Is Wage Deflation Here To Stay?

09/08/2017 08:43 am ET

The chart below illustrates the coming wage wars very well. Skilled workers are going to be easily replaced by AI and jobs that were once considered unskilled could make a comeback. For example, AI will easily be able to replace Fund Managers, Brokers, Accountants, managers at all levels, etc, but they will not be able to replace a gardener, plumber or a good cook.

Job Landscape Set to change in the years to come

In a recent report, the World Economic Forum predicted that robotic automation will result in the net loss of more than 5m jobs across 15 developed nations by 2020, a conservative estimate. Another study, conducted by the International Labor Organization, states that as many as 137m workers across Cambodia, Indonesia, the Philippines, Thailand and Vietnam – approximately 56% of the total workforce of those countries – are at risk of displacement by robots, particularly workers in the garment manufacturing industry.

By 2018, the reports says, almost one-third of robotic deployments will be smarter, more efficient robots capable of collaborating with other robots and working safely alongside humans. By 2019, 30% or more of the world’s leading companies will employ a chief robotics officer, and several governments around the world will have drafted or implemented specific legislation surrounding robots and safety, security and privacy. By 2020, average salaries in the robotics sector will increase by at least 60% – yet more than one-third of the available jobs in robotics will remain vacant due to shortages of skilled workers. For every job created by automation, several more will be eliminated entirely. This disruption will be devastating

“Automation and robotics will definitely impact lower-skilled people, which is unfortunate,” Zhang told me via phone from his office in Singapore. “I think the only way for them to move up or adapt to this change is not to hope that the government will protect their jobs from technology, but look for ways to retrainthemselves. No one can expect to do the same thing for life. That’s just not the case anymore.”  The Guardian

Fed is no longer Hawkish

The Fed has already changed its tune on hiking rates and appears to be taking a more dovish stance. The bond market did not trade to new lows after the last rate hike. Bonds put in a higher low and has been trending upwards. It’s acting as the last rate hike never took place.

The velocity of M2 stock continues its downward march, and until it reverses course, defaltion is what we should be worrying about and not inflation.

Conclusion

Experts are focussing on the wrong animal. Inflation might not be an issue for many years to come. All the signs indicate that deflation is here to stay especially when it comes to wages. Ultra-high wages might soon be a thing of the past.  The most expensive component in any business is the “human factor”.  If that’s eliminated from the equation, production costs will drop at an exponential rate.

Originally Published on the Tactical Investor

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