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Dan Clemmensen

Oil: more automation, fewer jobs

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Irina Slav's new article is about remote working:

But this is just the latest act of a long play. The industry did not have much incentive to become more productive while OPEC kept the oil price artificially high. This ended in 2014. Companies were forced to find ways to reduce costs while maintaining production, and lots of folks lost their jobs. The new way of operating was more efficient: more oil per man-hour, and those jobs did not come back. Fast-forward to 2020: prices crashed, more jobs lost, and companies finding yet more ways to lower costs by increasing productivity. These new operational methods won't go away, so those jobs won't come back either.

There are two equally valid ways to describe exactly the same process

  • Increased productivity improves income and allows us to pay each worker more while lowering prices.
  • Increased productivity lets us reduce the workforce.

The actual result depends on demand for the product. If demand increases faster than productivity, you need more workers. If demand increases more slowly than productivity, you need less workers. But the decreasing demand scenario includes a nasty feedback loop: it provides a strong incentive to lower prices, which provides a strong incentive to  increase productivity. In teh case of oil the ability to increase productivity quickly was made easier by the slop in the system caused by OPEC's artificially high prices.

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