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November 9, 2016

Will automation render labour useless?


November 9, 2016

As the industrial revolution gradually took hold in England and other parts of Europe, machines increasingly came to replace manual labour. Not everybody was happy at this development, especially those who lost their means of earning bread and butter.

One group, later to be called the ‘Luddites’, resorted to violence and broke up machines that were intended to replace manual labour. Since that time, any anyone who casts aspersions on technological advancement and its effects on labour has been labelled Luddites.

Since the Industrial Revolution, Luddism has been kept in check largely owing to the fact that the requirement for human labour has always complemented technological creativity. If a new machine was invented, it usually required the complementing services of individuals. Most of these individuals did not have to be highly qualified, technically proficient individuals. Therefore, the complementarities between machines and human beings continued on with a fine balance between these two.

On one side were the owners of the capital (machines) and on the other individuals who did not possess money capital, but did possess ‘human capital’. Over the course of time, this balance is best illustrated by the distribution of returns in the form of rents (to capital owners) and wages (to labour). The distribution of income has roughly been one-third in favour of capital owners (in the form of dividends, capital gains, rent, etc) while two-thirds have gone to labour (in the form of wages and salaries).

Not only did this distribution keep riots in check, it also contributed towards a stable society where both the classes (capital owners and labour) have lived harmoniously side by side. However, in the last decade or so, a worrying trend in the form of declining share of labour income has started to emerge, especially in developed nations.

A major factor in this regard is the invention of capital intensive, labour-saving technologies (like robots) that do not require complements in the form of human beings. This was confirmed by two economists (Loukas Karabarbounis and Brent Neiman) through their research. They concluded that labour’s share has been declining since the early 1980s, and this is mainly happening due to the decline in the relative price of technology which has compelled employers to turn towards these labour-saving technologies.

In the lexicon of economics, this is known as ‘capital-biased technical change’, and is increasingly being discussed by both economists and non-economists. Among the many questions of the debate, perhaps none is more important than the future of the traditional distribution of income to various groups in the economy, and its ensuing effects upon the social milieu. Given the astonishing rate of technological progress and the ever-increasing reliance on labour-saving machines (or managerial practices), this question assumes even more importance.

As jobs become increasingly automated, the returns of those with higher IQ and technical skills will soar, but the returns (in the form of wages) to jobs that require more physical than mental labour would probably see a decline. If this scenario takes a practical form, we will surely see inequality widen. This process of increasing automation tends to gather pace in times of recession. Given adverse business conditions, the producers try to save on labour costs by substituting labour saving machines for physical labour.

The ever increasing population, its longevity and the trend towards extended working ages has not helped the cause of employment either. Although longevity is beneficial from the point of view of health, it also implies that relatively young workers would find it difficult to find work in a world where businesses are increasingly relying upon labour-saving technology, and older workers choose not to retire from work as before. This is especially true in times of recession, when incomes either stagnate or stop rising at the previous rates.

Keeping this in mind, one is left wondering about what will happen to prospects of employment when the world’s population hits the 9 billion mark, as projected by UN estimates. In a world where machines are increasingly becoming part of everyday life, the prospects for those who are bereft of technical skills (acquired mainly through education) certainly don’t look very promising.

But on the other end of the debate are intellectuals who dismiss these pessimistic scenarios as ‘Luddism’ and misplaced ‘Malthusian spectre’ (named after Sir Robert Thomas Malthus, an 18th century economist who predicted that the production of eatables would not be able to keep pace with the increasing population). Thanks to developments in the field of agriculture (owing largely to advances in technology), the Malthusian spectre has been kept in check. Also, as noted above, the concerns of machines replacing human beings have so far proved to be elusive.

Theory and available evidence suggest that workers who are rendered unemployed after their work is replaced by machines form a pool which can be utilised by the producers of other goods and services. Finding new work in the short run could be difficult. However, labour tends to adjust to the new realities in the longer run. Moreover, it has been possible to employ menial labour in many different ways in different industries. Plus, governments have usually stepped into the fray and taken care of those who lose their jobs (unemployment insurance is one such example of government intervention).

This could go either way. It is impossible to predict the future, and there are many ifs and buts involved in various scenarios. The reading of history on this matter gives hope, but it is not necessary that the events of history would translate straightforward into the future. For one thing, the world has neither witnessed the spectre of more than nine billion people inhabiting its expanses, and nor have technological advances been as fast as they are now.

One thing, though, is for sure; we are moving towards a society where increased technical skills will command higher premiums. In other words, those with higher technical abilities will be earning many times more than non-technical, physical labour whose share of national income is likely to decline. It is not as if we will see the end of human labour, but its demand is unlikely to be like as it used to be. A lot would depend upon the ingenuity of the decision-makers, and the developments in economies in the coming years.

That is where I fear the worst for developing countries. With a large part of the population uneducated, usually a dismally low education budget (meaning little opportunity for enhancing human capital), increasingly diminishing prospects of work in various sectors (owing primarily to runaway population growth), a very weak governance and institutional structure, a vulnerable economy (especially the way it has been handled in the last decade or so), and absence of prudent and sensible leadership, the prospects for the future don’t look bright at all.

Forget machines replacing labour since the application of technology in these countries is limited; they will even have a tough time finding opportunities for ordinary physical labour. And, given the increasing cost of running businesses and industry in many developing nations, what if the employers decide to bring in labour replacing machinery?

The writer is a freelance

Email: [email protected]

Twitter: @ShahidMohmand79


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