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Regular version of the site

Robots Will Change the Job Market to Our Benefit

Will robots eventually make people jobless? That ‘s an issue that has recently been under a lot of discussions with some publications predicting that around 40% of jobs will disappear in the nearest decade due to the advent of technology. But is the future indeed so gloomy? Sir Christoper Pissarides, 2010 Nobel Prize winner, Regius Professor of Economics at LSE, disagrees. In his honorary lecture at HSE ICEF Prof Pissarides discussed various issues concerning the future of work and employment in the age of robots.

Professor Sir Christopher Pissarides is Regius Professor of Economics at the London School of Economics and Associate at the Centre for Economic Performance Christopher Pissarides was born in Cyprus, received his PhD from the LSE in 1973, and works at the LSE since 1976. He made numerous contributions to the economics of unemployment, search theory with applications to the labour market, macroeconomics of growth and structural change. His paper "Job Creation and Job Destruction in the Theory of Unemployment", published in the Review of Economic Studies in 1994 (joint with Dale Mortensen) has set up the agenda for research of macroeconomic implications of job market frictions, and his book 'Equilibrium Unemployment Theory', is a standard reference in the economics of unemployment.

Professor Christopher Pissarides won a Nobel Prize for Economic Sciences in 2010, jointly with Dale Mortensen from Northwestern University and Peter Diamond from MIT. Notably, he is the first actual member of LSE faculty to receive the Nobel Prize in economics in history. He has been knighted in 2013 in recognition of his services to economics science.

There appear to be many misconceptions about the impact of automation on the labour market. In fact, jobs have always been destroyed because of new technology and new jobs have appeared. Generally, labour markets benefit from technology although a lot of modern writing might lead one to think that technology is not good. In essence it’s not too different from first reactions to British industrial revolution when old craftsmen were destroying machines before they were taking away their jobs. However, it’s not bad when machines replace humans. The main issue nowadays relates to the problem of redistributing rewards from machine work rather than worrying about machines taking over the jobs.

It’s not likely that robots will be able to do all the jobs that humans currently do. But in the not so distant future, robots, artificial intelligence programs and other technologies are expected to do more and more of the work performed by humans.

Technology boosts productivity

The most important contribution of technology to the labour market is its role in increasing the productivity. We are now able to produce more output with smaller labour input. In advanced industrial economies in the last 20 years productivity growth has been driven by hi tech sector. This small dynamic sector associated with information and communication technologies, which usually accounts for no more than 3% of the labour force, drives the rest of the economy. It produces technology that’s incorporated in equipment used in industries. Thus, ICT has positive spillovers on all other industrial sectors, through its Impact on the quality of new capital. As a result, productivity rises everywhere.

If countries resist new technology thinking that it will destroy jobs, they will lose their international competitiveness and fall behind. As a result, they will not be able to ensure rising standards of living for their populations

What impact does this increase in productivity have on jobs? Currently, manufacturing employment is declining in all advanced economies, even in China, which used to be a global manufacturing workshop.  In US, one of the most technologically advanced countries, manufacturing employment has been falling since early 80s and now accounts for 15% of total employment, which is very low. This happens because manufacturing jobs can be easily automated with modern digital technologies. But if countries resist new technology thinking that it will destroy jobs, they will lose their international competitiveness and fall behind. As a result, they will not be able to ensure rising standards of living for their populations. New technology should be welcomed because of its positive impact on productivity.

Investment in Research and Development sphere is essential for the discovery of new technologies. There is a big discussion about the sources of new technologies. It is generally agreed that the more money is spent on R&D, the more advances are made. Although there are cross-country spillovers from R&D – R&D knowledge is transferable and you can learn from the discoveries of others - big countries do need to do their own research if they are going to get ahead of competition. We can’t be sitting and waiting for Silicon Valley to discover new technologies. So countries are investing money in R&D, with Korea, Japan, Taiwan, and Germany leading the way. Russia is not doing so well in this respect – with less than 1% of GDP going towards research. This is well below Korea’s or Israel’s 4%.

What jobs will disappear?

Modern technologies are labour saving, especially for routine jobs that can be automated, so they do replace human labour. In fact the first industrial revolution started with replacing manual labour and low-skilled jobs. What’s happening nowadays is that many mid level jobs are crowded out with the use of computers. For instance, availability of spreadsheets with accounting software reduces the need for an accountant.  Laptops enable people to do the work of mid level secretarial workers. So, while there are still high level and low level jobs (such as cleaning, for example0, the middle secretarial or clerical level is quickly disappearing.

On average, in countries with lower productivity (where not much technology is used) people need to work longer hours and the standard of living is lower there as compared with the wealthiest countries of the world

In 1930s, Keynes predicted that in the future the working week would only be 15 hours long, the way the technology was going. ‘Biggest activity will be the invention of new products,’ he said. What we see now is that working hours are falling but still there are many differences between the countries. On average, in countries with lower productivity (where not much technology is used) people need to work longer hours and the standard of living is lower there as compared with the wealthiest countries of the world. The less we work, the more leisure we have. So, leisure becomes a new sort of a good. We buy more leisure as the standard of living is rising. It is not only a voluntary demand for leisure, but also the effect of technology pushing us in this direction when leisure becomes a cheaper good to acquire.

The only exception to this trend is Korea, where the standard of living is rising but they work very long hours – over 40 hours a week. But there is a strong correlation between hourly productivity and the duration of a working week. Germany shows the lowest figure with 25-26 hours and eastern European countries, Russia and Latin America have quite a long working week. These countries need to increase their productivity and reduce their hours of work. So, the more technology is adopted, the more jobs are destroyed, the wealthier people become and the more leisure they can take. In this respect, technology is good.

New jobs in old sectors

This influence of technology does not mean, however, that there will be fewer jobs. New jobs will be created, mostly in service sectors which cannot be automated. Related to this is the phenomenon called the Baumol’s cost disease that describes the situation when salaries in sectors with unchanging productivity rise in response to increases in salaries in other sectors that become more productive. The best example is the arts, a labour intensive sector where productivity will not be rising because it cannot be automated. But the arts will be very expensive because there is productivity growth elsewhere which pushes the cost of services up. Baumol thought that the art would eventually be the only employment for people. However, this is not entirely true as many other jobs cannot be automated, such as lawyers, for instance.

There are also other sectors that will create jobs in the future. All of them fall in the category of labour intensive services that wealthier societies demand: health and care (including elderly care), education (especially, school education because children have to be taught to behave and this cannot be done by robots), hospitality industry and everything related to leisure (including arts, tourism, restaurants, etc), real estate management, household and personal services. In these spheres personal contact is vitally important and humans cannot be replaced by robots in the foreseeable future.

New jobs will be created, mostly in service sectors which cannot be automated

Additionally, in wealthy aging societies rising living standards lead to higher expectations, especially in health and care, so more jobs will be created in this sphere. For instance, in the UK the biggest cause of absenteeism recently has been back pain and depression. This does not mean that British population on the whole has become less health but that people are now more aware of such problems. As for household services and real estate management, more jobs will appear because people become wealthy enough not to ‘bother’ with some chores. Household jobs disappeared in the early 20th century with the invention of various domestic appliances. But now these jobs are coming back, only that new employees are now using new machinery. Their jobs themselves cannot be fully automated. In fact, there are more jobs for cleaners and drivers in London now than some years ago.

So, modern industrial society will have a small dynamic manufacturing sector that will drive productive growth and exports, and a much larger service sector that will provide the jobs. An important issue is persuading people to take service jobs. Perceptions of service jobs have to change to make them more respectable and more attractive. Usually this comes with better pay and public recognition. There are already certain changes in this direction. For instance, chefs become celebrities with  a score of popular tv shows about cooking, personal trainers are now highly skilled qualified people with high rewards, and many footballers have turned into media stars (something unheard of a while ago). The reason is that wealthy societies enjoy good quality from these jobs and pay huge reward to the best performers.

Implications for government policy and education

Certainly, many new labour-intensive jobs will be created by the big companies of the future. For instance, in Apple most employees work in low-skill service jobs involving personal service (such as delivery or repair), because wealthy apple owners demand it and very few people are employed in production& research. Most jobs, however, will be created by SMEs  -  the startups and specialized service providers. These small and medium size enterprises need support, especially in initial finance, tax incentives, and administrative simplicity. This way, SMEs will generate new employment for those people who lost their jobs due to industrial automation.

Modern industrial society will have a small dynamic manufacturing sector that will drive productive growth and exports, and a much larger service sector that will provide the jobs

The fact that most jobs will be in services sector has certain bearing on the education system as well. Traditionally, it prepared people to go into manufacturing or office jobs. Now the focus needs to shift towards jobs with personal contact. School leavers will need training in person-to-person service provision, something that used to be taught in home economics classes, but not anymore. Traditional subjects, especially STEM, will need to be enhanced in order to bring the technology improvements. Everyone needs to be taught science, technology, engineering, and mathematics in order to be able to use and develop new technology. Schools are slow to adapt to these changes but they need to do so.

Rewards from digital successes can be enormous because they are easily transferable across countries –we are open to international trade now. They can make their senior employees extremely wealthy. On the other hand, new digital technologies lead to more inequality because low ranking employees are paid very little. Inequality becomes a major issue. It used to fall with economic development but now it is rising again. Therefore, social policies are needed to avoid poverty in working life – due to low-wage employment, unemployment, disability, etc. Also, the government needs to provide pensions to deal with living standards in older ages, and health care. These will require redistribution through taxation. In order for this system to work, there should be trust in the state that it will spend the money wisely and not squander it. If there is no such trust, people will try to find ways to pay less taxes and the system will not work.