INNOVATION, ENTERPRISE, AND SOCIETY

Session 5
MECHANIZATION
AND
EMPLOYMENT.
This week critically examines the debate around social and
economic effects of mechanization and employment
 Key Issues and Questions

The Debate Topic for this Session

"Mechanization (including robotics and artificial intelligence) does

not in itself reduce the need and opportunities for waged workers”

Think about a range of issues associated with process innovation - in particular with the economic
and employment implications of mechanization, robotics and artificial intelligence:

• Examine the social and economic CONTEXT in robots (for example) are being produced and
employed and in which human labour is being replaced by machines.

• Connect this topic with the issues in the session on the "Reserve Army of Labour" and the
relationships between small, labour intensive firms (eg in hospitality) and large, mechanized
corporations.
With this in mind: “Without expectation of a profit, people or companies do not begin, nor can they continue
produce or trade goods. If a person or a company sees an opportunity to make a profit, they will feel encouraged to
start a business - no matter how mechanised or how labour intensive.“

Think about the underlying assumptions often employed in debates on jobs and mechanization.

1. Is there a fixed and unchanging number of human needs or wants - such that, the more of these are produced or
delivered by machines, the less work there is for human workers? Are needs changed and created by circumstances?

2. Does labour shedding in one part of the economy open up opportunities for profits in other parts of the
economy? Here I encourage you to think about the effects of mechanization on wages and working conditions
through out the economy. Does unemployment affect wages in a way which creates opportunities for labour
intensive firms?

3. Connected to this, can you think of types of firms (especially labour intensive ones) which would be most unlikely
to exist if they could not employ casual, relatively unskilled and very lo paid labour? SHOULD such industries thrive in
the era of mechanization? Are these the sorts of jobs we want a great proportion of individuals to have?

4. Can you think of any work or activity that essentially require - so to speak – INTRISICALLY HUMAN characteristics?
Can you think of jobs which essentially require some sort of contact or relation between humans (as workers or
professionals or providers) and humans (as clients or customers?) What would these "human characteristics" be? Are
you sure that human labour could not, ever be replaced in these activities or jobs? Why or why not?

5. How, in the context of the market society and economy in which WE live - could those "human" jobs be funded?
Are they the sorts of jobs which are very profitable for private companies or businesses? If not, how could they be
funded?
While relatively mechanical and repetitive aspects of a profession can be now carried out by robots or by artificial
intelligence, this leaves room for other essential parts of that profession to be expanded. Indeed clients may
develop NEW requirements in the information age and thus place new kinds of demands on professionals. (As an
example, university teachers may now be needed to guide students in selecting, critically evaluating and
interpreting the MASSES on information available on any given topic rather than simply in conveying information
to their students.)

If you put water on the stove and heat it up, it will at first just get hotter and hotter. You may then conclude that
heating water results only in hotter water. But at some point everything changes – the water starts to boil, turning
from hot liquid into steam. Physicists call this a “phase transition.

Automation, driven by technological progress, has been increasing inexorably for the past several decades lead to
debate: “Will new technology spawn mass unemployment, as the robots take jobs away from humans? Or will the
jobs robots take over release or unveil – or even create – demand for new human jobs?”

43 percent of those polled agreed with the statement that “information technology and automation are a central
reason why median wages have been stagnant in the U.S. over the decade, despite rising productivity,” while only
28 percent disagreed.

Old worries about new tech:

“What if machines are getting so smart, thanks to their microprocessor brains, that they no longer need unskilled
labor?”
 Looking at the economic data U.S. Department of Labor Statistics
For several decades after World War II the economic statistics we care
most about all rose together here in America as if they were tightly
coupled. GDP grew, and so did productivity — our ability to get
more output from each worker. At the same time, we created
millions of jobs, and many of these were the kinds of jobs that
allowed the average American worker, who didn’t (and still doesn’t)
have a college degree, to enjoy a high and rising standard of living.
But... productivity growth and employment growth started to
become decoupled from each other.

Technology is driving productivity improvements, which grow the

economy. But the rising tide is not lifting all boats, and most people
are not seeing any benefit from this growth. While the U.S. economy
is still creating jobs, it is not creating enough of them.
• Wages for private nonsupervisory employees have stagnated since the late 1960s, and the wages-to-GDP ratio has been
declining since 1970. Long-term unemployment is trending upwards, and inequality has become a global discussion topic.
• Monetary Fund concluded that technological progress is a major factor in the increase of inequality over the past decades.

The bottom line is that while automation is eliminating many jobs in the economy that were once done by people, there is no
sign that the introduction of technologies in recent years is creating an equal number of well-paying jobs to compensate for
those losses. A 2014 Oxford study found that the number of U.S. workers shifting into new industries has been strikingly small:
in 2010, only 0.5 percent of the labor force was employed in industries that did not exist in 2000.
Even though market systems revolve on profits – human needs are not limited and
unchanging. New needs are created by the process of technical change itself and these
may be associated with the rise of new industries and new kinds of work.

Focusing on job loss creates a distorted view of the process of technological change:
• First, many businesses actually increase employment as they increase productivity rather than lay
workers off, because productivity gains let them cut costs, in turn enabling them to increase sales.

• Second, savings from increased productivity are recycled back into the economy in the form of lower
prices and/or higher wages that create demand that, in turn, creates even more jobs.

Macroeconomic studies have shown convincingly that technology improvements neither decrease
the rate of people working in an economy nor raise the unemployment rate.

One reason is that our economy is complex, with a broad range of industries and occupations, some
amenable at a particular time to automation and many others not.
Another reason is that technological change, no matter how advanced, doesn't happen overnight -- in fact,
current productivity increases are trending downward.
But the main reason is that human wants are close to infinite. And as long as that's true, those wants will
require labor to fill them (even if that labor is eventually supplemented by 22nd century robots).
Some aspects of jobs and certain types of jobs inherently require human attributes
such as empathy, judgement, a sense of justice or fairness, responsivity and emotion.
Will the demand for and the supply of these types of jobs expand?

This is a tricky issue – JUST because certain jobs require these human traits – it does not mean that those
jobs will expand in a market society. Remember that in a free market economy the industries that expand
depend crucially on opportunities for private profits.

This means that IF these industries involving these essentially “human” types of jobs are to thrive (smaller
class sizes in schools and universities, more nurses and doctors per number of patients in hospitals,
greater access to psychological services, more lawyers per head of population etc) then we have to think
about what proportion of the population is likely to AFFORD such services. Here we need to put together
some of the themes ABOVE.

It may be that if mechanization in key industries such as manufacturing, transport and distributing, basic
information processing and resource extraction throws off surplus labour, then most of the population
may not be in a position to afford the high skilled “human” services of couches, teachers, doctors,
occupational therapists, counsellors, lawyers etc. This means that, however essential or desirable, these
are unlikely to be growth industries or the sources of a big expansion in employment.
45% of the current workload humans are currently paid to do could be automated by
technologies that exist right now. By 2020, 5 million jobs will be lost to artificial intelligence
and robotics alone, according to the World Economic Forum. Two-thirds of those losses will
land in the office and administrative sectors staffed by the global middle class.

So, are we on the brink of a mass global unemployment?

Over the last 140 years, technology actually created more jobs than it destroyed.
Because the technology created greater productivity, freeing humans to take up new tasks which will lead to
further waves of innovation, unlocking new job roles and creating resources that allow firms to hire more people into
existing positions.
The idea is to supplement rather than supplant human capital. Algorithms can go beyond human capability
to help financial entities extract meaningful patterns from data.
The workers who will never fail to remain relevant in the age of the machine are those who can master a set
of abilities that are rather more intangible.
This pace of change presents a challenge to workers requires a high Curiosity Quotient (CQ) – an insatiable
appetite for discovery

Creativity : How could you use technology to do what you already do

Emotional intelligence: the more predominant machines become, the more people will crave personal, real-world
experiences and connections building the capability to recognize and adapt to other people’s emotions – as well
as your own – will put you far ahead of any robot.
Ultimately, discussion of the macro employment effects of progressive mechanization must be assessed on
the context of the distribution of the proceeds of technical change.

IF the proceeds of employing robots or artificial intelligence can be more widely distributed (beyond
a relatively small number of high-tech workers and corporate beneficiaries) THEN mechanization
may ultimately be socially and individually highly liberating. It may then be possible to generate a
high enough EFFECTIVE demand (ie people who can AFFORD to pay) for high skilled human services.
The question is how such an income distribution could be practically implemented in advanced
industrial societies.
“Our remote ancestors did not expand their economies much by simply doing more of
what they had already been doing [. . .] They expanded their economies by adding new
kinds of work. So do we.”

• Where new industries emerge,

New industries are more likely to emerge in skilled cities as educated people benefit from the diffusion of
technological knowledge.

• The characteristics of the workers new industries employ,

Workers in new industries are substantially better educated and earn a substantial wage premium
New work requires cognitive adaptability, rather than specific skills
Average relatively young and typically male: female workers are less likely to be observed in new work.

• Examine the determinants of new industry creation

Education is a key predictor of city growth, the concentration of skilled workers helps productivity by easing the
diffusion of new ideas
The tendency of skilled entrepreneurs to innovate in ways that create employment opportunities for more skilled
workers
The “innovation hypothesis”, implying that the emergence of new industries is a result of skilled cities exhibiting
higher rates of local innovation
the “reinvention hypothesis” of Glaeser and Saiz (2004), suggesting that skilled cities are more prone to adopt new
technologies and reinvent themselves. Instead, this hypothesis emphasizes the relevance of adoption spillovers.
 Chapters 1: The
Automation Wave

The argument that technology will mean less jobs

There is strong statistical evidence that mechanized processes have significantly displaced human
labour in a wider variety and number of industries over time. Some scholars have presented evidence
that suggest that this robotics and artificial intelligence will involve the displacement of human labour
on historically unprecedented scale.

As Ford argues; “This time it IS different.” YOU may not be convinced by Ford’s argument. You may
disagree with him for various reasons. HOWEVER, whatever you decide, this is a key unit reading and
it is important, is using this topic for your assignments or exams, to show me that you have READ
these two chapter and that you have attempted to respond to the Ford’s arguments.
 Chapters 1: The
Automation Wave
Chapter One goes into detail about which jobs (a wide range!) are likely to be affected
and the main types of technology involved
Consider the Week 5 topic, the symbiotic relation between small, labour intensive, low technology small firms (and
franchisees) on one hand and highly mechanized corporate oligopolies on the other hand. The key argument here is
that progressive mechanization actually “throws off” a surplus labour supply which is then available for other work. The
key problem is that the “surplus labour” will be in a very weak position in the labour market. These individuals will be
vulnerable and likely to accept low paid, casual and “precarious” work.

One effect of this is that NEW LOW TECH small businesses are then encouraged – given the increasing supply of surplus
labour. The critical point here is that in market societies, business first and foremost about making a PROFIT. Fulfilling
essential needs or hierarchies of human need is a secondary consideration. If small contractors or firms can make a
profit by using low paid, casual “surplus labour” to provide “hospitality” type services to high-skilled high-paid workers,
then in a free market society, this is likely to occur.

Progressive mechanization in manufacturing industries would have the same effect as tariff policies and the large-scale
off-shoring of manufacturing show us a pronounced shift from secure, permanent and relatively skilled full time
jobs in manufacturing to casual, low paid and relatively low skilled jobs in the service industries.

Connected to this, progressive mechanization is likely to weaken to position of medium skilled or low skilled
workers generally. This is because, in the absence of secure job opportunities – there will be more people competing
for the same amount of SECURE work. The result is that employers in MOST industries are now better positioned to
downgrade the real wages and conditions of workers generally.
 Chapters 1: The
Automation Wave

The robot can work continuously; it will never get tired or suffer a back injury—and it will certainly never file a
worker’s compensation claim.

While industrial robots offer an unrivaled combination of speed, precision, and brute strength, they are, for the most
part, blind actors in a tightly choreographed performance. They rely primarily on precise timing and positioning. In
the minority of cases a number of routine factory jobs have been left for people. Very often these are jobs that
involve filling the gaps between the machines, or they are at the end points of the production process.

The Coming Explosion in Robotics

The history of computing shows pretty clearly that once a standard operating system, together with inexpensive and
easy-to-use programming tools, becomes available, an explosion of application software is likely to follow. This has
been the case with personal computer software and, more recently, with iPhone, iPad, and Android apps.

We are, in all likelihood, at the leading edge of an explosive wave of innovation that will ultimately produce robots
geared toward nearly every conceivable commercial, industrial, and consumer task.

Manufacturing Jobs and Factory Reshoring

there is now a significant “reshoring” trend under way in both the US and Europe, and this is being driven both by the
availability of new technology and by rising offshore labor costs as Automation helps make developed manufacturers
more competitive with low-wage countries.
 Chapters 1: The
Automation Wave

Increased automation is also likely to be driven by the fact that the interest rates paid by large companies in
China are kept artificially low as a result of government policy. Loans are often rolled over continuously, so
that the principal is never repaid. This makes capital investment extremely attractive even when labor costs
are low and has been one of the primary reasons that investment now accounts for nearly half of China’s
GDP.

Many analysts believe that this artificially low cost of capital has caused a great deal of mal-investment
throughout China, perhaps most famously the construction of “ghost cities” that appear to be largely
unoccupied. By the same token, low capital costs may create a powerful incentive for big companies to
invest in expensive automation, even in those cases where it does not necessarily make good business
sense to do so.

One of the biggest challenges

Designing robots need to be flexible enough to keep up with rapid product lifecycles.

“Engineering the labor out of the product”

Increased automation is also seen as a way to deflect criticism regarding the sweatshop-like environments
that often exist in third-world garment factories.
 Chapters 1: The
Automation Wave

The Service Sector: Where the Jobs Are

Advanced economies, the major disruption will be in the service sector—which is, after all, where the vast
majority of workers are now employed.

The next decade is likely to see an explosion of new forms of service sector automation, potentially putting
millions of relatively low-wage jobs at risk:
• Fast food: Eliminating labor costs and reducing the amount of space required in kitchens will allow
restaurants to spend more on high-quality ingredients, enabling them to offer gourmet hamburgers at
fast food prices.

• Low-wage service jobs is in the general retail sector: the continuing disruption of the industry by online
retailers over high street shops. The encroachment of online retailers should not necessarily destroy jobs
but, rather, would transition them from traditional retail settings to the warehouses and distribution
centers used by the online companies.

• While the proliferation of vending machines and kiosks is certain to eliminate traditional retail sales jobs,
these machines will also, of course, create jobs in areas like maintenance, restocking, and repair. The
number of those new jobs, however, is likely to be more limited than you might expect.
 Chapters 1: The
Automation Wave

Cloud Robotics
One of the most important propellants of the robot revolution may turn out to be “cloud robotics”—or the
migration of much of the intelligence that animates mobile robots into powerful, centralized computing
hubs. Cloud robotics has been enabled by the dramatic acceleration in the rate at which data can be
communicated; it is now possible to offload much of the computation required by advanced robotics into
huge data centers while also giving individual robots access to network-wide resources.

That, of course, makes it possible to build less expensive robots, since less onboard computational power
and memory are required, and also allows for instant software upgrades across multiple machines. If one
robot employs centralized machine intelligence to learn and adapt to its environment, then that newly
acquired knowledge could become instantly available to any other machines accessing the system—making
it easy to scale machine learning across large numbers of robots.
 Chapters 1: The
Automation Wave

Robots in Agriculture
For crops like wheat, corn, and cotton that can be planted, maintained, and harvested mechanically, the human labor required
per bushel of output is now nearly negligible in advanced countries. Many
aspects of raising and managing livestock are also mechanized.

For example, robotic milking systems are in common use on dairy farms, and in the United States, chickens are grown to
standardized sizes so as to make them compatible with automated slaughtering and processing.

The remaining labor-intensive areas of agriculture are primarily geared toward picking delicate, high-value fruits and
vegetables, as well as ornamental plants and flowers. As with other relatively routine, manual occupations, these jobs have so
far been protected from mechanization primarily because they are highly dependent on visual perception and dexterity.

Advanced agricultural robots are especially attractive in countries that do not have access to low-wage, migrant labor.
Australia and Japan, for example, are both island nations with rapidly aging workforces. Security considerations likewise make
Israel a virtual island in terms of labor mobility. Many fruits and vegetables need to be harvested within a very small time
window, so that a lack of available workers at just the right time can easily turn out to be a catastrophic problem.

As global population grows to 9 billion and beyond in the coming decades, there will be ever-increasing pressure to
transition any and all available arable land into larger and more efficient farms that are capable of producing higher crop
yields. Advancing agricultural technology will have a significant role to play, especially in countries where water is scarce and
ecosystems have been damaged by overuse of chemicals.
 Chapters 2 of Martin Ford's The Rise
of the Robots: Is This Time Different?

The second chapter examines statistics (mainly for the US) on changes to patterns of employment in
contemporary economies - suggesting that these are correlated to the latest wave of automation.

“Triple revolution”
The third revolution predicted that “cybernation” (or automation) would soon result in an economy where
“potentially unlimited output can be achieved by systems of machines which will require little cooperation
from human beings.” The result would be massive unemployment, soaring inequality, and, ultimately, falling
demand for goods and services as consumers increasingly lacked the purchasing power necessary to
continue driving economic growth.

Wiener argued that “if we can do anything in a clear and intelligible way, we can do it by machine” and
warned that that this could ultimately lead to “an industrial revolution of unmitigated cruelty” powered by
machines capable of “reducing the economic value of the routine factory employee to a point at which he is
not worth hiring at any price.”

Wiener, as one of the early pioneers of information technology, perceived the digital computer as being
fundamentally different from the mechanical technologies that preceded it. It was a game changer: a new
kind of machine with the potential to usher in a new age—and, ultimately, perhaps rend the very fabric of
society.
 Chapters 2 of Martin Ford's The Rise
of the Robots: Is This Time Different?

Six Disturbing Trends

• Stagnant Wages:

Ben Bernanke, suggests that slow wage growth from 2000 on may have resulted from “the weak labor
market that followed the recession of 2001” and that wages ought to “catch up to productivity growth as the
labor market returns to normal”—a view that seems to ignore the fact that the tight correlation between
wage and productivity growth began to deteriorate long before today’s university students were born

• A Bear Market for Labor’s Share, and a Raging Bull for Corporations:
The fraction of national income going to labor and capital respectively remained relatively constant, at least
over long periods. This apparently fixed relationship ultimately became an accepted economic principle
known as “Bowley’s Law.”

Karabarbounis and Neiman, analysed data from fifty-six different countries and found that thirty-eight
demonstrated a significant decline in labor’s share, concluded that these global declines in labor’s share
resulted from “efficiency gains in capital producing sectors, often attributed to advances in information
technology and the computer age”.
 Chapters 2 of Martin Ford's The Rise
of the Robots: Is This Time Different?

Six Disturbing Trends

• Diminishing Job Creation, Lengthening Jobless Recoveries, and Soaring Long-Term
Unemployment:
The 2000s would likely have finished with a roughly 8 percent job creation rate—less than half of the
percentage increase seen in the 1980s and ‘90s. That miserable job creation performance is especially
disturbing in light of the fact that the economy needs to generate large numbers of new jobs—between
75,000 and 150,000 per month, depending on one’s assumptions—just to keep up with population growth.

Extended unemployment is a debilitating problem. Job skills erode over time; the risk that workers will
become discouraged increases, and many employers seem to actively discriminate against the long-term
unemployed, often refusing even to consider their résumés.

• Soaring Inequality:
The divide between the rich and everyone else has been growing steadily in industrial countries since the
1970s. Between 1993 and 2010 over half of the increase in US national income went to households in the
top 1 percent of the income distribution. Since then, things have only gotten worse. In an analysis published
in September 2013, economist Emmanuel Saez of the University of California, Berkeley, found that an
astonishing 95 percent of total income gains during the years 2009 to 2012 were hoovered up by the
wealthiest 1 percent.
 Chapters 2 of Martin Ford's The Rise
of the Robots: Is This Time Different?

Six Disturbing Trends

• Declining Incomes and Underemployment for Recent University Graduates:
A university degree has come to be almost universally viewed as an essential credential for entry into the middle
class. As of 2010, average hourly wages for university graduates in the UK were more than 60 percent higher
than the wages of those who only had A levels. The university wage premium is a reflection of what economists
call “skill biased technological change” (SBTC).* The general idea behind SBTC is that information technology has
automated or deskilled much of the work handled by less educated workers, while simultaneously increasing
the relative value of the more cognitively complex tasks typically performed by university graduates

Graduate and professional degrees convey still higher incomes, and in fact, since the turn of the century, things
are looking quite a bit less rosy for young university graduates who don’t also have an advanced degree.
According to one analysis in the US, incomes for young workers with only a bachelor’s degree declined nearly 15
percent between 2000 and 2010

To be sure, university graduates have, on average, maintained their income premium over workers with only a
secondary school education, but this is largely because the prospects for these less educated workers have
become genuinely dismal. As of July 2013, fewer than half of American workers who were between the ages of
twenty and twenty-four and not enrolled in university had full-time jobs. Among non-students aged sixteen to
nineteen only about 15 percent were working full-time. The return on investment for a university education may
be falling, but it still nearly always beats the alternative.
 Chapters 2 of Martin Ford's The Rise
of the Robots: Is This Time Different?

Six Disturbing Trends

• Polarization and Part-Time Jobs:

Henry E. Siu analyzed data from recent US recessions and found that the jobs mostly likely to permanently
disappear are the good middle-class jobs, while the jobs that tend to get created during recoveries are
largely concentrated in low-wage sectors like retail, hospitality, and food preparation and, to a lesser extent,
in high-skill professions that require extensive training. Many of these new low-wage jobs are also part-time.

The propensity for the economy to wipe out solid middle-skill, middle-class jobs, and then to replace them
with a combination of low-wage service jobs and high-skill, professional jobs that are generally unattainable
for most of the workforce, has been dubbed “job market polarization.” Occupational polarization has
resulted in an hourglass-shaped job market where workers who are unable to land one of the desirable jobs
at the top end up at the bottom.
 Chapters 2 of Martin Ford's The Rise
of the Robots: Is This Time Different?

Six Disturbing Trends

• A Technology Narrative:

In the years following 2000, information technology continued its acceleration and productivity rose as
businesses got better at taking full advantage of all the new innovations. Many of those good jobs created in
the 1990s began to disappear as corporations automated or offshored jobs, or began to outsource their IT
departments to centralized “cloud” computing services. Throughout the developed world, computers and
machines were increasingly replacing workers rather than making them more valuable, and wage increases
fell far short of growth in productivity. The share of national income going to labor declined dramatically.
The job market continued to polarize, and jobless recoveries became the norm.

Aside from advancing information technology, there are three other primary possibilities that might
conceivably have contributed to all, or at least most, of our six economic trends: globalization, the
growth of the financial sector, and politics.
 Driverless Taxis: A case study
(group class discussion)
What are the advantages of driverless taxis?
Self-driving cars never get tired, drunk, or distracted.

What are the disadvantages?

There is a problem, though, It is that human drivers are engaged every day not just in navigating roads,
but also in making ethical decisions as they drive.

Do the advantages outweigh the disadvantages in your opinion? Why or why not?

Would you hire a driverless taxi? Why or why not?

Do you think buses, ferries, trains and aircraft also should be driverless? What limits would you on
which industries can employ driverless vehicles? Why?

Considering the key issues and questions at the top of Week 6 learning materials, what general
insights did your group gain on technology and employment from this article on driverless taxis?

Instead of developing those ethical apps, I could become one myself. I will hire myself out as a full time
on-call, ethical chauffeur, the moral rule-maker within your self-driving car. I will sit behind the wheel, just
like a real driver, but making philosophical judgments rather than right turns.
 OECD 2018 report on Robots and Employment

Should We Fear the

Robot Revolution?
(The Correct Answer is Yes)

• “Robot” capital is distinct from traditional capital in its degree of

substitutability with human labor; and only capitalists and skilled
workers save.

• Main results are surprisingly robust: automation is good for growth

and bad for equality; in the benchmark model real wages fall in the
short run and eventually rise, but “eventually” can easily take
generations.
 OECD 2018 report on Robots and Employment
AI programs have started working as paralegals, accountants, and teaching assistants, and self-driving
vehicles may soon eliminate millions of jobs held by truck, bus, and taxicab drivers. Uber aims to be
driverless by 2030. Robots staff more assembly lines each year, kiosks are replacing cashiers at fast-food
restaurants, and Watson recently co-authored a song.

Anticipated advances in automation threaten 45-57% of all jobs in the United States. The White House’s
Council of Economic Advisors projects that automation will affect 83% of jobs paying $20 an hour or less.

Two different views of what the future:

• Technology pessimists fear that we are headed toward an economic dystopia of extreme inequality
and class conflict: "Without ownership stakes, workers will become serfs working on behalf of robots’
overlords [in] a new form of economic feudalism".

• Technology optimists do not deny that automation will prove disruptive in the short run. However,
note that historically periods of rapid technological change have created more jobs than they have
destroyed and have raised wages and per capita income in rough proportion. Adaptable economy will
again vanquish the specter of technological unemployment: income growth raises the demand for
labor in sectors that produce non-automatable goods and for workers that perform manual-intensive
tasks; higher productivity stimulates investment throughout the economy in cooperating capital
inputs; and while automation renders some jobs obsolete, it complements many others, especially
jobs that place a premium on creativity, flexibility, and abstract reasoning.
 OECD 2018 report on Robots and Employment
Should We Fear the Robot Revolution?
(The Correct Answer is Yes)
The macroeconomic literature.

Skill-biased technological change exacerbates wage inequality if the elasticity of substitution between
low- and high-skill labor exceeds unity.

When the elasticity of substitution between robots and unskilled labor is sufficiently high, an
improvement in robot productivity reduces the demand for unskilled workers. After their wage
decreases, unskilled workers — the only group that saves in the economy — cut investment in robots
and human capital. This leads to successive rounds of contraction, with aggregate income and wages
declining and each new generation investing less than the generation before. Under weak conditions,
welfare of the current young generation and all future generations decreases.

In scenarios where the traditional technology disappears and robots take over the automatable
sector, the economy either ascends to a virtuous circle of ongoing endogenous growth or descends
into a death spiral of perpetual contraction. Unfortunately, the odds strongly favor the death spiral.
 OECD 2018 report on Robots and Employment
Should We Fear the Robot Revolution?
(The Correct Answer is Yes)
The latest addition to the literature is an ingenious, innovative paper by Acemoglu and Restrepo (2016a).

In their model, technological progress proceeds on two fronts: automation and the creation of new more
complex tasks that only human labor can perform.

The short-/medium-run impact on absolute labor demand is unclear, but in the long run, after the capital
stock fully adjusts, the real wage increases and labor’s share in national income returns to its original level.
When labor is divided into high- and low-skill workers, the same restrictions ensure that the skill premium
increases in the short run but not the long run.

Unlike previous studies, of which the short-/medium-run impact on absolute labor demand is unclear, but
in the long run, after the capital stock fully adjusts, the real wage increases and labor’s share in national
income returns to its original level. When labor is divided into high- and low-skill workers, the same
restrictions ensure that the skill premium increases in the short run but not the long run.

This study find that At first, the real wage is likely to fall in absolute terms, even as the economy grows.
Eventually, the real wage will rise above initial levels, but there are two distributional problems. First,
"eventually" can take a long time, typically 20 to 50+ years. Second, even in the long run, the labor share
declines substantially and overall inequality rises.
 OECD 2018 report on Robots and Employment
Should We Fear the Robot Revolution?
(The Correct Answer is Yes)
(i) Robots compete only for some tasks;

When robots only compete for some tasks (Model 2), both the impact on growth and on inequality tend to
be attenuated, but it remains the case that inequality worsens in the short run as wages fall and in the long
run, as the capital share rises. Allowing for tasks that complement robots does not help as much as one
might think, partly because more and more workers compete for those jobs, driving down the overall wage.

(ii) Robots substitute only for unskilled labor while complementing skilled labor.
The fall in the average wage and the rise in the capital share, unskilled workers suffer large decreases in
absolute and relative wage.

(iii) Robots contribute to production only in one sector — elsewhere firms use only labor and traditional
capital.
If robots do only a very small fraction of tasks, contribute to output in only a very small fraction of the
economy, or are poor substitutes for human workers, then they will not increase inequality. But this is
another way of restating the premise of the paper: if there is no technological revolution underway of the
sort we have been discussing, then there will only be small effects.
THANK
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