|Technology innovation has found its unlikely ally|
In periods of increased inflation and economic uncertainty, profit margins contract, the value of purchasing power declines, and there’s an amplified demand for cost-of-living adjustments. Such conditions lead to a delicate balance between maintaining business viability and safeguarding employees’ purchasing power. Consequently, the escalation in labor union activities and strikes becomes more pronounced amidst growing economic uncertainties.
Labor unions were initially established to protect workers’ rights and ensure fair wages and working conditions, but can inadvertently speed up the adoption of technology and innovation in ways that might later impact the very workers they were set up to defend. Throughout history, there are many such examples including:
1. Dockworkers and Containerization: In the 1960s and 1970s, labor unions representing dockworkers in major ports went on strikes to demand better wages and working conditions. To make cargo handling more efficient and to reduce dependency on labor, the shipping industry started adopting containerization. This technology dramatically reduced the need for manual labor in ports, leading to significant job losses among dockworkers.
2. Printers and Typesetting Machines: As unions representing printers pushed for better wages and shorter working hours in the 1960s, newspaper companies began to look for cost-effective solutions. The result was the rapid adoption of computerized typesetting systems, which made many traditional printing jobs obsolete.
3. Automotive Industry and Robotics: Strong labor unions in the automotive sector, especially in the U.S., often negotiated for better pay and benefits. In response, car manufacturers started automating many parts of the production process. The introduction of robots in assembly lines led to higher productivity but also resulted in a reduced need for manual labor.
4. Mining and Automation: To address safety concerns, reduce labor costs, and increase efficiency, mining companies began to adopt automated machinery. As unions pushed for better safety standards and wages, the motivation for companies to shift towards automation only grew stronger.
5. Airlines and Ticketing: As unions representing airline booking agents pushed for better conditions, airlines accelerated the adoption of computerized ticketing systems and online platforms, significantly reducing the need for manual ticketing and booking processes.
6. Manufacturing and CAD: As manufacturing labor unions in industries like aerospace and automotive pushed for higher wages, it made economic sense for these industries to adopt Computer-Aided Design (CAD) tools. These tools streamlined the design process, reducing the need for draftsmen and other specialized roles.
It’s also hard to forget the events of 1981 when the Professional Air Traffic Controllers Association (PATCO), representing roughly 13,000 members, protested against what they perceived as unfair wages and extended work hours. Ronald Reagan, who was the President at the time, saw this as a significant labor union challenge. He responded with an ultimatum, stating, “They are in violation of the law, and if they do not report for work within 48 hours, they have forfeited their jobs and will be terminated.” He didn’t stop there; he also imposed a lifetime ban on the Federal Aviation Administration (FAA) rehiring the strikers. On August 17 a few weeks later, the FAA started accepting applications for new air-traffic controllers. By October 22, the Federal Labor Relations Authority had decertified PATCO.
It’s important to note that the relationship between labor unions and technology adoption isn’t purely antagonistic. However, the above examples do illustrate that pressures from labor unions can sometimes serve as a catalyst for industries to look for technological solutions that reduce reliance on labor.
Labor unions and automation
Labor unions have played a central role in shaping the working conditions and rights of employees in the US, emerging in the mid/late 19th century through labor federations like the National Labor Union, the Knights of Labor, and the American Federation of Labor. Entering the early 20th century, the New Deal era brought significant legislation such as the Wagner Act of 1935 and the Fair Labor Standards Act of 1938, representing a substantial expansion of federal protection for employees, encompassing collective bargaining, fair wages, and more. Throughout the mid-20th century, unions were instrumental in pushing for improved working conditions, with membership peaking in the 1950s when more than one in three workers belonged to a union. However, a dramatic decline followed – membership fell to 16% by 1990, and hit a record low of 10.1% as of last year. But as we have all witnessed, it was the advent of technology breakthroughs (consumer internet, mobile, cloud computing, robotics, AI), in tandem with globalization, the gig economy, and a myriad of other economic factors, beginning in the late 20th and early 21st centuries that created an inflection point for the relationship between unions and automation specifically. Since 2004, each industrial robot that has been installed in the manufacturing sector has displaced an average of 1.6 people. And more generally, unions have had to grapple with representing workers in technology-driven industries, with traditional concepts of employment being challenged by flexible and temporary contracts. And now, as they fight back against automation in their sectors, they are unfortunately creating more long-term harm than good because their actions (and disruptions to operations) are accelerating efforts to deploy automation. We are in the midst of a perfect storm. High interest rates, inflation, and profound breakthroughs in technology have created strong incentives for companies to displace workers, if they can.
“America is barreling toward a summer of strikes” was Bloomberg’s article from late July on the more than 650k American workers who are threatening to strike, or are already on strike, this summer. The Writers Guild of America and SAG-AFTRA are on strike, the Teamsters were threatening to strike before trucking company Yellow shut down, The Culinary Workers Union (Las Vegas) will likely be on strike soon, FedEx pilots just rejected a new labor contract, and this week LA city workers walked off their jobs for 24 hours Also, the LA county supervisor proposed a requirement for larger hotels and theme parks to raise their minimum wage by 48% to $25/hr. There have also been some notable resolutions (in some cases eyebrow raising), such as UPS drivers securing a 17% wage increase for full-time drivers to $170k per year, and Cruise signing the driverless car industry’s first labor union agreements with electrical workers and janitors.
COVID was yet another catalyst. Around 60% of all occupations have at least 30% of activities that can be automated, and the pandemic hastened the move towards such automation. In manufacturing, the International Federation of Robotics reported a 10% increase in the use of industrial robots in 2020. In the healthcare sector, one study of workers found that 14.3% had their role partially or entirely automated during the pandemic. Broadly, 68% of organizations increased their investment in automation in response to the pandemic; the World Economic Forum estimates that by 2025, automation would create 97mm new jobs but displace 85mm. Lastly, annual worldwide AI-driven software revenue is expected to grow from $10.1B in 2018 to $126.0B by 2025. We all know that automation is accelerating, and as we’ve written about before, is coming for knowledge workers like it previously did for blue collar workers:
…the following four functions could drive 75% of global estimated annual economic benefits from AI workflows: customer operations (~$400B), marketing and sales (~$950B), software engineering ($900B), and research and development (~$330B)…And broadly, co-pilot tools could automate half of a knowledge worker’s daily activities over the coming decades.
Unsurprisingly, these efforts to displace workers’ responsibilities with automation technology, either in part or full, has created great angst for unions and their members. For example, actors and writers are demanding that studios back down from plans to adopt AI for script writing and AI-generated characters that are derived from human actors. This is an uphill battle that we believe will backfire. These technologies are not going away and are only becoming more capable, as we have all observed over the past several years. There is a circular effect here – adoption causes unions to push back, oftentimes with strikes and demand for more benefits and higher pay – this incentivizes companies to accelerate adoption to offset higher costs and work disruptions. There are also 2nd order effects in the political realm. Back in 2021 when Joe Biden brought all the EV makers to the White House, he excluded Elon Musk and his administration, “strongly hinted that the lack of UAW [United Automobile Workers] representation at Tesla plants may have been part of the reason.” This kind of showmanship is unproductive and brings to mind a finding worth noting – automation is actually diminishing unions’ political power:
Consequently, the political influence of organized labor falls in response to robot adoption because unionization declines…an increase in one robot per a thousand workers reduces the likelihood that congresspeople vote with unions’ interests by two percentage points.
The trajectory of economic history has long showcased the natural and inevitable evolution of automation within various sectors. From the steam engines of the Industrial Revolution to today’s AI-driven software and robotics, the march of technology has continually reshaped the labor landscape. Unions have often been at the forefront of resistance to these changes, working to protect jobs and ensure fair treatment for workers. And their pushback is rooted in legitimate concerns such as job displacement and wages. However, the economic forces that drive automation are powerful (the pursuit of efficiency, the reduction of labor costs, and the desire to enhance productivity and competitiveness, etc). These forces have made the automation of certain jobs not just an option but a necessity for many businesses seeking to thrive in a global marketplace. As the “Summer of Strikes” unfolds, it is important to remember that these efforts may succeed in capturing new benefits or higher wages, but we believe they will ultimately fail to stop the arc of technology-driven efficiency that has been the backbone of productivity growth since the industrial revolution.