Do robots mean the death of the middle manager?

The perceived wisdom about the introduction of robots is that it will replace manual labour and thus lead to higher unemployment. I have argued before that his is not necessarily true in a world with a declining working age population, but that job insecurity is likely to increase for middle-aged workers. But what about their supervisors?

Jay Dixon and his colleagues analyse the increasing use of robots in Canada and the impact it had on the Canadian labour force. They find that as companies introduce robotics into their manufacturing processes, the total headcount initially rises and then drops again to the same level as at the time of the introduction of robots. It’s not clear to me what causes that increase in total employment, but it is not statistically significant anyway, so it could be just an artefact of the data. One possible explanation, however, may be that companies introduce robots when they are expanding their production capacity and are on a growth spurt which inevitably also increases total employee headcount.

Impact of the adoption of robotics on total employee headcount

Source: Dixon et al. (2020)

More interesting than reading tea leaves about the possible reason for a short-term increase in total employees is the results Dixon and his colleagues found about the reasons why companies introduce robots. It wasn’t to reduce the labour force it was predominantly to improve product quality and consistency in the output. Mind you this research was done with data from 1996 to 2017, i.e. a time before we worried about global supply chain disruptions. Today, it is entirely possible that more and more companies are thinking about introducing robots to become more independent from global suppliers and increase the quality of products.

What does come with the introduction of robots, however, is less of a need for supervision. If robots manufacture products, there is much less need for quality controls and much less need for supervisors to check on workers. The result is that in the years after the introduction of robots, the share of managers in a company declines significantly.

Impact of the adoption of robotics on managerial headcount

Source: Dixon et al. (2020)

And this may be something that many investors underestimate. We tend to think of robotics as something that replaces lower wage employees and thus creates income inequality by reducing the wages of low-skilled employees. What this research suggests is that these wage reductions are already in the past. The low skill jobs that could be displaced to China and other emerging markets are already there and they aren’t coming back. The next hit is coming for the middle class, the experienced and higher-paid supervisors and middle managers whose main job it is to hold coordination meetings and check that all the work is done properly. With the rise of robotics these middle-income households will start to experience rising job insecurity and declining (real) wages. And as a result, businesses that cater to the needs and wants of these middle-income households may  face a harder time going forward than businesses that cater to lower-income households.