This article was originally published at the Foundation for Economic Education on 8/27/2021.
Technological automation of industry has accelerated in countless sectors of the economy, from service to manufacturing, since the start of the COVID-19 pandemic.
A Morning Consult poll shows that at least 1.8 million people, and probably many more, have recently turned down jobs because of generous unemployment benefits. Others have stayed out of the job market for other reasons, the Wall Street Journal reports, such as caring for children whose schools have yet to reopen.
Ben Casselman reports in a recent New York Times article that these hiring conditions have driven Kroger, Dave & Buster’s, Checkers, and many other major companies to automate large portions of their production lines. Casselman, as well as some prominent economists, worry about the future of the job market in light of this automation uptick.
Fear of Robots
A worry commonly expressed about automation is that it reduces employment opportunities.
“At some businesses, automation is already affecting the number and type of jobs available,” Casselman reports. “Meltwich, a restaurant chain that started in Canada and is expanding into the United States, has embraced a range of technologies to cut back on labor costs. Its grills no longer require someone to flip burgers — they grill both sides at once, and need little more than the press of a button.”
In addition to reducing employment, technology is expected by some to diminish the wages of those employed in many sectors. Dalhousie University economist Casey Warman and Bank of Canada economist Alex Chernoff acknowledge in a working paper that the automation wave will increase wages in some occupations. “However,” they argue, “workers in other occupations may be displaced and face large lifetime earnings losses.“
The effects of automation on wage inequality is another issue that some are concerned about. MIT economists Daron Acemoglu and Pascual Restrepo conclude in a recent working paper that “a significant portion of the rise in US wage inequality over the last four decades has been driven by automation,” in part because “automation technologies expand the set of tasks performed by capital, displacing certain worker groups from employment opportunities for which they have comparative advantage.”
Creating Abundance
The concerns of these economists, while likely valid in the narrow conditions to which they apply, are misleading without being put in their proper context. Technological progress such as automation is one of the key means by which humanity can continue to improve its material conditions while reducing the requisite drudgery. Like all economic change, labor-saving technology will disadvantage some people in the short term, but it will generally help people of all classes afford to flourish—as it has throughout history.
Automation reducing the number of available jobs is a fear that has been common since the industrial revolution. Farms, textile mills, and other places of industrial production were already replacing workers with machines in the early 19th century and causing Luddite backlash. But overall, this process has always created just as many jobs as it has destroyed. The portion of the US workforce employed as farmers has gone from roughly 70 percent to less than 2 percent since 1840, but that has not left 68 percent permanently unemployed. Rather, whole new industries, unimagined in prior centuries, have emerged and employed huge portions of the population, largely facilitated by the capital and human effort that was saved by automation.
The fear of automation reducing wages is also warranted in some isolated cases but misguided overall. The value of a dollar is not set by any universal standard, but rather what can be purchased with it at any given time. If companies choose to automate their production, they do so because machines are cheaper to employ, or capable of greater output, than human workers. This typically results in cheaper prices due to greater supply of goods and more competition for customers.
If much of the Amazon production weren’t robot-powered, for example, they would be less capable of offering cheaper prices, with faster and cheaper shipping, than virtually any other company. As William H. Davidow explains in the Harvard Business Review, “The autonomous economy is extremely labor and capital efficient, sometimes so much so that the prices of its products decline to close to zero.” Therefore, while some workers may earn fewer dollars, those dollars (and everyone else’s dollars) will be worth more because more can be bought with them. And this additional purchasing power also creates new jobs in those areas of the economy that aren’t automated.
Even wage inequality is not the simple picture it’s made out to be. While automation and other technology may increase inequality as measured in dollars, it reduces a much more important form of inequality: Access to basic goods and services that improve everyday living standards. About 97 percent of Americans have cell phones according to Pew Research, and therefore now enjoy luxuries previously only possessed by the wealthy, such as greater access to safety services, loved ones, information, music, and more.
Those who have been given access to such technologies and countless others, in part, have automation to thank for its role in creating commodity abundance and facilitating investment in whole new technologies and industries.
The End of Drudgery
“But we have reached a point today where labor-saving devices are good only when they do not throw the worker out of his job,” wrote First Lady Eleanor Roosevelt in 1945. The fears have long persisted that worker displacement and other tolls along the road to technological maturity are too high a price to pay for the rewards of automation. But those fears have always resulted from the failure to imagine just how prosperous the future can be.
As Henry Hazlitt argued in his seminal 1946 book Economics in One Lesson, “If it were indeed true that the introduction of labor-saving machinery is a cause of constantly mounting unemployment and misery, the logical conclusions to be drawn would be revolutionary, not only in the technical field but for our whole concept of civilization. Not only should we have to regard all further technical progress as a calamity; we should have to regard all past technical progress with equal horror.”
Indeed, if you had told people in pre-agricultural societies that soon almost all their hunting and gathering jobs would no longer be competitive, they would likely never have guessed what would come next. Nearly everyone in modern society does jobs that were invented extremely recently on the scale of human history, as new opportunities replaced the old ones. One day, if everything currently categorized as human labor is automated by magnificently efficient new technologies, humans will likely be engaging in new forms of work that you and I have never fathomed. Perhaps new jobs will be done in virtual worlds, or university departments in yet-uninvented fields of study, or pharmaceutical industries devoted to expanding human capacities beyond what would now be considered superhuman.
The share of the world population living in extreme poverty has gone from more than 90 percent in 1850 to less than 10 percent today. There is no reason, with the aid of continued technological advancement, why scarcity cannot continue to be diminished until virtually all of humanity has grown wealthier than the average denizen of any prior age could have imagined.
But automation of industry, one key strategy for the production of more and better output from the same or fewer resources, must be appreciated as a welcome achievement if we are to accomplish this uplifting objective in the future.
Excellent piece!