For the life of me, I can’t remember where I read it but I’ve found sources that provide more of less the same arguments that were made.

Basically, what I read was that automation hasn’t really caused job losses (yet). After all, if automation and robots were the reason for job losses, then why is productivity so low? In economics, productivity is measured as the output per unit of input. Inputs can be either labour or capital which means that if more and more jobs were automated, productivity should start to increase.

That hasn’t been the case, even in Japan, where robots play a huge role in manufacturing. In Japan’s case, there are alternative explanations (for example, see here) such as Japan’s corporate culture but that doesn’t explain the similar observations made in other developed countries.

Singapore’s attempts at increasing productivity haven’t been all that great either. So, where is the evidence that automation and robots are taking our jobs? Well, I think economist David Autor (nice, long essay) has made a very compelling argument that automation and robots, at least at this point in time, have not caused job losses or the end of employment as some people say they will. (For a nice background on what happens as technology replaces labour, see here and here)

The historical relationship between technological improvements and labour

It’s an indisputable fact. As technology has progressed, jobs have been displaced but that often leads to job increases in other areas. As farms used more capital (think tractors), the amount of labour on farms has decreased. That led to increases in employment in other sectors such as manufacturing. And as manufacturing started getting more high-tech, that also led to increases in employment in services.

Paradoxically, improvements in technology have also led to increased employment in the same jobs. The often-cited example in labour economics is the role of the bank teller. As ATMs were introduced, many people thought that that would spell the end of the bank teller. Interestingly, the number of bank teller jobs in the US actually increased after the introduction of ATMS. What gives? Well, it turns out that the ATM reduced the need for tellers per branch and that meant that the ATM made it cheaper to open up new branches. Since branches were cheaper, banks opened up more branches, increasing the need for tellers. Bank tellers were still necessary to perform certain banking functions as well as guide customers on how to use the machines.

What lies ahead?

If the above holds true, we should expect that the coming age of automation and robots will bring about some changes but it won’t necessarily spell the end of work as we know it.

(1) Augmentation of labour

First, automation and robots will definitely replace some jobs. Off the top of my head, in the more severe scenario, drivers (as an occupation) will no longer be necessary. Instead, they may be employed to sit in self-driving cars just to hit some emergency button or take over manual controls in the event the whole system goes down. In the less severe near-term scenario, drivers may still be needed to take over in certain driving conditions much like what goes on in modern passenger aircraft.

Any labourer lifting heavy loads (such as nurses or constructions workers) may use robots or exoskeleton suits that help them in their work. If it helps them to their work quicker, then obviously, there will be less of these labour needed given the same level of demand. However, it’s probable that nurses will see a greater demand given the level of ageing in developed societies while construction depends on different demand condition altogether.

(2) Growth in other/new industries

Let’s not forget that it’s not just blue-collar jobs that are at risk. In fact, due to the digitisation of information, software and AI can probably do repetitive, routine functions that people are used to doing. Administrative functions like filling forms, templates and other such bothersome activities can be automated.

As AI developed, even less routine jobs can be replaced. In the world of finance, trading, to some extent, has been replaced with AI and software. Robo-advisory, or being advised by software, is also increasingly being used by money management firms (see here).  The days of buying insurance directly from your insurer are here but dare we go one step further and leave the endowment and investing portions up to software as well? This would eliminate the so-called financial advisor whose only value-added service thus far is the relationship built between the advisor and client. It may be argued that many such ‘advisors’ exploit the relationship for a commission. While advisors may say that they bring clarity to the otherwise lengthy and complicated terms and conditions, it is difficult to take that stand when your income depends on it. Much better is the independent advisor who compares all the offerings available and provides balanced advice.

So, where are the likely pockets of growth? Leaving out the sectors that only the truly visionary can imagine (hyperloop anyone?), we can already see a greater switch to sectors that depends on creativity and novelty.

In Singapore, this has manifested itself in the form of various restaurants and cafes that offer products slightly different from each other. Some tout a special item on the menu while some brandish the fact that they were trained at famous schools, restaurants or bakeries or the fact that its the outpost of a celebrity chef. The ones that really get ahead though, are the ones that grind it out on the ratings (informally on platforms like Yelp or HungryGoWhere or formally in the Michelin guide). In retail, it’s even tougher. Competition based on price happens on platforms such as Qoo10.sg while a novel idea can help you out on Etsy, Kickstarter or Indiegogo.

In short, if you aren’t a big company reaping economies of scale (lower average cost of production as output increases) are opening outposts all across the world, it seems that for individuals, we’re back to the age of a craftsman where uniqueness and emphasis on dedication triumph mass production.

This isn’t unique to just physically creating products. We have robots that can now produce articles that transmit the facts of the matter. However, in the blogosphere or on YouTube (if you prefer), superstars are being made of those whose opinions provide clarity, prognostication or simply, a breath of fresh air. The software and AI haven’t gotten there yet.

Industries will change

If demand for goods and services change, obviously there will be winners and losers from it all. After all, what good is it to a manufacturer if costs are reduced by saving on labour but that also leads to a reduction in demand? In econ 101, we learnt that households provide labour and it is also households that form the demand for goods and services. So, companies and corporations have a vested interest to ensure that whatever labour is displaced gets employed once more. Hopefully, they get employed in a higher value-add job and therefore, draw higher wages than before. Realistically, that would take a lot of training and in meantime, the unit of displaced labour would depend on dissavings and/or handouts from the government.

The industries that will weather all these relatively well will be those that have income inelastic demand for their products. After all, even if one loses his/her job, one still needs to eat. Therefore, the basic triumvirate of food, shelter and clothing will do well. They will do even better if they are large enough to reap the cost savings of adopting new technology bearing in mind that labour gets cheaper relative to automation and robots as more and more labour gets displaced.

The likely scenario is that this pace of change will be more acceptable in developed, ageing countries where labour gets more scarce with each passing year. In developing countries, there might be possible problems as highlighted in this article. When you have a young, growing population without jobs, that’s just a recipe for disaster.

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