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Thoughts on unemployment

· September 15, 2013

If work can be done cheaper without human involvement, it will be done. It’s only a matter of time before all humans in the production process will become redundant. Business owners around the world are inadvertently making the 100% unemployment rate a reality.

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.

Business 101: What is profit

Business 101: What is profit

And, there are only three ways how profit can be increased:

1. Sell more units

Profit Maximization #1: Sell More Units

Profit Maximization #1: Sell More Units

2. Charge more per unit sold

Profit Maximization #2: Charge More Per Unit

Profit Maximization #2: Charge More Per Unit

3. Reduce costs per unit sold

Profit Maximization #3: Reduce Costs Per Unit Sold

Profit Maximization #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 is essential to business survival

Cost reduction is essential to business survival

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:

Whole industries were born out of the desire to reduce the labor costs. The logical consequence of those efforts is inevitable:

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

Output per employee hour, US, Non-financial corporate sector 1947 -2012.

U.S. non-financial corporate sector productivity (1947-2012). Source: Bureau of Labor Statistics

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:

International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends

International productivity trends in manufacturing (1950-2010). Source: Bureau of Labor Statistics

Jobs move to cheaper countries

[Currently researching]

Jobs no longer part of the process

[Currently researching]

Human are replaced by machines

[Currently researching]

What do you think?

Am I going too far in my conclusions? Is my logic flawed? Please tell me by leaving a comment below!

Updates

9/25/2013