Tuesday, May 6, 2008

The End of Cheap Labor, Revisited

The first part is here.

Different industries will be affected differently. First to feel the pinch are, surprise, old, smokestack industries. Metalworking first of all. They require knowledgeable workforce, there is no way around it. Even if you install programmable machines instead of simple cutting equipment, you still need people with at least middle high school on the floor. Qualified labor is first to expeirence shortages, because China is out of it. And China was a last source of educated cheap workforce. Gone. We will see increased automation in the third (or is it really a second) world, but in won't make labor any cheaper. And other sources of cheap labor can't be used here at all, because there is no other source of educated labor. You can still get uneducated labor from rural China, India, Africa, but it's expensive to educate people. Assembly is a little bit easier, but since quite qualified work.

Apparel is a little bit different. You don't need much time to train people to work sewing machines. So we probably will not see increased price of labor (and increased prices) there, for a while. It will come to that, but we need some time, something between 5 and 10 years to get there. Then you can expect a rush of automation in that area. It's possible, there isn't anything preventing it now, except for available cheap labor.

Agriculture. It's a mixed bag. Grain production is mechanized better than many industrial processes. Fruit and vegetable production is always partially local, so cost of labor depends on availability of cheap (and often illegal) immigrant labor. Which might be in tight supply soon in US, because, surprise, birthrate in Mexico is way down from what it was just 15 years ago. Expect big price readjustments. Also expect a rush of automation (robots!, like I said already).

IT (informational technology). Despite all cries about outsourcing, even Indian labor is not cheap in this area. Companies I know about charge in range of $40-$50 an hour for OFFSHORE workers, i.e. those sitting in India. For people at location, it's $60 and up. Sometimes way up. IT people might think it's not much, but ask people in other industries if $40 an hour is a low pay.

Transport. Unless there is huge progress in legal area, drivers will cost more. Much more. It's probably possible to put a robotic driver behind the wheel in 5-10 years, but I somehow doubt it will be allowed. Too many legal issues here.

Mining. Probably least affected. Cost of labor is a very small fraction of total costs, so it probably won't be affected much.

That's all I can think about right now. Your thoughts?

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