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LABOUR ECONOMICS TERM PAPER

Aditya Vir Singh, Suryan Uppalapati & Daksh Nagpal

UG2, Flame University, Pune

ECON207 – Labour Economics

Prof. Rupa Korde

April 4, 2022
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TOPIC - Technology and the future of Labour markets

TENTATIVE RESEARCH QUESTIONS - How has technological advancements displaced the

labour market and what will be the new/alternative employment options?

AIM OF THE RESEARCH PAPER -

1. To find out the link between technological advancements and the rise in
unemployment.
2. To determine the extent of displacement caused by increasing automation.
3. To identify the new/alternate employment options for the workforce.

CONTENT

Today’s world is a digital age world. Technology as a whole has disrupted our lifestyle, the
way we work, the way things are done and what not! In the context of the labour markets,
technology has revolutionized the way the labour markets operate. Rising automation,
enhanced technology, advanced facilities and the advent of artificial intelligence in the field
of labour economics has caused a lot of disruption and displacement in the labour markets.
Different skills are being required to continue in the labour market than what were earlier
used. Machines are replacing the workforce and people are being rendered unemployed.
This advancement in technology has had a dual impact. On one side, we have been able to
achieve higher scales of production and more sophisticated working techniques with
increased automation. But on the other side, the problem of unemployment has seen a
significant increase and continues to be threatened by technology. Many people are losing
jobs as companies are moving towards capital-intensive techniques of production.

What are technological advancements? Technology can be broadly defined as "the state of
knowledge concerning ways of converting resources into outputs" (OECD, 2011a) or as the
"machinery and equipment developed from the application of scientific knowledge" (Oxford
English Dictionary). There are two types of processes involved in producing a new
technology: invention and innovation. Invention involves the formulation of scientific
principles or processes. Innovation entails the direct application of this knowledge to a
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useful purpose in response to presumed profit opportunities. Technology has the potential
to replace human workers in the labour markets. Technologies like machines and Artificial
Intelligence have already caused a lot of disruption in the workforce. In fact, there is a
particular concept called technological unemployment. Technological unemployment occurs
when developments in technology and working practices cause some workers to lose their
jobs. This type of unemployment is considered to be part of a wider concept known as
structural unemployment. By making some products or production processes obsolete, and
by creating new products or expanding demand for products that are continuously
innovated, technological change is necessarily associated with the reallocation of labour
across and within sectors and firms.

Advancements in smart technology, artificial intelligence and robotics are taking place at a
very high pace. These technologies are the biggest threat to the workforce. With smart
technology, work is performed by machines and automated lines which do not require much
human intervention or inputs. As a result, human employment level is very low and machine
employment is high. Artificial Intelligence (AI) is the ability of a computer or a robot
controlled by a computer to do tasks that are usually done by humans because they require
human intelligence. Robotics is the branch of technology that deals with the design,
construction, operation, and application of robots. Clearly all the above-mentioned
technologies have a direct negative impact on human employment level and the workforce.
It sort of establishes a link between technological advancements and the rise in the level of
unemployment.

Science-related technologies such as robotics, information technology, and others emerging

out of the sciences offer the prospect of increased productivity and, thus, economic growth.
Even though technology has made life easier for people, it has created a lot of problems for
people and threatened job security especially to the low-skilled labour thereby directly
affecting the economy. Construction, Trading, Retail, and Graduate Jobs have been the
hardest hit sectors. Companies prefer already trained employees with quality skills and
experience, leaving many unemployed. Additionally, machines developed from technology
do not create jobs but definitely eradicate the need for human labour. Since technology is
advancing so rapidly, organizations are finding it difficult to keep up. It has rather displaced
people.In a technologically advancing age and high-end technologies, we are being
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introduced to latest technology almost in all sectors of life especially business processes in
order to improve efficiency, which will also help corporations increase productivity.
However, people have recurrent fears of mass unemployment since the dawn of the
industrial age, fearing that technological advancement will lead to mass unemployment in
the near future. All of the greatest technological advances, starting with the Industrial
Revolution, have been accompanied by a fear of technological unemployment and the
resulting churning in labour markets. In 1800, the majority of British workers were
employed in agriculture. Labour-saving technology meant that food could be produced with
fewer workers and so many agricultural labourers lost their jobs as farms used more
machines. There is a common consent that technological change and advancement always
affect labour by changing the job mix and skill demand. The adoption of new technology
makes a few traditional skills and jobs unessential thereby creating the demand for a new
set of skills, leading to a labour market disequilibrium which could result in higher wage
inequality.

While there is a growing literature on the potential impact of automation and artificial
intelligence on the labour market in developed economies, the impact in developing
countries has received much less attention. The few occupation-based studies that estimate
the share of employment at risk of automation in developing countries conclude that the
latter have a larger share of employment in routine occupations that could be automated
and computerized (World Bank, 2016; Citibank, 2016). Yet, as pointed out in World Bank
(2016), the impact of automation on the labour market of developing countries could occur
later and be slower for two main reasons. First, although the speed of technology adoption
has increased in developing countries, it remains slower than in developed countries.
Second, lower wages and a relatively high share of manual non-routine jobs, which are
currently more difficult to automate, could make investment in automation in developing
countries less profitable (at least in the short run).

At a very fundamental level, automation is the technology that enables machines to

accomplish tasks with little or no human interaction. The idea is to relieve people from
tedious, repetitive activities that computers can already do better and more efficiently, so
that we can focus our efforts on more complex creative issues. There are pros and cons to
automation just like anything else. The advantages of automation include - higher
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production rates and productivity, more effective material utilization, improved product
quality, greater reliability, shorter labour workweeks, and shorter manufacturing lead times.
(Britannica). Despite promises of excellent quality from human craftsmanship, automated
systems often complete the production process with less variation than human employees,
leading to increased accuracy and uniformity of quality product. Furthermore, improved
process control helps in effective use of resources, leading in far less scrap.

Automation as of today is “an ever-present engine in various fields. It enables the high
bandwidth and low latency 5G requires for the effective use of drones and self-driving cars,
for example. It’s needed to operate farm tools and program robots that deliver prescriptions
at pharmacies. It controls cloud robotic arms and Internet of Things components. And it is
key for security of networks and services to protect users and data from cyber-attacks.
Simply put, it is essential to operating cutting-edge technologies in this age of the fourth
industrial revolution.” (weforum.org). Is automation necessarily a bad change? As any prior
automation process has taught us, it is not replacing an individual's ability to work, but
rather replacing a specific duty and, in most situations, giving that individual the opportunity
to focus on something better. But is this the true scenario? Machines replacing humans in
the workplace has been a constant source of anxiety since the Industrial Revolution, and it
has become a more prominent topic of discussion in recent decades with the advent of
automation. However, thus far, hype has overshadowed evidence regarding how
automation, particularly robots that do not require humans to operate, affects employment
and pay.

“Researchers have found that for every robot added per 1,000 workers in the U.S., wages
decline by 0.42% and the employment-to-population ratio goes down by 0.2 percentage
points — to date, this means the loss of about 400,000 jobs. The impact is more sizable
within the areas where robots are deployed: adding one more robot in a commuting zone
(geographic areas used for economic analysis) reduces employment by six workers in that
area. To conduct their research, the economists created a model in which robots and
workers compete for the production of certain tasks.” (mitsloan.mit.edu). Acemoglu said.
“Our evidence shows that robots increase productivity. They are very important for
continued growth and for firms, but at the same time they destroy jobs and they reduce
labour demand. Those effects of robots also need to be taken into account.”
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(mitsloan.mit.edu). Technological advancements have a negative impact on wages and

employment due to the displacement effect, in which robots or other automation do
functions previously performed by workers. Technology can also increase productivity by
making tasks easier to accomplish or by introducing new occupations and tasks for workers.
“The researchers said automation technologies always create both displacement and
productivity effects, but robots create a stronger displacement effect.” (mitsloan.mit.edu).
Another research done has proven that “47% of people employed in the US are at risk of
being replaced by machines and 35% of jobs in the UK may similarly be threatened – with
even higher threats in developing countries, with two thirds of jobs at risk of being
automated.” (BBC). We often think of low-wage, low-skill positions, such as warehouse
labourers or cashiers, as being the most vulnerable to automation, but automation may also
affect middle-income jobs, such as clerks, chefs, office employees, security guards, junior
lawyers, and inspectors.

By 2025, automation and a new division of labour between humans and machines will have
disrupted 85 million employments in medium and big firms across 15 industries and 26
economies throughout the world. Roles such as data entry, accounting, and administrative
assistance are becoming less in demand as workplace automation and digitization expand.
More than 80% of corporate executives are speeding up plans to digitise work processes
and adopt new technology, and 50% of employers anticipate to speed up the automation of
specific functions in their organisations. In contrast to prior years, employment creation is
presently stalling, while job destruction is picking up speed. (weforum.org).

It's a question that has triggered debate for centuries: What impact will new technologies
and automation have on the availability of human labour, our standard of living and jobs?
The prospect of technology eliminating employment opportunities is not one to brush off
lightly. The report concludes that these technological advances will expose a large part of
the workforce to unemployment and relegate it to low-wage positions, while the highly
skilled minority will enjoy the benefits of higher productivity. The result is a widening gap
between rich and poor and an increase in animosity towards immigrants, who are
increasingly perceived as threats to jobs. (Acemoglu & Restrepo, 2019). Acemoglu and
Restrepo also find that technology doesn't eliminate all forms of jobs - instead, it creates
new ones. "In the future, technology will complement rather than replace human
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capability". However, the report acknowledges that technology alone cannot resolve these
challenges. It requires "political and social strategies" to address their consequences.
(Acemoglu & Restrepo, 2019). Other researchers have been more pessimistic in their
assessment of the range of jobs and of their prospects for survival. Unemployment rises
sharply when there is no automation; even when technological advances do create new
jobs, levels of unemployment are still high.

In the current debate, the question of how future technological developments will affect
employment is rarely raised. Instead, the focus is almost always on its impact on wages, the
standard of living and job availability. This is understandable to some extent - technology
affects our quality of life in more tangible ways than jobs - but it's not enough. Robotics and
machine learning will make significant strides into activities that currently have a limited
technical potential for automation as technology advances. In what are currently deemed
unexpected circumstances, new strategies, for example, are enabling safer and more
advanced physical collaboration between robots and people. More activities in areas like
construction could be automated as a result of these improvements. In engineer-heavy
industries, artificial intelligence can be utilised to develop components. Several strategies, ,
can be used to avoid or reduce technological unemployment. One of these strategies is
supplementing workers instead of replacing them. This is not practical or desirable in every
single role. Augmentation may offer the benefit of allowing for a longer period of
adjustment for workers in circumstances where it can be used as a step between total
automation. Throughout history, technological progress has not resulted in long-term
unemployment, despite the fact that it has caused significant labour market disruptions
while workers were forced to change and adapt. Previous waves of technological progress
resulted in workforce reductions in certain economic sectors while increases in others,
balancing the labour market. As a result, technical advancement has fuelled economic
growth and increased the quantity and quality of jobs in the long run.
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REFERENCES

Technological unemployment. (n.d.). Retrieved April 4, 2022, from

https://www.economicshelp.org/blog/glossary/technological-unemployment/

“A New Study Measures the Actual Impact of Robots on Jobs. It’s Significant.” MIT
Sloan, https://mitsloan.mit.edu/ideas-made-to-matter/a-new-study-measures-actual-
impact-robots-jobs-its-significant.

Automation - Advantages and Disadvantages of Automation | Britannica.

https://www.britannica.com/technology/automation/Advantages-and-disadvantages-of-
automation.

Gray, Richard. How Automation Will Affect You – the Experts’ View.
https://www.bbc.com/future/article/20170522-how-automation-will-affect-you-the-
experts-view.

How Will Automation Affect Jobs, Skills, and Wages? | McKinsey.

https://www.mckinsey.com/featured-insights/future-of-work/how-will-automation-affect-
jobs-skills-and-wages.

“Mounting a Response to Technological Unemployment.” The Century Foundation,

26 Apr. 2018, https://tcf.org/content/report/mounting-response-technological-
unemployment/.

“Recession and Automation Changes Our Future of Work, But There Are Jobs
Coming, Report Says.” World Economic Forum,
https://www.weforum.org/press/2020/10/recession-and-automation-changes-our-future-
of-work-but-there-are-jobs-coming-report-says-52c5162fce/.

“The Rise in Automation and What It Means for the Future.” World Economic Forum,
https://www.weforum.org/agenda/2021/04/the-rise-in-automation-and-what-it-means-for-
the-future/.

Lima, Y., Barbosa, C. E., Dos Santos, H. S., & De Souza, J. M. (2021). Understanding
technological unemployment: A review of causes, consequences, and solutions. Societies,
11(2), 50. doi:10.3390/soc11020050
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Acemoglu, D., & Restrepo, P. (2019). Automation and new tasks: How technology
displaces and Reinstates Labor. doi:10.3386/w25684