Do robots pose a danger to the employment sector and what does future of employment look like?

Welcome to Finance and Fury, the Say What Wednesday edition. This week’s question is from Phuong. “Hi Louis - With strikes happening at Sydney’s port recently and worker asking for pay rises, do you think that Robot will eventually replace human workers? And what are future job for younger generation, do you think?” Thanks for the question – brings up a great point – in todays episode – look at the rise of the robots – does it pose a danger to the employment sector and what the future of employment may look like   To start with – look at the rise of robotic workers – in automation study from Oxford Economics - Robots could take over 20 million manufacturing jobs around the world by 2030 – over the next decade – about 14 million of those were estimated to be in China alone Perspective – 7.8bn population – about 5.15bn aged from 15-65 – working age – 20m is about 0.4% of this working population – or about 0.04% of the population each year China has an economically active population – or in other words – employed individuals of 776m – so 14m being replaced over 10 years is about 1.8% - or 0.18% p.a. To give a comparison – say this was happening in Australia – which it isn’t at the same rate – due to the roles that robots will be replacing in the next decade – Oxford Economics also found the more repetitive the job, the greater the risk of its being wiped out – so these jobs are very limited in Aus – but lets say that we will have the same replacement rate of positions but in Aus it would be the equivalent of 22,700 jobs being lost each year – lots of jobs – but we have just had much larger job losses – ABS said that 594,300 people lost their jobs in April this year due to the shut downs - ABS estimated another 227,700 jobs were lost in May – people have gone back to work – but many jobs are still lost – greater number than would be replaced over the next decade by robots in two months still out of work so over the next 10 years – does sound like a lot of people but perspective is important – wont be massively disruptive as this transition will be gradual – I don’t think this will be as large as disruption as people think – that is because we know about it as a likely possibility – when people are saying something will happen people can adapt – we are very adaptive – Technology changes and the resultant unemployment are a part of creative destruction within an economy – which is a part of the cycle – it is the unknown and massively disruptive technological shifts that create turmoil – even in employment – like a lockdown that puts people out of work People may think that robots replacing jobs is going to be a huge issue – and it may be – I may be way off the mark – but I think it will have less of an impact in the long term – as people can truly adapt Technological change is an economic concept that includes the introduction of labour-saving "mechanical-muscle" machines or technology – automation that replaces the human’s role in production within the economy That technological change can cause short-term job losses is widely accepted – but the view that it can lead to lasting increases in unemployment – structurally – the views are mixed - Participants in the technological unemployment debates can be broadly divided into two camps - the optimists and the pessimists Optimistsagree that innovation may be disruptive to jobs in the short term, yet hold that various compensation effects ensure there is never a long-term negative impact on jobs – with new technology there comes new employment   pessimistscontend that at least in some circumstances, new technologies can lead to a lasting decline in the total number of workers in employment. The phrase "technological unemployment" was popularised by John Maynard Keynes in the 1930s Should be noted that the Oxford Study comes from the pessimists of the group – some of the economics here think that half of human jobs will no longer exist in the future – which may be true – but they neglect that new jobs come up along the way Yet the issue of technology and machines displacing human labour has been discussed since at least Aristotle's time – he lived around 350BC – so this has been a long running concern – that is because there have been many technological shifts through our history – examples of changes to working conditions – Just as horses were gradually made obsolete by the automobile, humans' jobs have also been affected throughout modern history Historical examples include artisan weavers being replaced by the introduction of mechanized looms – but these jobs were replaced over time – and clothing over time because cheap and available – people only used to have one or two sets of clothing Before electricity - cities and streets were lit by gas and oil - in the early 19th century, gas lamps were first installed in the dark foggy streets of London and other cities and spread throughout the world – and someone had to light these gas lamps at night, then extinguish them in the morning - Thus the job of lamplighter was born – which was an increase in employment To give you some sense of the scope of the job, there were tens of thousands of these lamps in London alone. The largest gas lighting network in the world is that of Berlin - with about 37,000 lamps Each lamplighters were paid about $2 per day to care for 70 to 80 lamps – so in Berlin there were likely 500 – throughout the world – 10s of thousands of lamplighters – at this time the world population was about 1.2bn In the late-19th and 20th centuries, most cities with gas streetlights replaced them with new electric streetlights On top of this – was the industry that supplied the lamplighter's equipment included whale blubber (for use as lamp oil), wick trimmers and a ladder Similar story over the years in Farming – agriculture – back in the 1400s – between 60-75% of a countries population was involved in the production of food – ranges from 1-10% now – western countries being in the lower 1-4% ranges – most of the job losses occurred since the 1800s – so over a little over 200 years seen the number of people employed in the production of food drop massively – Assuming that in 1800 – 1.2bn population – at 55% - 660m – assuming everyone is working – lets assume that 66% are working – so 435m In 2020 – population of 7.8bn – 66% working and 4% in agriculture – a little over 200m people working in this area – so means there have been around a 1m p.a. reduction in employment in agriculture each year for 200 years – so is there a long-term unemployment issue here? During World War II, Alan Turing's machine compressed and decoded thousands of man-years worth of encrypted data in a matter of hours. Then with the rise of computers – economists were worried about many jobs being replaced A contemporary example of technological unemployment is the displacement of retail cashiers by self-service tills That is where there has always been a split of views between the optimism party and the pessimism party – Prior to the 18th century both the elite and a lot of the common people would generally take the pessimistic view on technological unemployment, at least in cases where the issue arose. the 18th century fears over the impact of machinery on jobs intensified with the growth of mass unemployment, especially in Great Britain which was then at the forefront of the Industrial Revolution. Carl Marx – who was a pessimist – would organise the workers in factories to destroy machines as they were worried the machines would replace them – even though they were employed to operate the machines Yet some economic thinkers began to argue against these fears, claiming that overall innovation would not have negative effects on jobs. These arguments were formalised in the early 19th century by the classical economists- because it became increasingly apparent that technological progress was benefiting all sections of society, including the working class Concerns over the negative impact of innovation diminished and the term "Luddite fallacy" was coined to describe the thinking that innovation would have lasting harmful effects on employment. The view that technology is unlikely to lead to long term unemployment has been repeatedly challenged by a minority of economists. In the early 1800s these included Ricardo himself. There were dozens of economists warning about technological unemployment during brief intensifications of the debate that spiked in the 1930s and 1960s. During the 20th century and the first decade of the 21st century, the dominant view among economists has been that belief in long term technological unemployment was indeed a fallacy. More recently, there has been increased support for the view that the benefits of automation are not equally distributed However – now the views are changing in the main stream – back to that technology will be massively disruptive to the employment markets The actual evidence - Robots have come a long way already – but only about 1.7 million manufacturing jobs have already been replaced by robots since 2000 - including 400,000 in Europe, 260,000 in the US, and 550,000 in China – so in the past 20 years only 1.7m jobs have been replaced – but robots are getting better – so this may accelerate What is going to expediate this replacement? As mentioned in the question – strikes and union action may incentivise employers to replace workers – strike that was referred to was organised by the Maritime Union of Australia (MUA) - caused an 11-day cargo backlog at the port, with a knock-on effect of container supply chain congestion spreading to Melbourne and Brisbane as vessels are diverted. Patrick said this week the action had seen terminal production cut by 40%, shipping schedules had slipped dramatically by nine days and delays were worsening by a half-day for every day the action continued. The terminal operator said MUA was demanding 6% annual pay rises for the next four years, and Patrick estimates the full list of claims will cost it around A$40m (US$29.2m) a year. Patrick CEO Michael Jovicic said: “I’m bewildered that the MUA would try this on during a pandemic, particularly when the average permanent employee is currently paid approximately A$155,000 a year, with top earners receiving more than $200,000.” – not sure if this is accurate – but   What is the next generation of employment – will people be fully replaced by robots? This may be what some economists are worried about – but they may be in a similar line to Carl Marx – who was a pessimist and his followers would go around destroying machinery short term – there will be a displacement of workers – but as I said earlier – this is already known – and the replacement of jobs will be gradual – not in one go - anyone not currently in a job – younger generations – may escape the fate of losing jobs – as there will be new jobs that come out of this – Like machine operators – rather than doing the automated job – working with the robots That is where while automation displaces workers, technological innovation creates more new industries and jobs on balance if robots are taking over jobs – there will be additional jobs for Mechanics, those who construct, build and install the machinery, or even additional software and IT employment opportunities Outside of this - jobs that require creativity or social intelligence are very unlikely to be replaced – so there are plenty of industries that wont be likely to be replaced for decades But longer term – who knows – AI may replace workers – but again additional employment opportunities can come out of this – ones that people haven’t even dreamed of – it will come out of the additional supply of goods or services produced by AI and hence there will be a demand for additional employment opportunities – can speculate – but what employment will look like in 100 years is really anyone’s guess – But do I think that things like UBI will be needed to help give people incomes because robots/AI have replaced all employment opportunities? I don’t – as history has shown – more job opportunities comes out of additional technology – not less – we went from 55% to 2-4% in western nations working in Agriculture over 200 years – so a likely trend may occur with additional technology being implemented – but with this change – jobs will come Who would have though that that people would be driving a car in the form of a taxi or uber 200 years ago - would have thought that an electrician would be a job or that IT would be an industry – or anyone working with software – or that oil and gas would be an industry – this is less than 200 years old on a mass scale Or even the steel industry – which used to be very labor intensive and expensive – now it is everywhere As more automation occurs – there is likely to be more output of production which goes into other forms of employment What would be a concern –if Governments get involved and regulate industries and innovation gets stifled – may see the job losses with no rebound For example - job creating effect of product innovation could only be observed in the United States, not as much in countries with massive levels of regulation and limited innovation like Italy My hope is that this allows additional economic growth and people to grow with this Thank you for listening to today's episode. If you want to get in contact you can do so here: http://financeandfury.com.au/contact/ https://ourworldindata.org/employment-in-agriculture