Impact of automation on unemployment rates
1 year ago

The automation of work has been considered as one of the major causes of unemployment (structural). Nowadays automation jobs are more common as  jobs are increasingly being automated and as a result, more and more people will subsequently lose their jobs. Today, most headlines often talk about innovations in artificial intelligence (AI) — in machine perception, robotics and advanced automation. A majority of people see this rapid advancement in technological developments as a threat to their wellbeing as well as their own existence.

Structural unemployment often results from the fact that there is a discrepancy between the skills that workers in an economy can provide and the skills demanded of the workers by employers. Structural unemployment can also be caused by the fact that automation jobs driven by advancement in technology are making the job skills of many workers becoming obsolete.

Even though the advent of automated technology can be regarded as advantageous because it provides the economy with more efficient work, many people will tend to lose their jobs over time. One principal pressure on individuals and employment rates is that technology automates jobs. The skill set of workers becomes obsolete, leaving them without jobs and heightening structural unemployment rates.

For instance, after the introduction of mechanized looms, artesian weavers were reduced to poverty after losing their jobs. Alan Turin's Bomb machine compressed and decrypted thousands of man-years worth of encrypted data within a few hours during World War 2. Suppose a vehicle production company feels that its production chain has become inefficient and obsolete. Let’s assume that its current machinery requires 60 employees to build a vehicle in approximately three hours, and the company is losing pay because of its inability to meet up with customer demand. The company decides to upgrade its machinery with automated technology. This upgrade increases work efficiency as the machines can now build a vehicle in only hour but require just 2 operators. In the current advance  era of robotic or technological knowhow, in which software engineers and computer scientists principally render us jobless through their inventions, the total number of jobs drops steadily and permanently.

The fact that automation has caused mass unemployment is widely accepted. But again the fact that it can possibly lead to long-lasting joblessness has been a controversial issue. This is probably because people believe that “as one door shuts, another opens”- since there exist an infinite options of business opportunities for those who are willing to cease these opportunities. Participants in debates concerning technological unemployment can be divided into two broad groups; the pessimists and the optimists. Pessimists argue that at least in some situations, advances in technology can lead to a persistent drop in the total number of workers in the economy. Optimists on the other hand, concur with the fact that automation can cause a break to jobs in the short term, but still argue that there exist various options/channels with advantages and benefits that will give no room for long lasting negative impacts on jobs.

Before the 18th century, both the ordinary people and the elites generally had a negative perception on technological unemployment whenever the issue came up. Due to very low unemployment rates during this period, the topic was rarely an issue of concern.Fears over the impact of technological advancements on jobs aggravated in the 18th century with the proliferation of massive unemployment, particularly in Great Britain which was then, at the forefront of the industrial revolution.Even with this, some Economist started to contest these fears on the basis that the total technological advancements will not have adverse effects on jobs. Early in the 19th century, these arguments were formalized by the classical economists. Some great thinkers have argued the fact that innovation would not have negative effects on jobs. During the second quarter of the 19th century, it became gradually obvious to all that technological advancement was benefiting all classes of society, including the working class. Consequently, issues over the negative impact of innovation died down as well. "Luddite fallacy" was the term created to describe the conception that technological advancement would have lasting adverse effects on jobs.

Throughout history, technological advancements have been the precursors of frustration over the potential of unemployment and job displacement. Nonetheless, history tells us that 90% of Americans worked on farms in the 1800s contrary to today’s stats where we have less than 2%.Apart from the Great Depression and 2008 Recession, there has been yet no other period which has experienced high levels of mass unemployment.

As most routine jobs have been automated by technology, those jobs were substituted by new employment. This is still with examples being Steve jobs and Bill Gates who have played vital roles in the creation of the computer industry. Even if we roll back time to consider the past 15 years when computer technology witnessed its greatest success, the labor force in the U.S still grew from 150 million in 2000 to 160 million in 2014.

Among the greatest historical innovations, the internet has been embraced in the shortest amount of time by a wide majority of  people from other nations of the world. It is irrelevant to say that these advancements in technology may have had adverse impacts on certain jobs, yet we have witnessed a rapid growth of computer engineers and software developers in the 21st century.

In the early 1800s, theconception that technological advancement is unlikely to give rise to long term joblessness has been consistently been challenged by a few economists. During brief intensifications of the debate that spiked in the 1930s and 1960s, there were a hand full of economists warning about technological unemployment particularly in Europe. In the closing two decades of the twentieth century, there were more warnings, as commentators discovered a persistent rise in unemployment suffered by many industrialized countries since the 1970s.

Compensation effects

When workers loss their jobs due to the company adopting new technology, the workers are usually compensated for their loss. Compensation effects are therefore labor-friendly outcomes of technological advancements which "recompenses" workers for job losses due to new technology. Contentions over the effectiveness of compensation effects has remained an essential element of academic debates on robotic unemployment since then.

Effect on Earnings

With the advent of recent technological advances occurring in artificial intelligence and automation, many U.S citizens are skeptical whether technology will start to replace labor. Nevertheless, based on a historical perspective, technology has shifted routine work into highly skilled labor. Technology enables employees to produce more goods and services and therefore create living standards and higher incomes among the middle class.

The increase in incomes is the result of competitive labor markets pushing employers to pay their employees a wage commensurate to their productivity. Taking this into consideration, virtually all Americans today benefit from better material living standards than those in the 1900s. By comparison the GDP per capita in in 2014 it was $54,800 while in 1913 it was $5,301.

Solutions to technological unemployment

  • A reliable solution to mass unemployment caused by new technology has been the use of several forms of handouts and subsidies. This solution has been accepted by conservatives and by those who are optimistic about the long term impacts on jobs. Historically, Welfare programs have proven to be more durable once they are established when compared with other solutions to joblessness such as using directly creating jobs by utilizing public works. Ramsey McCulloch, despite being the first individual to create a standard system describing the effects of compensation, together with most other classical economists encouraged government assistance for those suffering from technological unemployment. This was so because they understood market adjustment to technological advancements  is not an immediate process and that those who lose their jobs because of new technology will not easily get alternative jobs by their own efforts.
  • Many speakers have contested that traditional welfare payment methods may be inappropriate as a response to the challenges that lie ahead caused by technological unemployment, and have proposed a basic income as an alternative. Prominent individuals that voted for some form of basic income as a remedy to technological-related unemployment include Erik Brynjolfsson, Robert Reich,Martin Ford and Guy Standing. Standing has said he considers that a basic income is gradually becoming an essential political element while Reich has gone as far as to say that introducing basic income, probably implemented as a negative income tax cannot be evaded. New basic income pilots have been introduced in the Netherlands, Finland and Canada since late 2015.

Uncertainty about basic income comprises both right and left ingredients, and proposals for various forms of it have risen from all portions of the spectrum. A major factor holding back basic income is that it could be a disincentive to work, but proof from older pilots in Africa, India, and Canada show that this does not happen and that a basic income fosters low-level entrepeneurship and more fruitful, collaborative work. Another setback is that funding it sustainably is a big issue. While new fund-raising ideas have been suggested such as the wage recapture tax (Martin Ford), how to finance a generous basic income remains a contentious question, and skeptics have ruled it as ideal. Even if we consider a progressive viewpoint, there are questions that a basic income which is set too low may not be of profit to the economically vulnerable, particularly if funded largely from cuts to other types of welfare.

  • Public work programs, were initially used by the government, as a way to directly foster employment, even though this has witnessed resistance by most, if not all conservatives. Jean Baptiste Say, reckoned that public works could be a remedy to technological-related unemployment. Some speakers, for instance, professor Mathew Forstater, have recommended that public works and secured jobs in the public sector may be the adequate solution to technological unemployment, since unlike guaranteed income schemes or welfare, they offer individuals the meaningful engagement and social recognition that comes with work.

For developing economies, public works will probably be a solution which is easier to manage compared to universal welfare programs. Calls for public works as of 2015, in the advanced economies have been less common even from progressives, due to questions about sovereign debt. A partial exception is for expenditure on infrastructure, which has been proposed as a solution to technological unemployment even by prominent economists such as Larry summers, who were previously associated with a neoliberal agenda.

The future of automation

Up until now technological advancement and automation has improved efficiently principally in manual and blue collar job. Technological advancements from the steam combustion systems to the internet have not only made our lives better, new business opportunities and fostered economic growth. It is only recently that technological advancements have begun upsetting primitive skilled labor. The advent of technological advancement in finance has significantly boosted automated investing which originally required the services of a financial expert. Irrespective of what happened, this transformation was never created to replace traditional financial services, but to create platforms that are more accessible to the middle class.

Nonetheless, as time goes by and technological advancements get to its pinnacle, machines will soon be made of AI. This integrates a complex set of algorithms that will cause machines to possess a nervous system and decision-making ability like human beings. If this happens, the demand for technical skills such as engineers and software developers will be more and more common. Ultimately, technological advancement will liberate us even more from our daily endeavors and give us ample time to create positive and socially advantageous work environments.

Since machines are created, there has always been some a pessimistic conception about the fact that automation is one of the causes of unemployment. It is however important to note that, technological advancements have created more productivity, efficiency and has ameliorated living standards. While many recent upgrades in AI and automation have threatened to jeopardize skilled labor, bonds between humans will essentially persist in many industries.