Automation and the prospects of economic development

March 13, 2017
By: 
Joselito T. Sescon, Eaglewatch

Technological anxiety has been with us since the first modern industries appeared. The angst toward new technologies is mainly about the fear of widespread substitution and displacement of human labor by machines. Historical experiences in early industrialization have shown that new technologies used in production initially had disruptive effects to labor and existing production assets. However, new technologies also ushered in the birth of new industries, created new jobs, becoming the source of productivity, economic growth and development.
 
Automation, like most new labor-saving technologies, has an effect of raising the comparative advantage and value of jobs that only humans can do, thus, instead may add new jobs more than it displaces. The economics is simple, only humans can determine the extent of the use-value of goods and services and the jobs associated with its production. If the demand of the use-value of a good or service increases as overall income increases, then automation that displaces labor and reduces cost and exchange-value (price) shall increase consumption and create room for investment to create new jobs and production of more goods and services.
 
David H. Autor, a professor of economics at MIT, in a journal-published study analyzed why automation does not necessarily reduce aggregate employment, even as it demonstrably reduces labor requirements per unit of output produced. Central to Autor’s economic analysis is that automation positively affects the demand for labor by raising the value of complementary tasks that workers uniquely supply. Demonstrating as an example the introduction of automated teller machines (ATMs) in US bank branches, it was found that it did reduce the number of tellers per bank branch. But because of reduced cost in opening new bank branches, it indirectly increased demand for more tellers through more branches. Also, the complementary tasks of providing other bank financial services to customers became valuable and in demand. The expected result is increase in productivity and output sans reduction in labor inputs.
  
However, in contrast to the positive results with ATM and banking, the overall effect of automation on labor occupation across US industries may not be that good. Autor said the quantity of jobs was not adversely affected, but automation may have affected the quality of jobs. Automation of jobs mostly happened in middle-skill occupations, comprising sales; office and administrative support; production and repair; and operator, fabricator and laborer. Jobs that are intensive in either abstract (high skilled) or manual tasks (low skilled service jobs) are difficult to automate. Thus, computerization of routine job tasks led to the simultaneous growth of job tasks with high-education, high-wage jobs at one end, and low-education, low-wage jobs at the other end. This is at the expense of middle-wage, middle education job, a phenomenon called “job polarization”, which will have unsettling economic inequality as a result.
 
Closer to home, an International Labour Organization study by Chang, Rynhart and Huynh (July 2016) on automation in the Asean, concluded that technology is already displacing certain jobs and is showing a strong likelihood of replacing low-skill jobs that are currently the backbone of Asean’s labor-intensive manufacturing and services. In the automotive sector, the study said that low-skill workers will find themselves displaced in favor of automation. On textiles, clothing and footwear (TCF), the region will encounter both a displacement of lower skilled workers and an increase in the demand for higher skilled technicians and engineers to serve niche apparel producers. Significant shares of TCF workers in Asean are at high risk of automation, from 64 percent in Indonesia, 86 percent in Vietnam and 88 percent in Cambodia. In the business-process outsourcing sector primarily in the Philippines, software robots referred to as robotic process automation (RPA) pose a threat. While RPA software still needs to become more intelligent before it can fully replace humans on a large scale, the 600,000 workers in call centers face high risk of automation at 89 percent, the ILO study said.
 
In conclusion, the path of transition to the more automated production economy of the future can be disruptively painful for some workers and industries in the short term. For the majority, cheaply produced goods and increasingly automated and freely available services should allow access to increasing levels of material well-being and health. At this period, as another similar study by Mokyr et al. (2015) recommended, it may be necessary to expand the set of publicly provided goods to include food, housing, education, and health care that are necessary for a modern life to go well. Because, if automation has rendered human labor superfluous, then we may have to tweak the economic system to benefit everyone. The free hand of the market may not be reliable this time to make the proper choice. It will be an opportunity for the world to create more valuable jobs that will uplift the well-being of humanity, like health and medicine, education, arts and culture, housing, sustaining healthy food production, nourishing the human spirit, among others. Putting higher value on these jobs will complement automation in industrial production of goods and services leading to human-centered development.