Humans are killing robot jobs (part 3/4)
Given coverage about the relentless impact of AI on employment it is curious to consider that the productivity gains expected by the last 10 years of automation are virtually non-existent[7–16].
Textbook economic theory says that increases in productivity mean that production can happen quicker and cheaper within the same amount of time. This increases supply, decreases prices, and thus increases real wages.
The importance of this process is best captured by nobel Laureate Krugman’s now (overused) quote that “productivity isn’t everything, but, in the long run, it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker”. In his book on eradicating poverty[12], developmental economist Jeffery Sachs makes clear that “the single most important reason why prosperity spread, and why it continues to spread, is the transmission of technologies and the ideas underlying them”.
One way one way to look at productivity growth is as a measure of the rate at which automated systems replace workers, the theory being that automation replaces human labour in order to drive efficiency in a given process.
In the decade 1995 to 2005 (the height of the internet/information revolution) productivity averaged almost 3.0 percent annually in the US. Growth also averaged almost 3.0 percent annually in the golden age from 1947 to 1973[7, 8, 16]. It is no coincidence that these eras saw remarkably low unemployment rates and vastly improved living standards[7, 8, 16]. In recent years Asia has managed to reach record low levels of unemployment and higher living standards by embracing automation[13].
In contrast, just about every advanced western economy has seen very slow (averaging less than 1 percent in the US[7, 8, 16]) productivity growth over the last decade, and with that, economic stagnation in wage growth and living standards. Here in the UK, despite a bit of an uptick at the beginning of this year[14], we’ve even seen negative growth in some industries (of around -0.3 percent[7, 14]). This circumstance is equivalent to workers replacing automated systems.
The concern that autonomous agents are replacing vast swathes of the workforce is thus unassailable. On the contrary, failure to innovate and improve the rate of automation should be the core issue occupying the thoughts of our policy makers.
As important as is the problem of productivity, equally low is unemployment on the agenda of economic governors such as the Bank of England and Federal Reserve. Given that both have increased interest rates within the last year[14, 15] and may be contemplating doing so again[17], it is clear that their sights are set on keeping inflation in-check (and thus lowering employment levels) rather than the prospect of runaway unemployment purported to be being caused by automation.
Far from killing jobs the historic effect of automation has been the net creation of jobs. This is widely supported by virtually every long term analysis of the relationship between automation and jobs.
The previously mentioned Deloitte study finds that the effect of automation on jobs over the last 15 years found the ratio of new jobs to new jobs lost to automation as roughly 4 to 1. In addition, those new jobs paid on average nearly £10,000 more per year than the ones that were lost.
A more comprehensive OECD study[18] on jobs over 5 decades states unequivocally:
“Historically, the income-generating effects of new technologies have proved more powerful than the labor-displacing effects: technological progress has been accompanied not only by higher output and productivity, but also by higher overall employment”.
As for the future, the previously mentioned McKinsey study argues that the growth of automation will actually be vital to our long term employment and economic prospects:
“While much of the current debate about automation has focused on the potential for mass unemployment, predicated on a surplus of human labor, the world’s economy will actually need every erg of human labor working … In other words, a surplus of human labor is much less likely to occur than a deficit of human labor, unless automation is deployed widely”.
This positive outlook is also shared by the managerial class. A study[19] by Erik Brynjolfsson, Director of the MIT Initiative on the Digital Economy, shows that for every dollar of capital invested in computers, firms made $10 of complementary investments in ‘organisation capital’. This trend seems set to continue, as highlighted by a recent survey of 18,000 employers across 43 countries in which respondents thought that automation in their industries will lead to and increase in jobs and their intent to up-skill their workforce[20]: “Most employers expect automation and the adjustment to digitisation will bring a net gain for employment. Eighty-three percent intend to maintain or increase their headcount and up-skill their people”.
Next
Part 4 — https://medium.com/@oharney/policy-not-programs-part-4-4-757e47dbae3e
References
[1] A future that works: automation, employment, and productivity, McKinsey Global Institute, 2017
[2] OECD Social, Employment and Migration Working Papers, 2018
[3] Technical Change, Job Tasks, and Rising Educational Demands, Journal of Labor Economics, A. Spitz-Oener, 2006
[4] From Brawn to Brains: The impact of technology on jobs in the UK, Deloitte, 2015
[5] The Future of Jobs, Reports, World Economic Forum, 2016
[6] Comments on Frey and Osborne’s “The Future of Employment”, Frank Levy
[7] Badly Confused Economics: The Debate on Automation, Dean Baker, 2017
[8] Productivity in the UK, Briefing Paper, House of Commons Library, 2017
[9] The Productivity Puzzle: A closer look at the united states, McKinsey, Discussion Paper, 2017
[10] Labour productivity, UK: January to March 2018, Office for National Statistics
[11] The past decade’s productivity growth in historical context, John Lewis, Bank Underground, 2018
[12] The End of Poverty: How We Can Make it Happen in Our Lifetime, Jeffery Sachs, 2005
[13] Asian Development Outlook (ADO) 2018: How Technology Affects Jobs, Asian Development Bank, 2018
[14] Statistical Interactive Database — official Bank Rate history, Bank of England, https://www.bankofengland.co.uk/boeapps/iadb/Repo.asp
[15] Historical Treasury Rates, U.S. Department of the Treasury
[16] Weak Labor Market: President Obama Hides Behind Automation, Center for Economic and Policy Research, Dean Baker, 2017
[17] Bank of England warns of larger rises in interest rates, FT, 2018, https://www.ft.com/content/e3a6608e-0cc7-11e8-839d-41ca06376bf2
[18] The OECD Jobs Study: Facts, Analysis, Strategies, OECD, 1994
[19] How Information Technology Is Reshaping the Economy MIT Press, Erik Brynjolfsson, 2009
[20] The Skills Revolution: Digitization and why skills and talent matter, Manpower Group, 2018
[21] The Productivity–Pay Gap, Economic Policy Institute, 2017
[22] Income inequality in the UK, Briefing Paper, House of Commons, 2018
[23] Explaining Job Polarization: Routine-Biased Technological Change and Offshoring, M. Goos, A. Manning, A. Salomons, 2014
[24] The concept of ‘flexicurity’: a new approach to regulating employment and labour markets, T. Wilthagen, F. Tros, Transfer: European Review of Labour and Research, 2004
[25] The rise of robots in the German labour market, Institute for Employment Research, W. Dauth, S. Findeisen, J. Südekum, N. Woessner, 2017
[26] Inequality and Economic Growth, Stiglitz
[27] How inequality is evolving and why, Will Denayer, 2018
[28] 23 Things They Don’t Tell You About Capitalism, Chapter 4, Ha Joon Chang, 2010
