Workers losing out as automation quickens

Humanoid robot bartender 'Carl' fills a cocktail glass.

Workers are, in general, losing out in the economy, writes Brian Lucey.

A large part of the growth of populist movements may be reasonably attributed to the real or perceived decline in opportunities in employment.

As labour productivity has risen, the share of the wealth pie which labour takes home has fallen. In most developed countries, including Ireland, the share of GDP attributable to labour has fallen to or below half.

This trend is long term and is evident in greater or lesser extent across the globe.

The declining wage share is an issue in Ireland also.

Right now we are at about 44% of GDP, down by a third

from the mid-1960s, some 50 years ago. Measured as a percentage of GNDI, GVA, GNP, or by any other of the alphabet soup of economic metrics, the story is the same, in Ireland and elsewhere.

This phenomenon has attracted significant economic attention, but with little evidence of any consensus on what causes the decline. Automation, globalisation, monopolisation (which comes about from elements of both automation and globalisation), and financialisation have all been blamed.

The reality is that elements of all four are probably to blame. A larger concern, however, might be being missed. So long as the total pie available to divide grows larger and larger, labour may not feel the pinch of a declining share.

Put another way: 44% of the Irish economy cake in 2016 is a whole hell of a lot more than 66% of Irish prosperity cake before 1966.

To be sure, people are concerned about unfairness and inequality but the evidence seems to be coalescing around a greater concern with fairness than equality.

So a declining labour share need not in and of itself cause social or political upheaval, as long as there is general social acceptance of some fairness in the distribution process of national wealth.

What becomes more problematic is when labour is fully removed from the equation.

What happens when labour cannot earn any share at all, when the jobs that paid the wages decline rapidly and the jobs disappear?

In short, robots don’t require wages.

Their owners can take the increased wealth created.

Recent work at the Massachusetts Institute of Technology examined the extent to which automation and robots have and are likely to displace workers.

The evidence is that every one additional robot employed for every 1,000 workers reduces the ratio of employed workers per head of population by perhaps 0.2% and wages by somewhat more.

The International Federation of Robotics disputes this finding, as one might expect it would.

The effect of automation on US jobs is already greater than that of Chinese or Mexican imports. What is indisputable is that robotics and automation are deepening, with PwC’s most recent figures suggesting that the US, in particular, is liable for massive jobs fallout.

Of the order of 30% to 40% of jobs in the US, UK and Germany face the potential risk of displacement by robotic or automated processes by 2030. The greater the degree of routine, the greater the degree of automation can be deployed.

Robotics won’t destroy all the jobs. The evidence from history is that, over time, advances in automation leads to the creation of whole new industries.

It also leads to the creation of significant wealth.

The key for politicians is managing this transition.

Brian Lucey is professor of finance at the School of Business, Trinity College Dublin.


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