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Why Companies Need To Think Deeply About The Labor Implications Of A Second Machine Age

Automation may boost a business's bottom line, but overlooking the effects on people will have potentially nasty repercussions.

[Top Photo: asharkyu via Shutterstock]

The rise of robots and other smart machines is likely to have huge ramifications for the way we work and perhaps whether many of us work at all. One often cited study shows that 47% of today's jobs are at "high risk" of automation over the next 20 years.

These trends may be good for companies that will benefit from lower labor costs and higher productivity. But, as a new report points out, they could also present challenges, chiefly around the way businesses relate to the rest of society. The "second machine age" could further erode the reputation and standing of companies in the public mind and affect their "license to operate," says BSR, an international non-profit with 250 corporate members.

"We have concerns that we're going to see a replay of the '90s when we saw outsourcing and contract manufacturing just take off without fully considering labor, human rights, and the environment," says Jessica Davis Pluess, author of the report. "We want to see more benefits for people in this era of automation."

The report looks at how wages for many workers are stagnant, how labor in general accounts for a declining proportion of gross domestic product, the decoupling of wage growth from productivity, and what might happen once we have advanced robotics, full-blown additive manufacturing (3-D printing), and a true Internet-of-things. Not all the implications are bad for workers. Factories for example may become cleaner and safer; workers won't have to complete so many repetitive and tedious tasks; there should be lots of new opportunities in designing, building, and repairing technology, including robots. At the same time, new forms of connectivity should allow us to work more remotely, more flexibly and more freely.

But automation is also likely to penalize people without sophisticated skills, reduce benefits, and job security, and lead to a loss of job creation. All of which is likely to make workers increasingly resentful. The report goes on:

Companies are already facing challenges in terms of community relations and license to operate in light of a stagnant economy. Surging unemployment would further damage social cohesion and erode community trust. If automation leads to a shift away from labor-intensive manufacturing, there could also be significant macro-level, long-term impacts on the economy and business. Exacerbating existing jobless growth would contribute to additional downward pressure on consumer demand, creating a vicious cycle depressing economic vitality.

Davis Pluess says BSR wants to "start a conversation" with companies around these issues as much for their sake as workers'. It sees four areas to think about. The first is around the "talent pipeline." Companies should consider the type of skills they'll need in the future and the possibilities to retrain people who might otherwise be unemployed. "It doesn't make sense that we have such high unemployment in a number of places while at the same time companies cannot fill a number of positions," she says.

Second, how will companies relate to communities if they set up facilities but employ few people in them? "Rising unemployment and a smaller share of workers capturing a larger share of the pie could affect social cohesion and pose reputational and operational risks for companies in the communities where they operate," the report says.

Third, companies should consider sharing productivity gains in order to "enhance engagement and morale of remaining employees." At the moment, "there is a tendency to reinvest [those gains] in capital improvements and [to] expect more in terms of efficiency; passing on such gains to workers in form of higher wages is less common," the report says.

And, fourth, companies should consider the long-run implications of not employing people. Ultimately, this could affect aggregate consumer demand, as workers will not have the money to buy goods and services themselves.

Davis Pluess says the report doesn't direct companies what to do, simply that they need to start thinking about the subject: "We're hoping to bring companies around the table. We feel they are missing from the discussion at the moment," she says.

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