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Market watchers are cheering an increase in overtime hours in U.S. manufacturing sectors as a sign of a sustainable economic recovery. But in a technology-laden, efficiency-driven corporate environment, increasing labour power could quickly backfire by increasing investment that once again drives wage prices lower.

Gluskin Sheff's David Rosenberg recently highlighted the rising number of overtime hours for American workers – now at a seven year high – as a sign that job growth was set to surge (see chart). The improvement is welcome, but with average weekly overtime hours at 4.3, stress on the labour force remains below the level of the mid-2000s and significantly lower than the late 1990s.

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To make matters worse, U.K.-based economist Frances Coppola (Ms. Frances with an "e" – not the Rumblefish guy), makes the dark, contrarian argument that if upward pressure on wages continues to rise, this would be negative for labour markets by spurring spending on wage cost-reducing automation:

"At present companies are hoarding capital and worried about the future, so it is not in their interests to invest in plant – which is what robots are. Their outlook is essentially reactive and short-term, so they want a reactive, short-term workforce. They don't want to undertake the capital expenditure required to automate. They don't want to invest in workers long-term either because training and development is also a capital expense.

"However you look at this, there are structural problems in the labour market caused by companies' short-term outlook and lack of confidence about the future."

The implication is that, unlike the past when a positive economic outlook resulted in hiring, new technology means we're be facing a future where the exact opposite is true. As optimism returns, corporate investment will not be in employees. It will be in efficiency-related software from Oracle Corp. and robots from Fanuc Ltd. and Rockwell International Corp.

To date, the effects of industrial automation on employment have been overstated – globalization has been a far bigger issue. But this will not remain the case, particularly in a corporate environment where top line sales growth is elusive and high margins need to be maintained to keep shareholders happy.

The economic forces arrayed against labour are truly impressive – technology, globalization and demographics (namely Boomers leaving their peak spending years). Policymakers have the unenviable task of balancing the economic benefits of corporate profits against the declining spending power of the developed market consumer – uncharted economic waters that must be navigated in the decades ahead.

Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Read more of his Insights at , and follow Scott on Twitter at @SBarlow_ROB .

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More


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