Case Study Automation Will not Destroy Jobs But It Will Change Them

Questions: 1. What are the key macroeconomic objectives? Are they related to each other? If yes, explain the relationship. 2. Define economic growth. What are the determinants of long-run economic growth? Is long-run economic growth sustainable without technological progress? Justify your answer. 3. What is the relationship between GDP and unemployment? Critically analyse the relationship for the past ten years. (GDP and unemployment data can be obtained from the Australian Bureau of Statistics). 4. List and explain the different types of unemployment? Which type of unemployment will be most affected by technological revolution? Explain why? Answers: Introduction: This article provides an insight into the far reaching changes we must expect in the near future in terms of the nature of jobs that will be available to the labour force in Australia. These changes are global in scale, and it is unlikely that any economy directly or indirectly can remain untouched, though the article talks of Australia only. The cause of these anticipated changes is the higher level of automation and the consequent technology induced unemployment that will be generated. As per the article the changes in technology and associated automation are as profound, if not more, as the changes brought about by the Industrial revolution. While hindsight tells us the Revolution increased real wages for almost 75 years after it occurred and improved long term living standards, the immediate costs of the Revolution are not forgettable. The displacement of workers, death of artisans and attendant personal and micro level troubles, along with the change in economic structures was f raught with challenges. One of the most challenging problems was that the benefits were spread over half a century, making them less palatable in the short run. Public memory is short as are life spans. When workers were displaced they recall the problems from lack of jobs they suffered, and were not around to see the benefits that may have accrued to future generations. The workers would remember the deterioration in working conditions and not the enhanced productivity that helped raised average income. The difference in micro level ( individual worker level) and macro economy level effects were stark, especially when the time horizon under consideration is extended over several years. However, this does not diminish the importance, contribution and relevance of the Industrial Revolution to advancements in welfare and living standards over time. In fact it can serve as a guide to how the increased automation can be harnessed to benefit mankind, and to minimise the negative aspects through policy actions and future planning in line with new and anticipated realities brought about by technology. In each of the following sections we investigate a set of issues and relate them to the impending changes brought by technology and automation. Macroeconomic Objectives: As the name suggests these objectives apply to the macro level. This level is the economy as the notion of countries and geographical boundaries set in. Prior to nations we had kingdoms, empires, clans and other smaller aggregates of people working together for common benefits. Once nation states were born, the governments set about setting objectives that each person aspired and worked towards, directly or indirectly. These objectives include a rise in income (or GDP) a rise in per capita income(or per capita GDP) low unemployment rates low inflation rate positive balance of payments low levels of income inequality Alongside the above basic objectives, governments also aim at quality aspects like high participation rates among population, healthy population, good sex ratio, high literacy rate, high density of Internet, high per capita availability of doctors, housing, sanitation and medical facilities. These objectives have corresponding macroeconomic indicators that reveal the state of the economy in myriad ways Often these objectives are related to each other. For example low income inequality is often associated with low growth rates. As per Kuznets inverted U curve, income inequality first increases and then decreases as an economy experiences economic growth. So for some nations like India which are not high GDP nations, growth may come at the cost of rising inequality. Similarly it may not be possible to increase GDP without a reasonable level of inflation. The conflicts between many objectives depend critically on the state of the economy and its stage in the development cycle. Economic Growth: In traditional Economics, growth has been defined in terms of gross domestic product. A rise in GDP implies economic growth. GDP itself refers to a monetary valuation of all the output that is measurable and quantifiable. It is defined as the sum of values of all goods and services produced in an economy. This valuation can be done at current prices in each year (called GDP in current prices) , and also at constant prices ( called GDP at constant prices). The latter concept segregates the effect of price rise from GDP, so that we can focus on changes in physical outputs alone. This kind of growth has been explained through many models, based on historic evidence available for many nations. These include Harrod Domar model: growth depends on savings rate and productivity of investment Lewis model of structural change explains growth in a dual economy. An economy moves from agriculture based economy to an industrial one as growth occurs. Rostows 5 stage model outlined 5 stages of growth of an economy. Investments in capital was the key to move along these stages. Balanced growth and Solow model explain economic growth in terms of steady state that depends on savings rate and capital output ratio. Though no economy follows any model in a strict sense, the focus on efficiency of labour and rise in capital intensity are common factors across actual growth experiences. In this sense, the contribution, role and importance of technology in economic growth can be understood. If technology can improve labor and capital efficiency then it becomes an essential for economic growth. In fact it may be time for economists to start valuing technology as a distinct input into production itself, rather than clubbing it with capital. The latter is a broad input category and may need modifications in the face of rapid advent of technology based processes. Technology induced improvements have a role in not just traditional economic growth measurements but also on quality of life in specific ways. As a concept economic growth disregards how well we live or happy we are. Some jobs like bomb diffusal, mining, fire fighting, and other hazardous jobs are now done by robots, minimising the loss of life and improving conditions of workers in many fields. Te contribution of robots in these areas is life saving, and the replacement of humans by robotic technology is unquestionable. In medical profession too the use of nanotechnology and robotics is life saving. This improvement in quality of life is not reflected in the standard economic growth paradigm. Thus, in my view economic growth in a welfare sense needs technology more than ever. The world may grow without technical improvements and advancements but we can grow faster and in a better way with them. Types of Unemployment The chart below give unemployment rate in Australia from 1990 til 2015. Clearly unemployment has fallen overtime, though it spiked in many years. The overall trend is negative, though it has begun to rise in recent times after touching lows in 2008-09. The labour force participation rates have risen, which portend well for the economy. Australia underemployment and long term unemployment are matters of concern despite the positive picture the chart paints above. Some experts hint at the costs of rise in long-term unemployment. The average rate of long-term unemployment doubled since 2008 from an average of 0.6 per cent to 1.2 per cent The cost of long-term unemployment to Australia's collective well-being has reached $3.3 billion a year as per FairFax Lateral economics Wellbeing Index. .real costs include skill atrophy, rising obesity, mental illness and overall fall in well being. Another source of worry is underemployment. As per ABS rules a person has to work or only 1 hour in the week preceding the survey to qualify as employed. This hides underemployment and part time employment. As of April 2016 this stands at 7.7% as per some estimates while unemployment is 10%. The official rates as per ABS stand at 5.7% for unemployment rate. A striking feature of the Australian economy has been the rapid growth of part-time employment, and the low rate of growth of full-time jobs Gdp and Unemployment : We can look at the types of unemployment known in literature: Open Unemployment: This is the purest form of unemployment, wherein workers who are willing to work at the current wage levels are not able to find work. The cause is a simple imbalance between jobs available and people available to fill them. Frictional Unemploymentthis happens when there is friction, in terms of a person staying without work when she is in between changing jobs. This can be voluntary as workers take a break between jobs, or based on nature of job responsibilities. In the second group we have workers who are laid off during off season, commonly seen in agriculture. During harvesting time new workers are needed and employed, but they are told to leave once the harvesting is over. Such unemployment is referred to as Seasonal Unemployment. This unemployment is commonly associated with developing /underdeveloped nations with a predominant agriculture sector. It is also common in informal economy. Structural Unemployment- as the name suggests, this unemployment stems from the basic structure of the economy. This results in a mismatch of skills available and skill set required. This can happen when economy changes its structure and moves from (say) agriculture to industry based growth model. The available labour force is not suitable for industrial work, as they were used in agriculture. The skill sets needed are different in both industries. Till the time workers are trained in industry workshops some unemployment will stay. Cyclical Unemployment: It is unemployment related to the different phases of the business cycle. If the economy is in a boom phase, cyclical unemployment is lesser. In a recession, it is higher. This unemployment sees frequent swings in line with business cycle. Its volatility is important as an indicator of the severity of a business cycle. Traditional theory plots a Philips curve to model this relationship between unemployment and GDP. The Phillips curve explains the inverse relation between unemployment and inflation- lower inflation occurs with higher unemployment, leading to a trade-off between them. Both are evils but1 of them has to be accepted to allow the other to be lower/lesser. Okuns law gives the negative relation between the growth rate of GDP and that of unemployment and explains the short run Phillips curve. According to the law, a 1% increase in unemployment will roughly result in a 2% reduction in the nations output. This is clear from the chart above. Using data from 1990 to 2015 GDP has shown a slightly rising trend, while unemployment has fallen. In broad terms the theoretical relation seems to hold. conclusion: YES I would agree with the statement that we are entering an era of rapid transition rather than job destruction. This does not mean that jobs will not be destroyed, but they will be accompanied by creation of new jobs that we are not prepared for with our current skill set. To illustrate the positives of automation and ward off dooms day warnings, consider transport ( where) self-driving car technologyis progressing at a rapid pace, and although legal issues may delay its widespread use, it still poses a threat to the livelihood of the millions of people who operate vehicles as part of their jobs. However such technology has improved lives of handicapped people who no longer need help in driving. It also helps to save lives through reduced accidents due to human errors and human mistakes like drunken driving. How do we compare loss of jobs against lives saved? That is an ethical question that needs out attention. Another example is job accountants. Spreadsheets didnt kill off accounting jobs. On the contrary, smart accountants learned how to use spreadsheets to become more productive and more employable A good way to answer the ethical questions calls for relocation of those who were job deprived. This is where policy actions take center stage. Already there is a list of policy options being drawn. We need to adapt in an economic sense with realities of requirement of new and different skill sets, as well as in a social sense of developing social and employment contracts that honour the new requirements. To put in aptly we need a change in many ways such that our laws, policies, assumptions and social contract must evolve as quickly as our technologies will.There is thus an urgent need to identify, evaluate and implement policies that can help manage and smooth our transition into the new technological era ( Marchant 2014). Before we draw these contracts we need to revisit our old theories to redefine, if needed some of our macro goals, theories that deal with them, our definitions of work, employment and unemployment. One suggestion is to redefine employment in terms of shared work, where we have lower working hours, shorter week and mandatory retirement age. A long term solution must incorporate a new education policy that harps on continuous and lifelong learning, more frequent updation of curriculum, more hands on learning and mental upgrading using technology itself so that we can stay one step ahead of technology. It will be more apt to see the impending changes as robots doing routine, repetitive and rules-based tasks .while tasks involving creativity, complexity, judgement and social interaction are left for humans. While this may cause temporary pain and unemployment, the long run march of technology is tough to halt. It is best to adjust and adapt our socio-economic and governing systems in a way that allows technology to take over certain jobs, while new ones are created with newer skill sets so that quality of life at macro level is improved over time. References org/els/emp/OECD-Preventing-unemployment-and-underemployment-from-becoming-structural-G20. Gary E. Marchant, Yvonne A. Stevens and James M. Hennessy (2014), Technology, Unemployment and Policy Options: navigating the transition to a Better world. Welker J( 2012) Model s of economic growth and development Wade M ( 2014) Long term unemployment damages Australias well being https://www.smh.com.au/national/longterm-unemployment-damages-australias-wellbeing-20140606-39ojk.