Nov 2, 2022
Make Room for Robots
Automation will hold a key to the future in countries like Ireland that face an aging workforce and demographic shifts
By Jonathan Ruane
Re-posted from The Currency, with permission
49 million. That is the peak number of humans that will ever live in the 27 countries of the EU, as projected by the European Commission. And it will occur in just four years from now. From then on, the population will decline despite longer life expectancy and positive net migration. Few among the 27 nations will age more rapidly than Ireland, according to the same source — by 2070, our median age will have increased by eight years.
These demographic shifts will cause a sharp rise in the Irish old-age dependency ratio. There are approximately four persons of working age for each person aged 65 and over today; by 2050, the equivalent figure will be just over two, according to the Department of Finance.
At the same time, Ireland has not exceeded the fertility rate required for a broadly stable population (2.1) in 30 years. This is likely to cause stagnation or even a persistent contraction of the economy (a recession that doesn’t stop) combined with soaring costs in pensions and healthcare.
The financial implications are staggering. Taxes on labour are set to rise but there simply won’t be enough workers to fund the welfare state. We’ll have to borrow massively just to stand still. The Department of Finance predicts that, without policy intervention, it will drive the nation’s debt to-GNI ratio to an unsustainable 180 percent by 2070: double what it is today.
It’s not just the Irish Government that reads the tea leaves this way. International economists such as Larry Summers and Robert Gordon have been concerned for some time. But is this scenario unavoidable? Are these fears inevitable? Maybe not.
Aging Drives Automation
Recent research by Daron Acemoglu (MIT) and Pascual Restrepo (Boston University) shows that when societies age, they adopt more automation technology such as industrial robotics. These machines replace humans in tasks for which there are no longer enough workers. In fact, aging is a more important factor in the adoption of automation than the financial efficiencies that the technology delivers.
It offers hope to Ireland. If the scarcity of younger workers can trigger accelerated adoption of robots and AI, the negative effects of aging on our economy could be neutralised.
Acemoglu and Restrepo looked at data from 60 countries since the early 1990s. They found automation technologies such as computer numerical control (CNC) machines made much greater inroads in nations with rapidly ageing populations. For example, by 2014, a relatively youthful country such as the U.S. had only 8.4 industrial robots per thousand industrial workers, while nations that underwent rapid demographic change had much higher levels, such as Japan (13.8), Germany (17.1), and South Korea (19.7%).
Their research confirmed it was the demographic changes that largely drove the differences in robot adoption. The findings line up with what the theory would predict:
When middle-aged workers with the skills to perform manual production tasks are scarce, it increases the value of technologies that can substitute for them.
Consider Germany, where the share of the population of working age has gone from 70 per cent to 64 percent in the last three decades, according to World Bank data. Over this period, you can imagine a car assembly plant in Stuttgart that finds it difficult to attract workers deciding to purchase a machine that automatically welds a chassis or applies a coat of paint to a new Mercedes.
Adopt, Then Sell Automation
The research shows something else that could offer some hope for Ireland’s economic future. The countries that adopted robots due to aging populations are not just users of automation technologies, their firms became developers and exporters.
Germany, Japan and Switzerland’s indigenous robotics companies such as KUKA, FANUC and ABB are world leaders, exporting tens of billions of euros worth of automation technology every year — driving growth in their domestic economy, and helping offset age-related decline.
Ireland has been a demographic outlier among rich countries in recent years, with the youngest population in Europe by far. So, we have not experienced widespread age-related labour shortages. Nor do we have the strength of industrial manufacturing seen elsewhere. Manufacturing is the sector most suitable for the types of robotic technologies that have emerged in previous decades. However, we can see other Irish examples that shine a light on what might be possible.
While Germany is known for making cars, Ireland has a deep history of producing food. Although the nation’s workers may be youthful in general, those in the agriculture sector aren’t. They have aged rapidly.
Today, five times as many farmers are 65 years and over compared to the early 1980s CSO data shows.
Since the 1970s — the decade with the fastest wage growth in State history the CSO also shows — young people in rural Ireland have had better economic alternatives to farming. So, the people who remained on the land began investing in labour-saving devices. In the early 1980s, two brothers from Mayo, Padraic and Martin McHale, started to manufacture a silage grab — a device attached to a tractor to move animal fodder. It enabled Irish farmers to switch from time-consuming, strenuous, manual work to a much more efficient, mechanical process. It helped alleviate the shortage of young farmers in the industry.
The McHale brothers didn’t stop there. Like the Japanese manufacturers of robots, they kept innovating. This led to international expansion. Today, 90 percent of McHale’s revenue comes from the 55 international markets they serve, their company reports. The business remains family run and manufactures a range of agricultural devices including complex bale wrappers. It employs almost 300 people near Ballinrobe and has additional facilities in Hungary. Ten per cent of its workforce is focused on R&D, enabling it to remain a world leader in its specialist areas.
The McHale story illustrates how a shortage of young workers (albeit in a specific sector) spurs the adoption of automation technologies that can both improve domestic Irish productivity and create export-oriented companies that increase the size of our economy. Fewer workers but bigger economic gains.
From Robotic Welders to Delivery Drones
Ireland is just beginning its rapid aging, so although Acemoglu and Restrepo’s insights will still be valid, the technologies we will use to automate will be different. The new frontier of automation will be systems that incorporate machine learning and other AI techniques. This new breed of machines is expanding what’s possible, automating tasks considered the preserve of human workers until recently.
Ireland is also different to nations such as Germany in that it has a lower percentage of the workforce employed in industrial settings. So, automation of services will be more important to us.
The transport sector is expected to be impacted by AI in the coming decades. It’s unlikely that a large-scale autonomous vehicle company will emerge from Ireland but there are other firms that might be just as important.
Consider the job of delivery drivers today. A future shortage of these workers is an ideal setting for the adoption of Manna Aero, the Irish drone delivery start-up. Its technology has the potential to alleviate Irish labour shortages and generate significant sales abroad. It can also improve domestic productivity — an electrically powered flying robot dramatically lowers the cost of a delivered kilogramme of goods compared to a human driving a vehicle. All are vitally important for the future Irish economy.
Wouldn’t it be great if other entrepreneurs could use automation technology to do something similar for the cost of construction? Remember, as with McHale, it takes decades to refine new technology, get accepted in the market and become a world-class exporter. Ireland is only 25 years away from our old-age dependency ratio halving. The crop of entrepreneurial firms being founded today are vital. If you are under 50, these are the firms that your state pension depends on.
Automation That Works
We know that when automation is too deep or too rapid in certain sectors or locations, it can have negative effects. The types of jobs that remain may be less desirable or it can be a driver of income inequality if the owners of the robots get richer while the share of the pie left for workers gets smaller. But this isn’t a certainty and it’s a complex phenomenon.
Accemolgu and Restrepo found that in Germany, robots entered the workplace mainly to compensate for the absence of workers as opposed to a cost-cutting, worker-replacing strategy.
Automation on its own should not be the end goal. It has to be part of a mix that involves other adjustments to make sure we create a path to inclusive prosperity.
It’s worth remembering that no other European nation does more than Ireland to reduce household income inequality, as illustrated by the ESRI’s analysis of tax policies. We should be hopeful the same shared values that created our current highly progressive (albeit imperfect) tax system will enable us to deal with future challenges around automation.
Bottom-up
Ireland’s national AI policy is relatively benign. Most of its strategic actions are focused on “considering, examining, reviewing and exploring” rather than state-led investment or action. This is not necessarily a bad thing.
It means transformation will come from bottom-up experimentation by progressive firms wanting to compete and people driven to offer better services to customers.
It’s great to see more focus on coding and robotics in educational settings. Not many of us need to be expert software developers but we can all benefit from some exposure to the core ideas. It enables us to be more aware of when collaboration with machines might be beneficial.
We need more initiatives like Learnit, Ireland’s first Lego league. It helps teachers introduce hands-on learning in robotics and engineering into primary and secondary classrooms. I recently saw children as young as four building computer-controlled devices in Stokane, a two-teacher national school in rural Sligo. This is happening in schools across the country thanks to the initiative of forward-thinking teachers.
Evidence tells us that an aging workforce leads to automation. If we embrace this technology and use it effectively, it could be a powerful tool for offsetting the economic headwinds facing the nation.
Jonathan Ruane is a lecturer in global economics and management at MIT Sloan.
