


1-Labor force participation

They are invisible. They tend to live in fly-over country and don’t make campaign contributions. They don’t bid for federal contracts or write angry letters to the editor. They may as well not exist. But watch out: They may not be simply the worn-out losers of the “old” economy. They may be showing us what’s in store for the rest of us. “Robots are taking over,” says a friend. “They began by doing the simplest, lowest wage jobs. But they were competing with very low-paid workers. So employers wouldn’t pay much for them. But now they’re getting a lot more sophisticated. This is where it gets interesting. When you buy a robot to replace a human employee, what you’re really doing is capitalizing the cost of the employee.

Let’s say an employee earns $50,000 a year. You have to figure that you spend another $25,000 a year on benefits, a personnel office, lawsuits, counseling, management issues, health care, holidays, a desk, a phone. So you have a total cost of $75,000. And he’s working only eight hours a day, five days a week. In a normal world, with a cost of capital at 5%, and an amortization period of 10 years for the robot, you could afford to spend about half a million (I’m not doing the math. I’m just guessing). “But here’s the point: As you go up the income ladder, you can spend a lot more. If you can replace a guy who earns $100,000 a year, you can pay $1 million…  and so forth.” As robots get more sophisticated, it’s a matter of time until most people who do routine and not-so-routine work will be replaced. They don’t call in sick. They don’t make excuses when they run over an elderly blind woman with the company truck.

“And guess what?” continued our friend. “The feds say they are stimulating the economy and aiding employment with their ultra-low rates. But what they’re really doing is helping robots find jobs. As the cost of capital goes down, the relative cost of capital, as opposed to labor, also goes down. You can’t capitalize an employee. At least, not since slavery was abolished. “But the real cost of a machine goes down when the cost of funds goes down. It’s a capital investment. So, when the cost of capital goes down to zero, a company with access to that cheap – or even free – money can afford to pay almost an infinite amount of money to get rid of its employees. “Zero-interest-rate policy is really a full robot employment program.”


“The European parliament’s committee on legal affairs submitted a draft on May 31st, 2016 proposing that robots be categorized as “electronic persons” and companies employing robots as workers should be required to pay taxes and social security for them. The draft mentions “that at least the most sophisticated autonomous robots could be established as having the status of electronic persons with specific rights and obligations.” The draft also proposes a registry for smart autonomous robots to ensure they are legally accounted for. On top of this, they state that companies must declare how much money they saved in social security contributions by replacing manpower with robots.

It seems the EU is starting to worry that automation would become so big a thing that the unemployment it would create would be substantial enough to make a huge dent in revenue from human income taxes and contributions. Obviously, this is a proposition that does not sit well with everyone. German organization VDMA, which speaks for robot manufacturers like Siemens and Kuka, says it’s too early in the evolution stage of robotics to require something that is likely to hinder the development of the industry. “That we would create a legal framework with electronic persons – that’s something that could happen in 50 years, but not in 10 years,” said Patrick Schwarzkopf, managing director of the VDMA’s robotic and automation department. “We think it would be very bureaucratic and would stunt the development of robotics.”

In addition, Schwarzkopf argues that the correlation between automation and unemployment is not definitively proven. He points out that between 2010 and 2015, industrial robots supply rose by 17% in the automotive industry, and so did the number of employees—by 13%. This is, of course, is a point that is highly debated, with a number of predictions and recent events suggesting otherwise.”

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