far in my conclusions? Is my logic flawed? Please tell me by leaving a comment below!
- Added 2 charts showing the increase in productivity over time (output per employee).
- Fixed minor spelling and grammar mistakes.