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I’ve had a few posts in the past few months (here and here) about the consequences of mechanization for the future of work. In short, what will we do when the robots take our jobs?
I wouldn’t call myself a techno-optimist. I don’t think the arrival of robots necessarily makes everything better. But I do not buy the strong techno-pessimism that comes up in many places. Richard Serlin has been a frequent commenter on this blog, and he generally has a gloomy take on where we are going to end up once the robots arrive. I’m not bringing up Richard to pick on him. He writes thoughtful comments on this subject (and lots of others), and it is those comments that pushed me to try and be more clear on why I’m “techno-neutral”.
The economy is more creative than we can imagine. The coming of robots to mechanize away our jobs is the latest in a long, long, long, history of technology replacing workers. And yet here we still are, working away. Timothy Taylor posted this great selection a few weeks ago. This is a quote from Time Magazine:
The rise in unemployment has raised some new alarms around an old scare word: automation. How much has the rapid spread of technological change contributed to the current high of 5,400,000 out of work? … While no one has yet sorted out the jobs lost because of the overall drop in business from those lost through automation and other technological changes, many a labor expert tends to put much of the blame on automation. … Dr. Russell Ackoff, a Case Institute expert on business problems, feels that automation is reaching into so many fields so fast that it has become “the nation’s second most important problem.” (First: peace.)
The number of jobs lost to more efficient machines is only part of the problem. What worries many job experts more is that automation may prevent the economy from creating enough new jobs. … Throughout industry, the trend has been to bigger production with a smaller work force. … Many of the losses in factory jobs have been countered by an increase in the service industries or in office jobs. But automation is beginning to move in and eliminate office jobs too. … In the past, new industries hired far more people than those they put out of business. But this is not true of many of today’s new industries. … Today’s new industries have comparatively few jobs for the unskilled or semiskilled, just the class of workers whose jobs are being eliminated by automation.
That quote is from 1961. This is almost word for word the argument you will get about robots and automation leading to mass unemployment in the future. 50 years ago we were just as worried about this kind of thing, and in those 50 years we do not have massive armies of unemployed workers wandering the streets. The employment/population ratio in 1961 was about 55%, and then it steadily rose until the late 90’s when it topped out at about 64%. Even after the Great Recession, the ratio is still 59% today, higher than it was in 1961.
This didn’t happen without disruption and dislocation. And the robots will cause similar dislocation and disruption. Luddites weren’t wrong about losing their jobs, they were just wrong about the economy losing jobs in aggregate. But I don’t see why next-generation robots are any different than industrial robots, mainframes, PC’s, tractors, mechanical looms, or any other of the ten million innovations made in history that replaced labor. We can handle this with some sympathy and try to smooth things out for those dislocated, or we can do what usually happens and let them hang out to dry. The robots aren’t the problem here, we are.
What exactly are those new jobs that will be created? If I knew, then I wouldn’t be writing this blog post, I’d be out starting a company. The fact that I cannot conceive of an innovation myself is not evidence that innovation has ceased. But I do believe in the law of large numbers, and somewhere among the 300-odd million Americans is someone who *is* thinking of a new kind of company with new kinds of jobs.
Robots change prices as well as wages. An argument for pessimism goes like this. People have subsistence requirements, meaning they have a wage floor below which they cannot survive. Robots will be able to replace humans in production and this will drive the wage below that subsistence requirement. Either no firm will hire workers at the subsistence wage or people who do work will not meet subsistence.
The problem with this argument is that it ignores the impact of robots on the price of that subsistence requirement. Subsistence requirements are in real terms (I need clothes and housing and food), not nominal terms (I need $2000 dollars). The “subsistence wage” is a a real wage, meaning it is the nominal wage divided by the price level of a subsistence basket of goods. Robots lowering marginal costs of production lowers the nominal human wage, but it also lowers the price of goods. It is not necessary or even obvious that real wages have to fall because of robots. History says that despite all of the labor-saving technological change that has gone on over the last few hundred years, real wages have risen as the lower costs outweigh the downward pressure on wages.
Who is going to buy what the robots produce? Call this the “Henry Ford” argument. If you are going to invest in opening up a factory staffed entirely by robots, then who precisely is supposed to buy that output? Ford raised wages at his highly mechanized (for the time) plants so that he had a ready-made market for his cars. The Henry Fords of robot factories are going to need a market for the stuff they build. Rich people are great, but diminishing marginal utility sets in pretty quick. That means robot owners either need to lower prices or raise wages for the people they do hire in order to generate a big enough market. Depending on the fixed costs involved in getting these proverbial robot factories up and running, robot owners may be a strong force for keeping wages high in the economy, just like Henry Ford was back in the day.
The wealthy are wealthy because they own productive assets. A tiny fraction of the value of those assets is due to the utility to the owner of the widgets they kick out. The majority of the value of those assets is due to the fact that you can *sell* that output for money and use that money to buy other widgets. Rockefeller wasn’t wealthy because he had a lot of oil. He was wealthy because he could sell it to other people. No other people, no wealth. Just barrel after barrel of useless black gunk.
The same holds for robot owners. Those robots and robot factories have value because you can sell them or the goods they make in the wider economy. And that means continuing to exchange with the non-wealthy. You cannot be wealthy in a vacuum. Bill Gates on an island with robots and a stack of 16 billion dollar bills is Gilligan with a lot of kindling.
Wealthy robot owners will do what wealthy (fill in capital stock here) owners have done for eons. They’ll trade access to the capital, or the goods it produces, to the non-wealthy in exchange for services, effort, flattery, and new ideas on what to do with that wealth.
Wealth concentration would be a problem with or without robots. The worry here is that because the wealthy will be the only ones able to build the robots and robot factories, they will control completely the production of goods and the demand for labor. That’s not a problem that arises with robots, that is a problem that arises with, well, settled agriculture 10,000 years ago. Wealth concentration makes owners both monopolists (market power selling goods) and monopsonists (market power buying labor), which is a bad combination. It gives them the ability to drive (real) wages down to minimum subsistence levels. This is bad, absolutely. But this was bad when (fill in example of a landed elite) did it in (fill in historical era here). This is bad in “company towns”. This is bad now, today. So if you want to argue against wealth concentration and the pernicious influence it has on wages, get started. Don’t wait for the robots, they’ve got nothing to do with it.
Again, be clear that in arguing against techno-pessimism I am not arguing that robots will generate a techno-utopia with ponies and rainbows. I just do not buy the dystopian view that somehow it’s all going to come crashing down around our ears because of the very particular innovations coming in the near future.
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It is interesting that the focus is on automation (a “force of nature that we cannot stop”) rather than sending jobs overseas. Automation doesn’t hit all at once in one country nor even in the “developed” world. What has happened is that our jobs have scuttled overseas, and are not coming back. We can either create new jobs here or blame automation, spurring a neo-Luddite rebellion of some sort, or we can start examining the global economy. Why do economists talk on the one hand as if our economy was purely local and on the other hand as if it is part of the whole?
I get your point, but you have to be careful about over-stating the “loss of jobs” overseas. There are not a finite number of jobs, and you can’t really lose them. Also, the absolute number of jobs that are attributed to off-shoring is minuscule in relation to total jobs in the U.S. In my head are the following numbers (I’ll have to look up the source later). In the 2000’s, about 3 million jobs were cut in the U.S. and attributed to out-sourcing/off-shoring. That’s roughly 300,000 a year. Total employment in the U.S. in 2004 was about 130,000,000. So roughly 2/10’s of 1% of jobs were cut. In 2004, something like 58,000,000 jobs were cut/eliminated/quit/separated. While roughly 60,000,000 were created. So off-shoring just isn’t a big deal in terms of U.S. employment changes.
“There are not a finite number of jobs…”
Whoa there, pal! Not a finite number? I hope you meant to say that there is not a definite number. If you think there is an infinite number of jobs, I’ve got a real fine perpetual motion machine you might like to buy.
You could even use it to power an infinite number of robots to do the infinite amount of work (or randomly compose the complete works of Shakespeare)!
Got me there. No fixed or definite number.
If robots took jobs, what we would do is take the robots. What takes jobs is a social arrangement in which workers are legally assigned a subordinate position to the owners of capital. There is nothing natural about this arrangement and “robots” had nothing to do with it (unless you are talking about the feudal obligation of servitude from which the word robot is derived).
“Luddites weren’t wrong about losing their jobs, they were just wrong about the economy losing jobs in aggregate.”
Except how could Luddites be “wrong” about something they had no opinion on? Show me ONE instance of a Luddite talking about “the economy losing jobs in aggregate.” You cannot do it because such a thing doesn’t exist. Read some history about the Luddites and stop parroting fables.
Let’s take as given that no Luddite ever argued that jobs would be lost in aggregate. I’m perfectly willing to believe you on this point.
That doesn’t change the meaning of my sentence. Luddites were worried about losing *their* jobs. And they were right to be worried, they were being put out of work by mechanical weaving. The implication of that for aggregate employment was wrong in retrospect – even if they never made that argument explicitly.
I think, from reading the writings OF the luddites (rather than writings ABOUT them by their enemies), that the luds were concerned about something called “commonality” which is a different discourse than aggregate output. In other words, just because they weren’t “thinking like economists” doesn’t mean they didn’t have something to say for themselves.
And that’s great. It doesn’t change the rhetorical point I was making.
That’s absolutely a possibility. There is nothing cosmically necessary about capital/robot owners being the only ones who can possibly possess robots.
If robots take all the jobs of the “lower class” that class of people will not be able to buy anything made by the robots and will thus resort to manually producing the goods the old way before the robots took over, and barter with all the other workers likewise displaced.
Basically, what the question “what will happen when robots take our jobs” amounts to is “what happens when workers are removed from the economy?”
Before Reagan and conservatives took over economics, the economy was a closed cycle with zero sum – nothing could be consumed that labor did not produce (with time shifting).
After Reagan, we got free lunch economics. Ok, they called it supply side.
But before Reagan, economists saw labor and consumption and demand and revenue as equal. Think of labor and consumption as two hands that must move together to clap out the beat of the economy.
Reagan was the salesmen for those who sought to eliminate labor from the economy. Production and consumption were seen to be independent functions of labor, but instead functions of profit and wealth. Labor became a cost to profit to be eliminated. Reagan the union leader became the spokesman of those seeking to eliminate labor (cost).
Thus economics became one hand waving, the supply and consumption hand, with labor and workers and labor income erased from economic theory.
No longer is GDP growth dependent on rising labor income!
A free lunch for the corporations and shareholders.
In the ideal free lunch economy, 100% of GDP is profit, and the 100% profit leads to infinite growth and infinite sales of production to the infinite consumers who have infinite money because they are not workers.
In free lunch economics, workers are not consumers, consumers are not workers.
One hand waving. Free lunch economics.
TANSTAAFL
Robots replacing the workers require robots replacing the consumers.
Thank Deitz for the mention. I’ll respond to this post, as I have time. Here’s a start:
“The robots aren’t the problem here, we are.”
The robots aren’t the problem either way, even if this coming generation of them does actually push down the demand curve for the unskilled far enough to the left that there’s massive unemployment. The problem is our government and politicians, if we just say Free Market Roolz! Freedom Man! And let it happen, instead of investing massivley more in public education, training, Heckman style early human development, schoolfare, etc.
Definitely agree here. Regardless ifvthe LR impacts on employment, the SR dislocations should be dealt with by more than “markets!!”. And education and training make sense as LR investments no matter the full impact of robots.
Perhaps you are not aware that the Luddite fable you recite is part of an historical complex of ideological assertions whose gestalt is readily discernable. By the end of the nineteenth century, the connection between Luddite machine breaking and trade union restriction of output had become British upper-class conventional wisdom. A typical example of the “Luddite fallacy” argument against labor unions is found in Benjamin Taylor’s 1901 article, “How Trade Unionism Affects British Industries”:
“The great object in British Trade Union production is the dissipation of labor — which is waste. This is the central idea of the ‘machine question’ among the engineers, of the eight-hours-day movement, of the miners’ weekly ‘idle day.’ The less each man does for his wages, the more will there be for other men to do for the same wages — so they foolishly think, as if there were a common wage fund into which every man can dip, share and share alike with his neighbor. This is why all labor-saving machinery is still hated by British workingmen, almost as much as it was in the days of the Luddites. Men do not smash machine-tools now-a-days, it is true; but they manage to get the minimum of work out of them, and to extract the maximum pay for attending to them.”
“What exactly are those new jobs that will be created? If I knew, then I wouldn’t be writing this blog post, I’d be out starting a company. The fact that I cannot conceive of an innovation myself is not evidence that innovation has ceased.”
Innovation certainly won’t cease, but will it be innovation that finds a use for an unskilled person that creates minimum wage at least in profit, or innovation that finds a robot that does the same thing as that worker would at 1/10th, or 1/10,000th the minimum wage for the same amount done.
The horse is an example of where what you posit can be wrong. People innovated like crazy, but none of those innovations found any jobs for 99%+ of horses, that were worth paying a subsistence wage to them. The innovations found jobs for other workers and other machines, not those 99%+ of horses that lost their previous jobs.
For unskilled and low-skilled humans, in the past we found enough ways for them to work with machines, that other machines couldn’t do, and services for them to do for the wealthy and skilled, that machines couldn’t do. Let’s see if we still can for the vast majority with the capabilities of this amazing new AI generation that’s likely coming.
I think there’s a good chance that, to a large extent, we won’t, and there will be massive unemployment for those who don’t become highly skilled and educated.
Think about the supply and demand curves for the unskilled. I suspect the supply curve is quite steep. They need a job not to starve, and even if the wage drops a lot they will still take what full time job they can find. Of course, it can’t drop below minimum. The demand curve I also suspect is pretty steep, because increases in the minimum wage don’t seem to lower employment much. With both curves that steep, even a moderate shift to the left of the demand curve for the unskilled can cause massive unemployment.
My big issue with the horse argument is that horses cannot innovate on their own behalf, nor are they capable if imitating new innovations. People can do both.
The actual effect on real wages depends on D and S curves, absolutely. But if S is vertical or close to it, then D shifts have very small effects on Q of labor used, no?
“But if S is vertical or close to it, then D shifts have very small effects on Q of labor used, no?”
Correct, because the low skilled will keep supplying full-time labor just to get some, any, food and shelter. The quantity of labor desired to be supplied does not go down by much with such curves, but the price, the wage, plummets, and can quickly drop below minimum, or subsistence. At that point it’s just where minimum wage, or subsistence wage, intersects the demand curve, which may be at a quantity way below full employment.
Ok, I see what you have. The labor S curve is a “reverse L”, so to speak, with a horizontal section at some w^min. Then if D shifts left enough, the Q of labor reacts severely.
The question is what you mean by w^min. It can’t be the nominal wage, agreed? It has to be the real subsistence/minimum wage. So that w^min is something like Q(subs goods)/P(subs goods). Presumably Q(subs goods) is fixed, or at least very inflexible. So w^min will change based on P(subs goods). So the only way to know what actually happens in the labor market is to know what happens in the market for goods. If P(subs goods) falls, then the horizontal part of your labor supply curve shifts down, and the drop in labor D doesn’t necessarily have to mean big unemployment.
That doesn’t mean I’m right or you’re right. It means that the answer depends on the relative shift in P(subs goods) and the relative shift in the labor D curve. I think in a different reply you said something along these lines, and you are arguing that the P(subs goods) drop from robots won’t be very big, while the labor D shift will be large. Hence unemployment. My argument is that the P(subs good) drop from robots *will* be big, big enough to overcome the shift in labor D. So my job, if I want to convince you I’m right (or convince myself, for that matter) is to describe why the P(subs goods) is going to fall so much.
This deserves a more thorough analysis, but my gut feel is that P(subs goods) will drop a lot precisely because they are subsistence goods. That makes the demand curve for these goods close to vertical, so that small supply curve shocks will have big price effects. Big enough to prevent mass unemployment? Maybe. But again, that will require me to drink more Diet Coke and formulate a better answer.
Sorry, my initial thoughts here with the curves were rushed and off the top of my head. I’ll try to get back to it better when I can find time. But, I think at this point it should be said, and we agree, that in theory, it is possible either way: The new machines could lower demand for the unskilled enough to cause massive unemployment (if the wage cannot drop below minimum, or subsistence), or they could not. So, it’s not a question of theory; the theory says either is possible; it’s a question of the specifics of these coming machines, and the capabilities of low skilled people. Can they find enough to do with the advent of these machines that people with resources are willing to pay at least minimum wage for?
I’m skeptical, and think it will take a profound increase in public education, training, and Heckman-style human development. These new AI computers and robots are just going to be able to do so much, and so agilely, that I just cannot think of where 4 billion or more unskilled humans in the world are going to be demanded at the minimum or subsistence wage. I’ve read a lot on this, including The Second Machine age, and a careful thoughtful read of Oxford’s Benedict and Frey’s extensive study. These machines are likely really going to be capable.
And already, even with the tech advances of the last generation, we’ve seen the demand curve for the unskilled pushed back very much so, and a very substantial drop in their real wage – why then would this not continue? Why then would it not accelerate greatly with the exponential advance in these computers now really starting to get into the take-off part of the curve, the second half of the chess board if you will.
Sounds good, I think we realize we’re arguing over relative shifts. This sounds like a long run wager. In 2030, what is the employment/pop ratio?
“The problem with this argument is that it ignores the impact of robots on the price of that subsistence requirement.”
This is an interesting phenomena that I’ve though a lot about. For now I’ll say this:
That same phenomena/argument existed for horses. The machines decreased their demand, but they also lowered the real price of their subsistence. Horse food and shelter got a lot cheaper with the new machines and technology, but not cheap enough to counter the massive shift to the left of the demand curve for horses.
Like the income and substitution effects, theoretically, either effect could be stronger, and things could go either way. Which way depends on the specifics of the situation. And in this situation, with the kinds of robots I see coming, it’s hard to think of enough that these new robots and computers can’t do that the billions of unskilled in the world can; I think it’s going to take a great deal of government action in education, human development, schoolfare, etc.
I’d note that the technology may make the prices of some goods drop a lot, like low skilled services and manufactured goods, but other goods, like things highly dependent on raw materials, like food, might drop much less. If your phone is cheap, but you can’t afford to eat, this doesn’t do you much good.
“Who is going to buy what the robots produce?”
This argument will not hold up in a model. The wealthy must value the services of those without wealth equal to what is paid to them. Henry Ford argued as though he could capture the positive externalities, which if he could, they wouldn’t be externalities.
I covered this here, with my own “island model”:
I think this comment is also important:
I agree completely that we don’t know what new jobs will be created (but many will), and that automation will reduce costs and prices, but I think RS still has a good point. Eventually, we can envision more and more people as functionally irrelevant. We could produce whatever they do cheaper without them. At which point we no longer need them. They do become horses in terms of value added into the production process.
At this point we would have people who are similar to the developmentally challenged (or children or criminals or whatever) are today — they become wards of those who are still productive. I assume we wouldn’t let them die in the street.
Minimum wages and mandatory benefits of course just hastens the process of elimination or replacement, it would be like taxing horses. Instead it would point to the need and value for mandatory monthly living allotments and/or subsidies to employers for hiring (or programs which require work, but subsidize it up to 100% paid directly to the employee as long as they work for others — this would in effect lower the cost to hiring that individual to as low as zero thus ensuring all would be employed except those actively creating negative value).
cardiffkook – I suppose I should consider myself as a future horse “or criminal or whatever”, since retirement is on my horizon. Or I could consider that I will benefit from several centuries of human progress, in which we have become so productive that people need no longer work six-day weeks, 52 weeks a year, from age 10 or 12 until they drop dead.
So if the human-replacement robot ever comes to be, why would we continue to try to allocate goods and services on the basis of the labor that people supply, when that labor is no longer needed? Why wouldn’t we come up with a distribution rule that actually made sense in that circumstance, and a humane one, at that? It’s our choice, isn’t it?
Back in the real world, I think Dietz has it right, in this and his previous posts, for the foreseeable future and probably well beyond (I’ve been hearing that human-equivalent AI is five years away for over 50 years now, so I’m sure that’s true, and always will be).
Nye has a great book about technology with a couple chapters on this topic ( employment) most thinkers in the veils do not think as a social construction ist or as techno determinists but understand technology and society operate in a dynamic feedback loop with eachother. What is important is too look at how this round of automation is different from the ones before and if this brings about different changes compared to those in the 1840s and 1970s. What I belive of interest is the fact that in these moments of production revolution those that get left behind normally never adapt and find new jobs, they exit the Labour market and their children get different jobs. These changes rocked social stability at the time, what happens to social stability if automation truly takes off, where transportation ( largest employer in the economy) is largely replaced by self driving cars and white collar jobs get replaced by learning software, and health care ( where most of job growth is supposed to come from ) is being increasingly automated.
I agree that the speed of disruption matters, as you say the transition to new jobs is done mainly through generational turnover versus ind. changing jobs.
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