Recently, I wrote an article titled "Time To Bet On Japanese Babies And Robots". In this article, I discussed how the Japanese population decline has been mostly portrayed as a crisis, but that it may not be that big of a crisis after all. Why? Because they seem to have a decent grasp on the fertility rate problem and, most importantly, they have robots.
In doing my research on Japanese babies and robots, I started wondering: "How about American babies and robots?"
Here is what the US population (321.1 million in 2015) figure looks like compared to that of Japan (126.9 million in 2015):
(Source: Google / World Bank)
In comparison, here is what the US fertility rate looks like (1.86 in 2014) and that of Japan (1.42 in 2014):
(Source: Google / World Bank)
The US fertility rate is below the 2.1 figure, which is widely considered to be the number you need to hit to sustain a neutral population. However, we don't hear about a population decline in the US, because we have plenty of immigrants that make up for the difference. In contrast, Japan maintains a very strict immigration policy. If you're not born Japanese, it is nearly impossible to obtain Japanese citizenship.
A decline in population generally means a decline in manpower, consumer base, and the overall economy. It is apparent at this point that Japan will be first in line to figure out a solution to the problems that come with population decline. Their answer is robots, but what does that mean to the US?
Robots and the Fast Food Industry
"Fight for 15", where fast food workers demanded a $15/hour minimum wage, is an appropriate case study that relates robotics to manpower. Here's a blurb from former McDonald's (NYSE:MCD) USA CEO Ed Rensi that summarizes the consequences of a wage increase:
"I was at the National Restaurant Show yesterday and if you look at the robotic devices that are coming into the restaurant industry - it's cheaper to buy a $35,000 robotic arm than it is to hire an employee who's inefficient making $15 an hour bagging French fries - it's nonsense and it's very destructive and it's inflationary and it's going to cause a job loss across this country like you're not going to believe"
Source: Fox Business
While fast food workers in the US are pushing for a minimum wage increase, Japan faces a real manpower problem, which will make robotic arms a necessity in the fast food industry as the population continues to decline. So the robotics technology already exists, but the country's manpower shortage is likely to motivate large chains to fine-tune this technology and subsequently commercialize it. With commercialization comes scale, and with scale comes affordability.
Mr. Rensi is saying that a $35,000 robotic arm provides a better value proposition than a $15-an-hour employee. What this tells us is that somewhere between the current $7.25 an hour minimum wage and the $15 an hour wage demanded by fast food workers, there is a point where the $35,000 robotic arm makes more sense than the fast food employee. So how does the value proposition change when these robots are developed and commercialized out of necessity in Japan? We might see a $25,000 robotic arm that bags fries AND fills up drinks.
Who are the robots replacing?
Now, fast food is just one example. In his memo titled "Economic Reality", Oaktree Capital's (NYSE:OAK) Howard Marks talks about overall productivity gains in manufacturing with a similar approach:
"U.S. manufacturing employment of 12.3 million workers is down 37% from the peak of 19.5 million reached in 1979. So when did the value of manufacturing output hit its peak? The answer may surprise you: today! The current level of U.S. manufacturing output is in the vicinity of the all-time high and roughly double the 1979 level. Twice the output with less than ⅔ the workers means output per worker has more than tripled. Thus, if we were producing today's output at the 1979 level of productivity, we'd be employing 25 million more workers! So while we've lost 3.2 million jobs to China since 2001, for example, we've lost many times that to improvements in productivity. Perhaps if the government wants to preserve jobs it should just outlaw productivity gains."
Source: Oaktree Capital
As a side note, Howard Marks' memos are always well written and insightful. I highly recommend subscribing to his email list.
The development of self-driving cars yields similar implications. Where will all the taxi, bus, and truck drivers go when vehicles start driving themselves? While it may take another 5, 25, or even 50 years for the development and commercialization of self-driving vehicles, the problem still stands.
Between self-driving cars, manufacturing, and fast food, it's apparent that robotization mostly replaces blue-collar and entry-level jobs. The problem is that blue-collar workers usually aren't the ones that end up having white-collar jobs.
Putting all of this into context, the problems that come from American population growth appears to be at least as big of a headache as those that come from the Japanese population decline. The kicker here is that robots don't require social programs, while people do; but then again, robots aren't consumers that keep the money cycling around the economy. Assuming robotization movements see continuing success, a population decline might actually be more desirable than an increase. It will be interesting to see how robotization affects both the American (NYSEARCA:SPY) and Japanese (EWJ, DXJ) economies, along with the rest of the world. While the robotization movement probably should not be at the core of the long-term investor's thought process (unless we're talking about a robotics-related company), it is at least worth asking the question about how the movement can change the dynamics of a company or industry. For example, how would smaller truck operators fare when the large operators roll out driverless transportation, which would make trucking more cost-effective by removing drivers and the hours-of-service restrictions that come with human drivers.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.