The effect of automation.

The Technology Investor has studied the effect of automation and productivity.

First, China's demographic points to a shrinking pool of labor."The effects of demographics on the supply and therefore the cost of labor, the Chinese government has set a target of 13% for annual increases in the minimum wage through 2015. All this suggests that year-over-year increases in China's hourly manufacturing labor costs will continue to be at least as high as the roughly 15% average experienced over the 10-year period of 2003-2012.

Already, export customers are beginning to take notice of the detrimental effects of wage inflation on the cost of Chinese products. What to do? Well, if history is any guide, Chinese manufacturers will automate.

Using robot density (industrial robots in use per 10,000 manufacturing employees) as a proxy for overall industrial automation, we can see in the table below that once Japan, Korea, and Taiwan achieved baseline densities of 5 to 10 (similar to China's current density of 7), compounded annual growth was a torrid 26% to 45% for the next 5 years, and 20% to 33% for the next 10 years.

Productivity then will increase. It is a matter of creating new occupations.