September 2014

The Leyendecker View

Robots vs. Jobs: Take 2

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"Computers are like Old Testament gods; lots of rules and no mercy."

- Joseph Campbell

Publisher: Douglas Leyendecker
 Managing Editor: Kelly Griego

Welcome to the Leyendecker View
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"A computer once beat me at chess, but it was no match for me at kick boxing."

- Emo Philips


In 1995, "Saturday Night Live" did a sketch where host Sam Waterston plays a "compensated endorser" for Old Glory robot insurance. The sketch, which took 12th place on Rolling Stone's "50 Greatest 'Saturday Night Live' Sketches of All Time," imagines a world where robots are so prevalent that they can come for you at anytime. They eat "old people's" medicine for fuel and, with their metal claws, are the leading cause of death for people over 50. But, rest assured, peace of mind can be bought with Old Glory's robot insurance. The sketch is a great way to spend a minute and forty seconds.




The idea of robots, or artificially intelligent and automated machines, coming for everyone over 50 is, of course, far-fetched. But how far-fetched is it that they replace any and all jobs? In the November 2012 issue of TLV, we asked if robots were the new job terminators. Since then, this is a question that more people and in more mainstream sources are asking as technology displaces more workers. If you dig into what's being said about technology killing jobs, most arguments seem to sit on the bounds of the spectrum, either overly and unfoundedly optimistic or overly dystopian and fear mongering.


Let's start with the least pleasant perspectives, from those who claim that at some point in the not so distant future, artificial intelligence will match or surpass human intelligence, enabling machines and robots to complete every last task that a human can, and with more precision. This would impact everyone, from doctors, lawyers and teachers to those who write news articles, novels and music. 


As an example of a frightening perspective, predicated on the example of how the introduction of the car nearly totally put horses out of business, CGP Grey explains why this time, the robot revolution is different.



Now let's move to the overly optimistic perspectives. Those in this camp believe that human ingenuity will always outpace machines and find new ways to create sufficient meaningful, well-paying jobs. Some even go so far as to imagine a "digital Athens," a creative utopia where machines do all the monotonous, rote jobs and humans can while away the days philosophizing, thinking, pursuing all things imaginative. Sign us up. The problem with this perspective is - who will sponsor all this amazing time to walk in parks and ponder the wonders of universe? Who will be making the money?


To date, it remains relatively easy to argue that each time technology has wiped out an entire category of human labor, we have been able to replace those jobs and generally maintain a healthy level of employment. The invention of cars wiped out the horse and carriage industry, but more jobs were created on the assembly line and in other transportation related industries. The Internet wiped out travel agents and phone operators, but has created entire new industries and jobs. 


Yet many believe this time is different. Consider this: Half of the 7.5 million jobs lost in the Great Recession were in industries that pay middle-class wages ($38,000 - $68,000). But only 2% of the 3.5 million jobs we've gained back (since the Recession technically ended in June 2009) pay in that range; nearly 70% are low paying jobs, and 29% are jobs that pay well. This is becoming well known as the "hollowing out" of the middle class. What's happened between then and now is Big Data, smarter and more robots, advances in artificial intelligence, tablets and smartphones, cloud computing - all things that increase efficiencies and decrease needs for certain categories of human labor, particularly routine work. Low skilled labor (construction, fast food workers) remains highly manual, and many companies have replaced multiple middle-skilled jobs with machines and/or one or fewer higher-skilled person(s), which is often a cost-savings.


To understand the impact technology has had and is having on the middle class, and determine if, in fact, this time is different, the Associated Press analyzed employment data from 20 developed countries. Here are a few key findings:

  • "For more than three decades, technology has reduced the number of jobs in manufacturing. Robots and other machines controlled by computer programs work faster and make fewer mistakes than humans. Now, that same efficiency is being unleashed in the service economy, which employs more than two-thirds of the workforce in developed countries. Technology is eliminating jobs in office buildings, retail establishments and other businesses that consumers deal with every day.
  • The most vulnerable workers are doing repetitive tasks that programmers can write software for - an accountant checking a list of numbers, an office manager filing forms, a paralegal reviewing documents for key words to help in a case. As software becomes even more sophisticated, victims are expected to include those who juggle tasks, such as supervisors and managers - workers who thought they were protected by a college degree.
  • Thanks [in a large part] to technology, companies in the Standard & Poor's 500 stock index reported one-third more profit the past year than they earned the year before the Great Recession. They've also expanded their businesses, but total employment, at 21.1 million, has declined by a half-million.
  • Start-ups account for much of the job growth in developed economies, but software is allowing entrepreneurs to launch businesses with a third fewer employees than in the 1990s. There is less need for administrative support and back-office jobs that handle accounting, payroll and benefits."

While these insights don't necessarily paint a picture of a total wipeout of human labor, they do make three things clear: 1) White-collar jobs are no longer immune; 2) We could be on some degree of slippery slope, with middle-class jobsunder the most immediate threat; 3) At some point, those who own and make the robots and artificially intelligent machines will hold the power.


Will robots eventually take every last human job? Or will human ingenuity safeguard us and swiftly find new categories of work as another and another industry gets upended by automation? The reality is probably somewhere in the middle. So perhaps the more productive conversation should be not if it will happen and how broadly, but what we can do to be prepared and how we can prepare our children and grandchildren. That is, in addition to buying Old Glory robot insurance. 


Read in the section below on robots vs. jobs for some examples of game-changing technologies on the horizon, thoughts on which jobs are most vulnerable to automation in the near- and medium-term and how you can plan accordingly.


"The digital revolution is far more significant than the invention of writing or even of printing."

- Douglas Engelbart


General Economic Perspectives
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When it comes to thinking and talking about the economy, we seem to be living in a bipolar world.


On one hand, we have a good many people, especially on Wall Street, pointing to data that shows employment growing, car sales increasing and housing starts rising. There does seem to be economic momentum, but it lacks consistency; blips every so often show a breakdown in some key economic drivers. But it's often human nature to reason that the glass is half full.


On the other side of the debate are people who believe our economy is built on a foundation of funny money and data that is manipulated for the benefit of certain parties, particularly government, since it seeks to maintain its influence. This group continues to believe some kind of extreme economic calamity will eventually come home to roost. They believe the optimists are just drinking the Kool-Aid. This glass-half-empty crowd has grown in number since the last recession. Or at least they have grown more stubborn in their beliefs.


Optimism and pessimism are battling it out. By coincidence, or not, the optimists and pessimists seem to be divided by political party. The current administration's economic efforts rely heavily on monetary and fiscal stimulus. Ideologically, this has Democrats feeling more optimistic and Republicans feeling more pessimistic. Hence, Washington gridlock, which happens when the distance between perspectives remains entrenched and extreme. And gridlock tends to feed more ideological validation and indignation. 


The only thing that can break the vicious cycle of ideology and gridlock is pragmatism. And we might be beginning to see more of it. Pragmatism is defined as "an approach that assesses the truth of meaning of theories or beliefs in terms of their success in practical application." The most obvious force behind some newfound pragmatism is our current oil & gas boom. There is no way to debate this boom's job, entrepreneurial and wealth creation waterfall effect across the entire economy. This is a real economic engine that can lower costs in a stagnated-wage world and increase the competitiveness of America's industrial economy. In the BLS Corner below, you will see that people in production-oriented industries stay at their jobs longer, and all data confirms that production-oriented jobs pay way better average wages than service and leisure jobs.


If we are lucky, the pragmatists may gain more traction in November's mid-term elections. If so, we could see even stronger and more consistent growth momentum.

The Hiring Market
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Over the last couple of decades, employment in our alternative investment markets, private equity and hedge funds had incredible momentum. Driving this job growth were steadily declining interest rates and the need for companies to rapidly rationalize their business models in the growing competitive global markets.


Lower interest rates naturally increase the value of a cash flow stream, providing private equity investors with a huge wind at their backs. As the cost of capital declined, the value of their investments naturally grew. Simultaneously, institutional investors swarmed to private equity in search of much greater returns than could be found in their traditional fixed income investment markets. It's been a huge win-win - lots of capital chasing private equity and lots of investments increasing in value, all because of a steady decline in interest rates.


Activist investing, which one could define as having a higher sense of urgency than traditional investing, compelled sleepy businesses to transform quickly lest they die the slow death of the less competitive. The proliferation of technology and globalization provided little time and room for error for companies to adapt. It took the sense of urgency from private equity and activist hedge funds to motivate companies to keep up with an ever-competitive world. 


Today, interest rates have stopped declining, putting the focus on when the Federal Reserve will increase them. With interest rates as low as it seems they can go, a major opportunity for private equity returns is gone. Rates of return for all alternative investors have steadily declined over the last decade. They are now averaging high single digits to low double digits. This suggests a great deal of the industrial transformation we needed has been executed. These trends will not likely be favorable for private equity or hedge funds. CalPERS' decision to exit all hedge funds could be the canary in the coal mine for alternative investors and, importantly, employment in that market.

Managing the Modern Day
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There is no progress without adversity.


Every moment of progress in the history of humanity was born of overcoming some adversity, whether it was being labeled a numskull for believing the Earth was round, or hiring people to build cars at wages far above the average. 


Life just isn't easy if you want to get ahead in the world. If you get ahead too easily, odds are that good fortune will eventually turn into not so good fortune. Good judgment and decision-making skills are not made from right place, right time good fortune. That's why we have the old saying, "easy come, easy go."


We must all thank our lucky stars when fortune smiles on us, but we must also embrace the adversity that pushes us forward - if we let it. If it seems life is constantly dropping new challenges in your lap, then know it's a sign you are on a positive personal path and life is conspiring for your growth and wisdom. 

BLS Corner
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The Bureau of Labor Statistics recently put out their Employee Tenure report, which is issued every two years. Here are some of the most interesting findings:

  • In January 2014, median employee tenure (the point at which half of all workers had more tenure and half had less tenure) for men was 4.7 years, unchanged from January 2012. For women, median tenure in January 2014 was 4.5 years, about unchanged from January 2012. (In 1996, median tenure was 4 years for men and 3.5 years for women. Given that people are retiring later than they were in the 1990s, and given that the older generation tends to stay with an employer longer, it makes sense that median tenure has ticked up since 1996, despite the fact that the younger generation in today's workforce does a lot of job hopping.)
  • Among men, 30% of wage and salary workers had 10 years or more of tenure with their current employer, compared with 28% for women.
  • Median employee tenure was generally higher among older workers than younger ones. For example, the median tenure of workers ages 55 to 64 (10.4 years) was more than three times that of workers ages 25 to 34 years (3 years). 
  • In January 2014, wage and salary workers in the public sector had nearly double the median tenure of private sector employees, 7.8 years versus 4.1 years. One factor behind this difference is age. About three in four government workers were age 35 and over, compared with about three in five private wage and salary workers.
  • Within the private sector, workers in manufacturing had the highest tenure among major industries, at 5.9 years in January 2014. In contrast, workers in leisure and hospitality had the lowest median tenure (2.3 years). These differences in tenure reflect many factors, one of which is varying age distributions across industries; on average, workers in manufacturing tend to be older than those in leisure and hospitality.
Chart of the Month
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In the debate over technology's ultimate effect on jobs, Google's Eric Schmidt is an optimist. He believes that in the near- and mid-term, technology will create more jobs than it kills in transportation (there's heavy traffic on the ground, he points out, but consider how much space there is in the air), healthcare, education and creative spaces like music and movies.


Through 2020, at least, the Bureau of Labor Statistics also expects that technology will be a major job growth force. Behind any new automation will be the need for workers in computers and information technology, which includes jobs in custom computer programming services, computer systems design and computer facilities management.


According to the BLS' projections, computer systems design jobs alone will outpace all other job growth through 2020. The following chart shows how computer systems design jobs are projected to grow annually for the rest of the decade, relative to job growth in professional, scientific and technical services and all other industries.

Source: Bureau of Labor Statistics

Robots vs. Jobs: Take 2
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"Never trust a computer you can't throw out a window."

- Steve Wozniak


McKinsey Quarterly: Manager and the machine, the new leadership equation

Deep Knowledge Ventures, a venture capital firm out of Hong Kong, recently added a decision-making algorithm to its board of directors. That's right - a computer sits on its board (and doesn't draw one of those six-figure salaries). In a recent article, McKinsey asks how long it could be before algorithms take over the C-suite. Regardless of technology's encroachment on managerial skills, it will require that leadership evolve. Through research, McKinsey lays out how leaders can adapt to remain effective in the age of widespread artificial intelligence. In short, human leaders must learn how to be, well, more human and focus on those soft skills that computers can't replicate - yet. Read the full article for a forward-looking approach to successful leadership in the not-so-distant future.


Trobo: A plush, robotic toy that teaches your kids math and science

Rumblings that artificially intelligent machines could eventually replace teachers might sound absurd. But meet Trobo - a plush toy that works in conjunction with a tablet to teach children science and math. Witnessing Trobo in action makes it pretty easy to imagine a more advanced iteration that can be programmed to teach entire classrooms of kids on any subject. Imagine the hundreds of millions saved in teacher training and evaluation costs and the insights gained from real-time data gathering and analysis. 


Witness the evolving dexterity of drones

Engineers have created a drone that can be manipulated to turn a valve wheel in mid-air. As this technology advances, what else might drones be able to maneuver? We've all heard that Amazon is testing drone delivery. Might drones be able to ring doorbells? Turn doorknobs? What could this mean for UPS and FedEx? (In fact, it was just announced that DHL has gotten approval to officially begin using drones, called parcelcopters, to deliver medicine to people in a small German island in the North Sea.)


Drones are coming to America's 2 million farms

Farming, which was already radically revolutionized by machines at the turn of the century and experienced a permanent loss of entire categories of jobs, is on the verge of undergoing another revolution. Pending FAA approval, drones will soon fly over most American farms to gather data in real-time on where crops are not thriving and what is needed to restore their health - eliminating the need for the farmer to drive a tractor across and entire farm to gather such data manually. Via sensors, data can be sent to the drone company, where computers analyze it and provide results to the farmers. In the future, similar technology will also monitor cattle and will be able to ascertain grazing patterns and identify early signs of illness.


Which jobs will robots take?

A paper out of Oxford University deduced that half of today's jobs are "at high risk" of automation in the next 20 years. So which jobs are included in that half? The following chart shows which jobs are least to most vulnerable to robot replacement, as broken down into three segments by percentage of total workers employed in segment. The densest segment - on the far right, which represents 47% of total workers - is under most threat of automation, in the authors' assessment. 

Another chart shows jobs with a 99% likelihood of being entirely knocked out by computers in the next 20 years, as well as those with a nearly 0% chance of being eliminated by machines. In other words, steer your children away from these jobs at the top of the chart and towards those at the bottom or those on the far left side of the chart above.


John Maynard Keynes predicted widespread technological unemployment "due to our discovery of means of economizing the use of labor outrunning the pace at which we can find new uses for labor." We will only be able to rebound from technology-killed jobs and create new jobs swiftly enough if the lag between killed and new jobs continues at a reasonable pace. And as long as the number of jobs killed remains relatively contained. However, many expect a tipping point where new jobs can no longer pace destroyed jobs. Until then, perhaps the best self-preservation tactic is to keep updated on studies around which jobs are next on the chopping block, as well as advances in artificial intelligence. If artificial intelligence wields the power that some think to wipe out more white-collar and soft-skilled jobs, then people will have to get extremely strategic about obtaining skills needed for a successful career. Might it be time to bench the liberal arts degree in favor of a degree in computers? Or might the creative thinking cultivated in a liberal arts education be that much more critical in a world in constant need of innovation, and thus enhance personal sustainability?


Mark Zuckerberg to high school students: Understand technology if you want to a job that pays more

Mark Zuckerberg recently made a surprise visit to a Bay Area high school and offered students some advice for what to study at college. "[Technology is where] all the jobs are going to be in the future," he told students. "If you want to have a better chance of getting a job that's good and if you want to get a job that pays more, then being proficient in technology, knowing some basic things about how to use computers, use basic programming, even if that's not your primary job, is going to be really critical to having a lot of options and doing what you want in the future."


"I do not fear computers. I fear the lack of them."

- Isaac Asimov

News You Can Use
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The Economy


Rule-Bound: The expansion of America's regulations and enforcement against banks

This one-minute video shows how American bank laws and enforcement have seen a dramatic uptick since the collapse of Lehman Brothers. 


Gallup: Starved for financing, new business are on the decline

In 1997, 65% of U.S. businesses were less than a year old. By 2011, this figure was just 8.2%, while the rate of annual businesses closures has remained generally constant at 9%. In 2008, we saw a critical inflection point, where business closures surpassed new business openings. Research suggests that the decline in personal savings is in part to blame, since data shows that personal savings are the predominant source of new small business ventures. Hey Washington, how about policy that encourages saving more than consumption?


Leadership & Management 


Most people don't want to be managers, new survey finds

CareerBuilder recently polled 3,625 full-time workers in public and private sector jobs across salaries, industries and company size in their first study on employee interest in management and leadership. Only 34% said they aspired to leadership positions, and only 7% aspire to C-level management. More specifically, 40% of men and 29% of women aspire to leadership. 39% of African Americans, 35% of Hispanics, 44% of LGBT workers and 32% of workers with disabilities hope to win a leadership role. CareerBuilder asked respondents not interested in leadership to pick from a preselected list of reasons why they weren't pursuing management roles; the results follow.


3 questions Amazon CEO Jeff Bezos asks before hiring anyone

Whenever Amazon is hiring, Jeff Bezos asks the hiring manager to consider three key questions:

1)   Will you admire this person? Will this person serve as an example to others and keep standards high?
2)   Will this person raise the average level of effectiveness of the group they're entering? Each hire must raise the bar.
3)   Along what dimensions might this person be a superstar? What's unique about this person, even if unrelated to the job, that will contribute to a fun and interesting culture?


The New America


Record share of Americans has never married

Pew Research Center recently released an in-depth report on the state of marriage in America. 20% of Americans over 25 have never been married; that figure was 10% in 1960. (This aligns with a recent report that shows more than half of America is currently single/unmarried.) The Pew study is rich with interesting findings, but perhaps the most dramatic insight: When asked what they're looking for in a mate, women care most that a man has a steady career. What's alarming and telling is that male employment has been steadily declining; since 1960, the number of employed men per 100 women has dropped from 139 to 91.


People who use mobile technology for work have higher stress, but feel better about their lives

Gallup recently found that those who regularly use email outside normal working hours, meaning they continue to work when not in the office, experience more stress. Interestingly, this group also rates their lives better than those who do not use email outside of work. Could mobile technology use for work correlate positively with higher paying jobs?

Thanks for reading The Leyendecker View. We hope you find these perspectives unique, insightful and valuable.

We at Leyendecker & Associates are committed to the highest standards of value creation. 
Doug Leyendecker Jim Ford David Prodoehl Kelly Griego