The rise of robotics will thin out the middle class

Rather than simply destroying jobs, robotics will polarise the labour force by reducing wages in a number of sectors, thereby diminishing the middle class -- and the trend has already started.

Robotics. From a labour market perspective it either fills you with wonder or fear. The shift towards greater automation will create new opportunities for Australian businesses but new technology is often disruptive and will pose a considerable challenge for some workers and professions.

The general narrative on robotics focuses on job losses -- largely in the same vein as globalisation -- but that isn’t necessarily the way it is going to eventuate. The dynamics between robotics, computerisation and the labour force is complex and there will be clear winners and losers. But the focus shouldn’t be on job losses; instead wages should be of greater concern.

The winners and losers of new technology and robotics will largely depend on comparative advantage. One day it may be possible that robots can do all tasks better than humans but in a world of scarce resources it doesn’t make sense for robots to perform all jobs. Instead output is maximised by utilising the available resources in areas where they provide the greatest relative value.

New research by MIT economics professor David Autor, considers the comparative advantage of robotics and computers and their implications for the US economy.

According to Autor, machines have a clear comparative advantage in tasks that are routine. Tasks that are repetitive and easily coded are technology’s bread and butter.

By comparison, humans tend to excel at tasks that require problem-solving, flexibility and creativity. We also have a comparative advantage in manual labour.

Naturally these comparative advantages need not hold in the long-term. For example, Google has created driverless cars and driving is an activity that requires quick-thinking and judgement. Furthermore, the complexity of computers and robots is increasing at such a pace than nobody is well-placed to say what they could do in 10, 20 or 50 years.

Nevertheless, Autor’s analysis provides a quality assessment of what has happened to the US economy and provides some insight into the direction their labour market may take. Those implications and insights are likely to be relevant to Australia as well.

Rather than destroying jobs -- as is commonly reported -- Autor argues that robotics and computerisation has polarised the labour force by thinning out the middle class. The winners tend to be at the top of the income distribution -- alternatively the owners of capital -- while the middle-class has seen their opportunities and wages decline.

In practical terms, humans tend to be relative better at performing jobs at the top and bottom of the income distribution. Furthermore, new technology has enhanced productivity for some roles at the top end of the distribution, particularly for professional, managerial or technical positions.

But jobs across the middle of the income distribution have thinned. Autor finds that ‘middle-skill’ roles -- such as sales, office and administrative workers, and production workers -- accounted for 60 per cent of US employment in 1979. That share had declined to 49 per cent in 2007 and 46 per cent in 2012. A similar trend was apparent in Europe.

Wages for higher-income earners have surged -- although there are numerous reasons -- and the supply response to higher productivity has been limited by high barrier to entry. High-skilled, high-wage jobs have never been more appealing but they often require a high level of education to get your foot in the door. Unfortunately, the US education system is notoriously expensive and particularly unforgiving on the poor.

As a result, the thinning middle-class has largely shifted towards lower-income positions, putting downward pressure on wages. New technology hasn’t destroyed jobs in an absolute sense, but wages have definitely taken a hit across a variety of sectors.

Australia is well placed to take advantage of new technology and robotics. We are a high-wage country with a sophisticated labour force but a lot will depend on how willing businesses are to invest and take risks.

The US experience highlights how important it is that quality education remains affordable. If computerisation and robotics does thin out the number of middle-income positions then there is an onus on policymakers to ensure that everyone has the opportunity to make the most of their skills.

Many Australians will be apprehensive about new technology and robotics. Of course humans have been apprehensive about almost every labour-saving or productivity-enhancing device. But much like globalisation there is little point complaining about it; new technology will continue to be developed and it will challenge existing workplaces and change the way jobs are performed.

Every generation there are developments which fundamentally change the composition of the Australian workforce. We have successfully navigated each transition -- though there have been winners and losers -- and robotics and computerisation will be no different.

Sure wages may decline in certain sectors -- and rise in others -- but the economic pie will also increase. In the short-term, this may require the government -- at both the state and federal level -- to recognise that workers from vulnerable sectors may need greater support. But there are obvious long-term benefits and like globalisation it will force Australians to focus on what we are good at -- high-skill roles -- rather than doing a bit of everything and that isn’t necessarily a bad thing.

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