The New America: Rich Get Richer, Poor Get Replaced By Robots

Trump has spent a lot of time during his first couple of months in the White House ramping up the rhetoric over all the jobs that are flowing out of the country into lower-cost labor markets like Mexico, China and elsewhere.  And while that may be true, as we’ve pointed out multiple times in the past, part of the issue is also related to good old-fashioned capital allocation decisions whereby the combination of rising labor costs in the U.S. and declining technology costs makes capital investments in automation much more attractive.

The problem, of course, is that low-skilled labor (e.g. making a Big Mac or taking an order at McDonald’s) is much more susceptible to automation than higher-skilled positions which results in expanding income disparity.

In fact, as Bloomberg points out in a series of charts today, the growing income divide, just since 2010, is fairly staggering.  The rich-poor gap – the difference in annual income between households in the top 20% and those in the bottom 20% – ballooned by just over $29,000 between 2010 and 2015.

High-tech hubs were among the five metropolitan statistical areas where the gap between the highest- and lowest-income households expanded the most: two in California, San Francisco and San Jose, as well as Austin and Seattle.


The gap between the super rich (top 5%) and the middle class (the middle 20%) is also surging.


Meanwhile, as a new study from PWC points out, this trend is unlikely to reverse anytime in the near future as they estimate that 38% of U.S. jobs could be at risk of automation just over the next 15 years.

“Technological developments have increasingly replaced low- and mid-skilled jobs while complementing higher-skilled jobs,” said Chad Sparber, an associate professor and chair of the economic department at Colgate University.


This shift is predicted to continue. About 38 percent of U.S. jobs could be at high risk of automation by the early 2030s, according to a study by PricewaterhouseCoopers LLP. The “most-exposed” industries include retail and wholesale trade, transportation and storage, and manufacturing, with less-educated workers facing the biggest challenges.


“Companies are doubling down on costs cuts and streamlining their operations,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York. Workers “at the bottom have not seen as much improvement as those at the very top of society.”

Of course, when demand for a product, low-skilled labor in this case, is declining, the worst thing you can do is raise the price for that product.  Unfortunately, as we pointed out a couple of days ago, that is exactly what Bernie Sanders and other liberals are doing with their recently released legislation calling for a $15 federal minimum wage.

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