Are robots throwing humans out of jobs?

Are robots throwing humans out of jobs?

This is a highly debated topic, but no one has a clear answer. Researchers at the Luohan Academy compiled some facts from 2017 in this chart. So far there is no evidence that accelerated global automation has led to the destruction of more jobs than have been created in their place and that this has resulted in higher rates of unemployment. From 1990 to 2017, global robotic shipments increased by more than four-fold.

Among countries with the world’s highest level of automation, only Sweden has an unemployment rate (barely) above the global average. China, one of the world’s fastest adopters of digital technology, has an unemployment rate of just four percent, comparable to that of the United States. These observations should at least somewhat alleviate concerns in other countries regarding the potential of robots to throw people out of house and home.

Still, a more in-depth look into the effects of robot adoption on local labor markets raises some legitimate concerns. While research is in its infancy, one study finds that, in the United States, one more robot per thousand workers reduces the employment to population ratio by about a (very small) 0.18-0.34 percentage points and wages by (also a very small) 0.25-0.5 percent. Another study finds that in a sample of 16 European countries, the adoption of industrial robots has led to an increase in both labor productivity and value-added per worker, as well as wages and total factor productivity, without significant adverse effects on total hours worked.

In Germany, there is no evidence that the adoption of industrial robots has led to overall job loss. However, it appears to have led to sectorial shifts towards the service sector. The use of robots has caused some displacement effects for mid-level skills and young workers but has had no impact on wages. These findings suggest that there are complex interactions between the underlying labor market structure and new technology. More research is needed on those interactions before we can understand the full impact of automation.

In many emerging markets, the positive spillover effects generated by lower “unit labor costs” – the average costs of labor per unit of output that falls as technology increases the production achieved with each unit of labor - appears to have been significant enough to offset any substitution effects against labor. For example, a comprehensive analysis of 12 Asian emerging countries from 2005 to 2015 finds that, while the adoption of machines and ICT has led to a 66 percent decrease in employment when demand is held constant, the loss is more than compensated by an additional 88 percent increase in employment due to a higher demand for goods and services from consumers caused by lower product prices.

Digital technologies have enabled the creation of new business models with employment possibilities that simply could not have been imagined in the past. The rise of e-commerce and the gig economy has made it easier to choose when and where to work. It has vastly increased both the demand for and supply of labor, lifting hundreds of millions of people out of poverty.

That said, digital technology has created losers as well as winners, at a larger scale than the earlier technological revolutions. The fast adoption and penetration of new technologies increased the fluctuation of the labor market, and individuals who were unable to attain the skills required to perform more modern, more productive, and better-paying jobs are to be excluded from the widespread gains of this new technology.

Such “creative” destruction, with its inevitable obsolescence of existing human (as well as physical) capital can be devastating to affected homes and families and destabilizing to larger society if governments do not intervene to help them develop the skills and fill the higher-paying jobs that are created. In that regard, it must be admitted that there is no satisfying answer to the increasingly important issue of finding ways to build human capital - ways to build a foundation of education and training - that is resilient to technological change.

Finding the answers to these questions is the mission of researchers at the Luohan Academy.

 (This chart and the associated texts are mainly from Luohan Academy’s publication Digital Technology and Inclusive Growth. The executive summary can be downloaded here, and the full text will be available on Amazon by late Jan. 2020.)

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