Myths and Realities of Automation and Labor Shortages

This is the introduction to a series of articles Creative Ventures will be publishing on the topic of Labor Shortage and Automation. 

The pandemic has brought discussions of automation front and center once again. In our new contactless, socially distant world, automation has allowed operations to continue and has accelerated trends in industries where labor shortages have become a persistent problem. 

There is, of course, a case for recruiting more humans into these industries to address these problems. The US now has 10 million fewer jobs than before the pandemic. Why aren’t  businesses taking advantage of this abundant labor supply and hiring on the cheap? People need jobs, and it seems counter-intuitive that with such high unemployment, labor shortages would still persist.

In many cases, however, the specific workforces needed for the specific job do not exist. 

The airline, hospitality, and retail sectors were heavily impacted by the pandemic, and we’ve continued to see layoffs there. Meanwhile, a number of other sectors have been experiencing tightening labor markets as a result of secular demographic changes decades in the making. At an aggregate level, both the civil labor force of workers between age 25-54 and labor productivity have been stagnant since 2000. This suggests that there must be a labor shortage somewhere in the system. 

Many of the jobs experiencing this labor shortage fall into the category of “dirty jobs” – work that is often labor-intensive, repetitive, and – occasionally – unsafe. This includes jobs ranging from e-commerce packing and crop harvesting to assembly line work and even carpentry, to name but a few. The most acute labor shortage is in semi-skilled work that requires 18-24 months of training. Many of these positions are currently being filled by aging workers who are on the cusp of retirement. 

As a result, labor as a share of total cost has begun picking up, hurting low margin sectors such as construction, logistics, and food services. This shift will only continue to accelerate. It’s not only that older workers aging out and leaving these industries. At the same time millennial workers are shying away from these jobs, creating a vicious cycle.

The truth is that we are at an inflection point, spurred by the pandemic, where automation has become not simply a viable option for many industries but increasingly essential. Consider that the construction sector is facing 250,000 unfulfilled jobs vacancies, which represents more than $10 billion in market value. Demand in sectors like e-commerce grew 44% in 2020, but warehousing and fulfillment centers remain bottlenecks and the source of delivery delays. Of the 6.1 million food-service jobs in the US lost to the pandemic only have returned by July 2020. 

For industries like construction, automation offers an immediate solution to a persistent labor shortage problem. In warehousing and logistics, automation adoption has drastically accelerated. (Even as Amazon has hired an unprecedented 500,000 positions over the past year to fill demand, it’s easy to see that these jobs are not a sustainable long-term solution for the company). For food service companies and others in low-margin industries, the pandemic downturn in labor provides an opportunity to further deploy automation initiatives already underway.

Most importantly, in striving to maintain the balance of labor and automation, we have a generational opportunity to train the workforce we will need to support automation. Companies can invest in training for new positions rather than retraining for jobs that will likely be automated away within the next decade, if not sooner. 

This is the first in a series of articles Creative Ventures will be publishing on the topic of Labor Automation. Over the next few months, we will explore where venture investment opportunities lie within automation and how to evaluate these opportunities.

We will focus on industries that are most acutely susceptible to labor shortages and consider how disruptive technologies play a role in helping these industries meet rising global market demands. We’ll also look at how industries are retooling as a result of the pandemic, how this has accelerated automation, and what new markets might emerge as a result.  

Follow along as we dig into the data of automation acceleration, and identify what we consider to be unique opportunities for investment. 

Continue to the first post in our Labor Shortage and Automation series: The $400 Billion Market Part I: The Case for Construction Automation

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