Labour Bargaining Power and the Luddite Fear

Technological change is as old as history.

In fact, in the broadest of sweeps, the economic history of mankind is a story of technological change, rising productivity and rising living standards.

For all the recent handwringing about the “rise of the robots” and the supposed threat of a new wave of automation replacing human brawn and human brains, this situation is hardly unprecedented.

As Toby Nangle tweeted over the weekend – just look at the history of the agricultural labour force.

We haven’t had masses of unemployed agricultural labourers – instead we’ve seen the rise of other sectors (some of them entirely new) taking up the employment burden.

So – given this long history, should we just be eminently relaxed and dismiss the robotic threat?

I’m not so sure.

First – because periods of intense change can be difficult. And whilst in the long run, those thrown out of work by change do tend to find employment elsewhere, the short run can I think what has been missing from much of the discussion is the role of labour bargaining power.

In basic terms, the introduction of labour saving technology has two macroeconomic effects.

There’s the displacement effect – the fact that labour saving technology, by definition, uses less labour. It’s introduction means fewer workers are required to produce any given level of output.

The Luddite fear focuses on this.

The long run story – as noted at the start- is the story of the compensation effect trumping the displacement effect and new technology meaning higher living standards not mass unemployment.

But the short run can last for a long time.

And I’m increasingly convinced that one of the factors determining it’s length is the state of labour bargaining power.

If labour bargaining power is weak then the compensation effect can be delayed. If the gains of higher productivity end up meaning higher corporate profits rather than higher wages then there is reason to worry that the compensation effect could be seriously hampered. We could have years of the displacement effect dominating.

In other words, at least for a while, it’s worth taking the Luddite fear seriously.