One Reason Why Companies Aren’t Hiring? They’re Buying Equipment

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A front-page story in today’s New York Times offers an intriguing reason as to why unemployment continues: companies are investing in equipment instead of people. It’s the most significant disparity between the two in three decades.

According to the piece, workers are getting more expensive as equipment is getting cheaper, with the result that advanced technologies are increasingly doing jobs that might otherwise be done by us lowly humans.

Yes, people have been getting replaced by machines for a long time. But according to the Times, a capital expenditure rebound this extreme has coincided with such a weak labor bounce-back only once before  – after the 1982 recession.

The story highlights Vista Technologies, a firm that makes plastic products for equipment manufacturers. The company spent $450,000 on new technology last year but has hired only two new workers, with a combined annual salary and benefits of $160,000.
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According to numbers from the Commerce Department, businesses’ spending on employees in the last two years has grown 2 percent while spending on equipment and software increased by 26 percent. One explanation for why this is occurring now is that health care costs for employees are rising. You don’t need to worry about providing benefits packages for computers.

“If you’re doing something that can be written down in a programmatic, algorithmic manner, you’re going to be substituted for quickly,” a Harvard economist told the Times.
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So how will capital and labor eventually balance themselves out? Theoretically, more efficient technology eventually leads to a rise in living standards that will help workers shift into more profitable fields. That may be true, but the shift will be years in the making.

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