Euro Exim Bank

Man versus Machine – The Saga Continues

Since the industrial revolution, technology has been seen as a threat to workers, especially those in manual labour replaceable by machine, robot or computerised device. The process of robots replacing labour is not new, and as robot skills and productivity ratios increase and expand, humans will keep being replaced on labour markets. However, does this mean that automation is reconstructing modern economies into a productive system where human labour is obsolete?

The automation of work and introduction of new technologies have raised several questions for modern societies regarding the future of jobs, the accumulation of capital and the role of the government in the protection of labour. The latest report of the National Bureau of Economic Research (NBER) by Daron Acemoglu and Pascual Restrepo has brought back the discussion, proposing that new technologies are reducing employment and wages in industrial markets and that as automation increases there is “a very limited set of offsetting employment increases in other industries and occupations”.

According to Acemoglu and Restrepo, the use of industrial robots in the US from 1993 to 2007 caused significant job losses in major industries like manufacturing, food processing, pharmaceutics and autos, where “each robot reduces employment by 6.5 jobs” and “one robot per thousand workers reduces wages by 1.2%”. The authors make a call to explore different policy responses and prepare for the inevitable change whereby instead of complementing labour – as was thought after the first industrial revolution – technology is replacing it.

They also find that the most affected are low-skilled workers in routine manual jobs and in manufacturing, expecting that between 2015 and 2025 the use of robots in US industries will reduce employment by 1.75% and wages by 4%. Carl Frey and Michael Osborne explored this idea in 2013 in a report for the Oxford Martin School, concluding that 47% of total US employment was at high risk of being automated. Their study suggested that the degree of automation of a job depended on the skill level and creative and social intelligence required.

The most affected are low-skilled workers in routine manual jobs and in manufacturing, expecting that between 2015 and 2025 the use of robots in US industries will reduce employment by 1.75% and wages by 4%.

Acemoglu and Restrepo think that robots pose an immense challenge for developing economies, as low-skilled jobs that have been automated are not likely to re-emerge because new jobs are not being generated for the people at the bottom of the labour pyramid, raising new questions about the accumulation of capital and distribution of wealth in automated societies. The NBER study has clearly revived the discussion, as its results imply the possibility of the consolidation of technology-intensive economies in substituting labour-intensive economies, risking the future of manual and low- and middle-skill workers in developed economies.

However, for the past 200 years, societies have coped with technological change and automation, proving that as some jobs disappear new ones are created. For economists like David Autor, Ross Gittens and Callum Chase, the introduction of new technologies in an industrialised sector can create new jobs for one main reason: by using robots or computerised devices, productivity increases, generating higher profits, accumulating capital and ultimately boosting labour demand. In this sense, automation should be seen as complementary and not only as a substitution process.

As a consequence, the rise in profits gives dynamism to the economy and creates space for new jobs to appear. However, this process comes with a clear shift in the skill sets that workers require. As David Autor explains in Why are there still so many jobs, “the interplay between machine and human comparative advantage allows computers to substitute for workers in performing routine, codifiable tasks while amplifying the comparative advantage of workers in supplying problem-solving skills, adaptability, and creativity. The frontier of automation is rapidly advancing, and the challenges to substituting machines for workers in tasks requiring flexibility, judgment, and common sense remain immense”.

In line with this argument, the International Federation of Robotics argues in World Robotics Industrial Robots 2016 that automation in developed economies is changing the labour market rules and creating new opportunities for companies to grow and expand in the globalised economy. It argues that as US industry installs new and more advanced industrial robots, the number of employees is increasing. Between 2010 and 2015, around 135,000 robots where installed in US industry and 230,000 new jobs were created solely in the car industry, having a major impact on productivity, product quality and global competitiveness.

For some economists, the idea of a jobless society or work-free economy is very far from becoming a reality. In his provocative article How digital disruption affects jobs and wages, Ross Gittens say that whereas non-economists see only the jobs that have been lost as industries digitise, economists understand this is just the most visible part of a more complex process in which jobs aren’t so much destroyed as “displaced” – taken from some industries and moved to others.
Whether you think about the idea of a more inequitable economy with less human labour, more automated labour or, in a more extreme scenario, a jobless economy, the NBER report re-raises important questions. The race between machine and man its open for discussion. Whatever happens in the future will depend not just on technological advances but also on the capacity of the labour market to adapt and the impact of social and political measures to cope and evolve not just as a society but as a globalised economy.