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Monday, June 19, 2017

Robots Are Not Your Economic Enemy

In this era of rapid technological progress, many of us cannot help but wonder what the future holds.

In this era of rapid technological progress, many of us cannot help but wonder what the future holds. In particular, improvements in automation have sparked a conversation on the impact that robots will have on the demand for labor. Some projections are rather dystopian, suggesting that a large part of humanity will be rendered permanently jobless as workers are replaced by robots.

Robots can never reduce the number of jobs available overall.

In December, physicist Stephen Hawking cautioned, “The automation of factories has already decimated jobs in traditional manufacturing, and the rise of artificial intelligence is likely to extend this job destruction deep into the middle classes, with only the most caring, creative or supervisory roles remaining.”

In February, Tesla CEO Elon Musk warned, “What to do about mass unemployment? This is going to be a massive social challenge. There will be fewer and fewer jobs that a robot cannot do better.”

Only two days later, Bill Gates proposed taxing robots in part to “slow down the speed” of automation.

While capital does indeed render some jobs obsolete and displaces labor in the short run in a process of “creative destruction,” robots can never reduce the number of jobs available overall; this realization follows from the unlimited wants that drive human action in this world of limited resources.

Workers are replaced by machines when it is efficient to do so.

Automation Is Liberation

Consider that at one time there were no professional actors, musicians, artists, or writers. This is not to say that our distant ancestors would not have enjoyed such entertainment, but given the crude state of technology at the time, even those with artistic talent had to allocate their time to more pressing concerns like plowing fields. To instead produce paintings full time carried too high an opportunity cost in terms of lost food output.

Similarly, there has always been a demand for the services provided by firemen, police, professors, doctors, lumberjacks, sanitation workers, athletes, yoga instructors, app developers, and social media managers; indeed, all the jobs that exist today. Yet at one time none of these services were provided professionally. Automation made such careers possible by reducing the cost of production for more pressing wants, freeing up labor to pursue new opportunities for satisfying our limitless desires.

Too Many Jobs

Workers are replaced by machines when it is efficient to do so, resulting in greater output and lower costs. This drives down the prices of final goods, increasing the real wages of everyone who consumes these goods. This, in turn, frees up cash for consumers to spend on other goods, boosting labor demand in other industries. Through this process, new jobs emerge to service previously unfulfilled demands, even providing job opportunities for some previously displaced workers.

Workers can be affected by automation in one of three ways. First, some displaced workers move into the new industry, often gaining doubly by earning higher wages even as prices fall. Second, some jobs are unaffected but these workers still enjoy the lower costs of goods. Most of us fall into this category with respect to most improvements in technology. Lastly, some displaced workers move into jobs that pay less, although this is offset to some extent by falling prices. Some of them will even see a real wage increase, and others will be no worse off than before.

Improvements in one industry can also increase wages in other industries. For instance, if demand for drone operators draws workers away from airplane piloting, then pilots see an increase in their wage due to a decreased labor supply. Overall, most people will experience rising living standards thanks to the increased productivity of automation.

Automation has always resulted in new jobs and higher living standards.

Advances in automation also create jobs directly, in engineering, management, maintenance, marketing, sales, and so on, and these jobs tend to be safer and better paying than the jobs that automation displaces. Yet even if no such jobs were created by automation, and even if demand for other goods remained constant, there are limitless opportunities for new goods and services for workers to provide, as long as the opportunity cost of lost output in alternative lines of work is not too high. As Armen Alchian and William R. Allen exclaim in University Economics, “There are not too few jobs, but too many jobs!”

Although some jobs are clearly dependent on technological advancements—there would be no electricians without electricity, for example—the primary concern is one of opportunity cost: how much output is lost elsewhere in the economy if a worker is pulled from another line of work into the new one? It is easy to conceptualize in the case of food production, but the same principle applies in advanced economies that enjoy an abundance of goods and services. The pricing mechanism ensures that workers are allocated efficiently in light of new machines and production methods, while entrepreneurs devise new goods and services for them to produce.

The Invisible Hand

The belief that we face an imminent employment crisis due to automation has provoked calls for a government remedy. Bill Gates suggests that the state put surplus labor to work in social services and education, while Elon Musk argues that “ultimately, we will have to have some kind of universal basic income” to provide for a great mass of permanently unemployed people.

Automation is necessary for the emergence of new jobs.

Despite that, automation has always resulted in new jobs and higher living standards in the past, many people have a difficult time trusting in what they cannot see and find the iron fist of government more comforting than the invisible hand of the free market. As self-driving trucks and automated restaurants threaten millions of jobs, workers may be understandably concerned when advised that we don’t know what new jobs will arise, we just trust that they will. But history is on the side of the free market.

One legitimate cause for concern is the rapidity with which automation could displace workers. Although the number of potential jobs is limitless, if robots could be devised as soon as new jobs were created, and it was efficient to deploy them, workers could find themselves unemployed for this reason. However, automation always lags the human performance of tasks, providing a buffer for workers to adopt new skills as needed in an ever-changing economy. Perhaps some currently existing jobs are even immune to automation.

The Future Is Bright

Despite several centuries of continuous improvement in our living standards due to capitalism and industrialization, elements of Luddism live on in concerns that automation will relegate countless workers to a state of permanent unemployment. Yet, just as jobs that were beyond the imagination of 18th-century workers have arisen to keep pace with the exponential population growth of our era, new jobs will continue to arise in the coming centuries even as automation expands. To believe otherwise is to expect a fundamental shift in the relationship between automation and employment that is unsupported by history.

Not only is automation not a threat to workers, but on the contrary it is necessary for the emergence of new jobs and with them, rising living standards. In facilitating the service economy, automation has allowed people of talent and ambition to escape the drudgery of premodern work and pursue self-actualization. In doing so, automation has provided us with amazing goods and services totally unknown to prior generations.

  • Joseph Michael Newhard is an Assistant Professor of Economics in the Department of Economics and Finance at East Tennessee State University.