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Tags: amazon | self | service | stores

Amazon Uses Self-Driving Technologies to Drive Self-Service Stores

Amazon Uses Self-Driving Technologies to Drive Self-Service Stores

(Getty/Leon Neal)

Dr. Edward Yardeni By Tuesday, 06 December 2016 03:11 PM Current | Bio | Archive

Amazon introduced Amazon Go. It is the beginning of the end of lots of jobs in retailing, especially for cashiers. A video shows customers entering a store using an Amazon Go app, taking the products they want off the shelves, and walking out with no checkout required. The company’s website explains:

“Our checkout-free shopping experience is made possible by the same types of technologies used in self-driving cars: computer vision, sensor fusion, and deep learning. Our Just Walk Out technology automatically detects when products are taken from or returned to the shelves and keeps track of them in a virtual cart. When you’re done shopping, you can just leave the store. Shortly after, we’ll charge your Amazon account and send you a receipt.”

Amazon Go may be the beginning of more productivity growth in the services industry. It should also help to keep a lid on both wage and price inflation. Almost all workers are facing some risk that technological innovations will eliminate their jobs. So they are likely to be less demanding when it comes to pay hikes.

Some workers didn’t get that memo. On November 29, thousands who work at fast-food chains like McDonald’s marched with other low-wage earners--Uber drivers, child-care workers, home caregivers, and employees--at nearly 20 airports in 340 US cities for a “national day of disruption.” The strike was organized by a group called “Fight for $15.” Their goal is to impose a national minimum wage of $15 an hour, which isn’t very likely under Donald Trump’s White House and a GOP-led Congress. Mary Kay Henry, president of the Service Employees International Union (SEIU), said in a call with members that the protests were the “first steps together to fight back for our families and communities.” SEIU has been a principal supporter of the Fight for $15 movement.

On the same day as the latest strike, Ed Rensi, the former president and CEO of McDonald’s USA, posted an article on Forbes.com titled “Thanks To ‘Fight For $15’ Minimum Wage, McDonald’s Unveils Job-Replacing Self-Service Kiosks Nationwide.” It was an “I told you so” article. In fact, Rensi wrote:

“As the labor union-backed Fight for $15 begins yet another nationwide strike on November 29, I have a simple message for the protest organizers and the reporters covering them: I told you so. It brings me no joy to write these words. The push for a $15 starter wage has negatively impacted the career prospects of employees who were just getting started in the workforce while extinguishing the businesses that employed them. I wish it were not so. But it’s important to document these consequences, lest policymakers elsewhere decide that the $15 movement is worth embracing.

“Let’s start with automation. In 2013, when the Fight for $15 was still in its growth stage, I and others warned that union demands for a much higher minimum wage would force businesses with small profit margins to replace full-service employees with costly investments in self-service alternatives. At the time, labor groups accused business owners of crying wolf. It turns out the wolf was real.”

Sure enough, in early November, McDonald’s announced the roll out of touchscreen self-service kiosks, as shown in a company video. In some ways, this is back to the future. In the 3/24 Morning Briefing, Jackie and I recalled: “Horn & Hardart Automats opened in New York City in 1912. They were essentially cafeterias that operated like big vending machines. They featured prepared foods behind small glass windows and coin-operated slots. They were very popular during the Depression era when their macaroni and cheese, baked beans, and creamed spinach were staple offerings. In the late 1950s, for under $1.00, one could enjoy a large, if somewhat plain, meal, purchased with nickels usually obtained from the cashier. Each stack of glass-doored dispensers had a metal cylinder that could be rotated by the staff on the other side of the vending wall to refill them with food. Today, automation and robotics are disrupting a multitude of industries, including restaurants. These rapidly proliferating technologies are driving cars, taking meal orders, and revolutionizing finance.”

Consider the following implications:

(1) Wages. In November’s employment report, wage inflation remained surprisingly subdued given that the unemployment rate fell to 4.6%. Average hourly earnings rose just 2.5% for all private industry workers, and 2.4% for production and nonsupervisory (P&NS) workers, who account for just over 80% of all private industry workers (Fig. 1 and Fig. 2). Debbie and I believe that wage inflation has been subdued partly because high-wage Baby Boomers are retiring while low-wage Millennials are entering the work force.

However, labor-saving technological innovations may be playing an increasing role in keeping a lid on wage inflation as well. Hourly wages for all workers in retailing rose just 1.8% y/y during November, half its recent peak of 3.6% at the end of last year (Fig. 3). Hourly pay of P&NS retail workers rose only 0.9% y/y last month.

On the other hand, wages rose 4.1% and 3.7% for all workers and for P&NS workers in the leisure and hospitality industry (Fig. 4). It is harder to replace some of the workers in this industry with technology. However, there may be an ample supply of workers for this industry among displaced former cashiers in the retail stores.

Wage inflation in service-producing industries has remained below 3% since early 2009 (Fig. 5). On the other hand, in goods-producing industries--for which it’s widely presumed that labor-saving technology is more effective than in services--wage inflation has been on an uptrend since early 2015, approaching 3% recently (Fig. 6). However, this series is very volatile, dropping to gains of 2.3% and 2.9% for all workers and P&NS workers last month. (See our Average Hourly Earnings By Industry.)

(2) Productivity. There is a widespread belief that productivity growth has slowed in the US, mostly in the services sector. If so, then labor-saving technological innovations are likely to boost productivity in that important sector. This morning, the Bureau of Economic analysis will report Q3’s revised productivity numbers.

They should be a bit better than the preliminary data since real GDP was revised up from 2.9% to 3.2% for the quarter. However, they should confirm that productivity growth in manufacturing remains in a coma, as it has been since 2011 (Fig. 7).

In other words, there is no evidence that automation, robotics, and AI have had any positive impact on manufacturing productivity in recent years! One possible explanation, which also explains why Donald Trump won the presidential race, is that all those technologies have been combined with cheap labor in overseas factories that were built in China, Mexico, and Vietnam rather than in the US. That’s confirmed by the flat trend in US manufacturing capacity since China joined the World Trade Organization during December 2001 (Fig. 8).

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.

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Amazon Go may be the beginning of more productivity growth in the services industry.
amazon, self, service, stores
Tuesday, 06 December 2016 03:11 PM
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