New research ‘fears of technological change destroying jobs may be overstated’

Two of the current leading researchers in labor economics studying the impact of machines and automation on jobs have released a new National Bureau of Economic Research (NBER) working paper, The Race Between Machine and Man: Implications of Technology for Growth, Factor Shares and Employment.

The authors, Daron Acemogl  and  Pascual Restrepo  are far from the robot-supporting equivalent of  Statler and Waldorf, the Muppets who heckle from the balcony, unless you consider their heckling is about how so many have overstated the argument of robots taking all the jobs without factual support:

Similar claims have been made, but have not always come true, about previous waves of new technologies… Contrary to the increasingly widespread concerns, our model raises the possibility that rapid automation need not signal the demise of labor, but might simply be a prelude to a phase of new technologies favoring labor.

In The Race Between Machine and Man, the researchers set out to build a conceptual framework, which shows which tasks previously performed, by labor are automated, while at the same time more ‘complex versions of existing tasks’ and new jobs or positions in which labor has a comparative advantage are created.

The authors make several key observations that show as ‘low skilled workers’ are automated out of jobs, the creation of new complex tasks always increases wages, employment and the overall share of labor increases. As jobs are eroded, new jobs, or positions are created which require higher skills in the short term:

Whilst “automation always reduces the share of labor in national income and employment, and may even reduce wages. Conversely, the creation of new complex tasks always increases wages, employment and the share of labor.”

They show, through their analysis, that for each decade since 1980, employment growth has been faster in occupations with greater skill requirements

During the last 30 years, new tasks and new job titles account for a large fraction of U.S. employment growth.

In 2000, about 70% of the workers employed as computer software developers (an occupation employing one million people in the US at the time) held new job titles. Similarly, in 1990 a radiology technician and in 1980 a management analyst were new job titles.

Looking at the potential mismatch between new technologies and the skills needed the authors crucially show that these new highly skilled jobs reflect a significant number of the total employment growth over the period measured as shown in Figure 1:

From 1980 to 2007, total employment in the U.S. grew by 17.5%. About half (8.84%) of this growth is explained by the additional employment growth in occupations with new job titles.

Figure 1

Unfortunately we have known for some time that labor markets are “Pareto efficient; ” that is, no one could be made better off without making anyone worse off. Thus Acemoglu and Restrepo point to research that shows when wages are high for low-skill workers this encourage automation. This automation then leads to promotion or new jobs and higher wages for those with ‘high skills.’

Because new tasks are more complex, the creation may favor high-skill workers. The natural assumption that high-skill workers have a comparative advantage in new complex tasks receives support from the data.

The data shows that those classified as high skilled tend to have more years of schooling.

For instance, the left panel of Figure 7 shows that in each decade since 1980, occupations with more new job titles had higher skill requirements in terms of the average years of schooling among employees at the start of each decade (relative to the rest of the economy).

Figure 7

However it is not all bad news for low skilled workers the right panel of the same figure also shows a pattern of “mean reversion” whereby average years of schooling in these occupations decline in each subsequent decade, most likely, reflecting the fact that new job titles became more open to lower-skilled workers over time.

Our estimates indicate that, although occupations with more new job titles tend to hire more skilled workers initially, this pattern slowly reverts over time. Figure 7 shows that, at the time of their introduction, occupations with 10 percentage points more new job titles hire workers with 0.35 more years of schooling). But our estimates in Column 6 of Table B2 show that this initial difference in the skill requirements of workers slowly vanishes over time. 30 years after their introduction, occupations with 10 percentage points more new job titles hire workers with 0.0411 fewer years of education than the workers hired initially.

Essentially low-skill workers gain relative to capital in the medium run from the creation of new tasks.

Overall the study shows what many have said before, there is a skills gap when new technologies are introduced and those with the wherewithal to invest in learning new skills, either through extra education, on the job training, or self-learning are the ones who will be in high demand as new technologies are implemented.

New research ‘fears of technological change destroying jobs may be overstated’

JULY 28, 2016 9:57 AM / 4 COMMENTSON NEW RESEARCH ‘FEARS OF TECHNOLOGICAL CHANGE DESTROYING JOBS MAY BE OVERSTATED’

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Frank Levy an economist and Professor at MIT and Harvard, who work’s on technology’s impact on jobs and living standards, has written to assay the sensationalized fears of the overhyped study by Frey and Osborne. Levy indicates:

  • The General Proposition – Computers will be subsuming an increasing share of current occupations – is unassailable.
  • The Paper (Frey and Osborne study) is a set of guesses with lots of padding to increase the appearance of “scientific precision.”
  • The authors’ understanding of computer technology appears to be average for economists (= poor for computer scientists). By my personal guess, they are overestimating what current technology can do.

Researchers at the OECD analyzed the Frey and Osborne study and conducted their own research on tasks and jobs and concluded that: “automation was unlikely to destroy large numbers of jobs.”

I have also been quite critical of the Frey and Osborne study based on my understanding of technological advances, which they claim to be way more ahead than it is:

We argue that it is largely already technologically possible to automate almost any task, provided that sufficient amounts of data are gathered for pattern recognition.

With the exception of three bottlenecks, namely:

“Perception and manipulation.”

“Creative intelligence.”

“Social intelligence.”

Frey and Osborne divided the tasks involved in jobs along two dimensions: cognitive vs. manual and non-routine vs. routine. They then identified three aspects (bottlenecks) of a job making it less likely that a computer would be able to replicate the tasks of that job: First, “perception and manipulation” in unpredictable tasks such as handling emergencies, performing medical treatment, and the like. Second, “creative intelligence” such as cooking, drawing, or any other task involving creative values relying on novel combinations of inspiration; Third, “social intelligence”, or the real-time recognition of human emotion.

Race with the machines

Now a new research paper, released in July 2016, by researchers at the Centre for European Economic Research has indicated that technology has in fact had the opposite impact and is a net creator of jobs not destroyer (at least in 27 European countries – and I suspect the same is true for other regions).

The paper, Racing With or Against the Machine? Evidence from Europe by authors Terry Gregory, Anna Salomons, and Ulrich Zierahn (Gregory and Zierahn were also two of the OECD paper authors) looked at the impact of routine replacing technology on jobs and concluded:

Overall, we find that the net effect of routine-replacing technological change (RRTC ) on labor demand has been positive. In particular, our baseline estimates indicate that RRTC has increased labor demand by up to 11.6 million jobs across Europe – a non-negligible effect when compared to a total employment growth of 23 million jobs across these countries over the period considered. Importantly, this does not result from the absence of significant replacement of labor by capital. To the contrary, by performing a decomposition rooted in our theoretical model, we show that RRTC has in fact decreased labor demand by 9.6 million jobs as capital replaces labor in production. However, this has been overcompensated by product demand and spillover effects which have together increased labor demand by some 21 million jobs. As such, fears of technological change destroying jobs may be overstated: at least for European countries over the period considered, we can conclude that labor has been racing with rather than against the machine in spite of these substitution effects.

My research of companies using robots has also categorically shown, through factual evidence, that those companies have created significantly more jobs than have been lost due to technological change. Similarly a detailed analysis prepared for the European Commission Director General of Communications Networks, Content & Technology by Fraunhofer about the impact of robotic systems on employment in the EU found that:

European manufacturing companies do not generally substitute human workforce capital by capital investments in robot technology. On the contrary, it seems that the robots’ positive effects on productivity and total sales are a leverage to stimulate employment growth.

So if robots are not job killers what is the real problem?

We need to fill the skills gap

I have argued before that we have a skills problem. Jobs all over the world are not being filled because of lack of skilled personnel to fill them.

New and emerging technologies both excite and worry. Robotics and Artificial Intelligence (AI) is certainly a minefield for both exuberance and fears.

By definition, there is a knowledge and skills gap during the emerging stages of any new technology, Robotics and AI is no exception: researchers and engineers are still learning about these technologies and their applications. But, in the meantime, hope, fears and hype naturally and irresistibly fill this vacuum of information.

Depending on whom you ask Robots and AI is predicted to help solve the world’s problems. Or by building this devil, these technologies may scorch the earth and fulfill a prophecy of Armageddon.

On the other side, especially with respect to AI, what it will most likely do – if and only if adopted by major corporations and governments — is foster technological and institutional betterment at a frenetic pace through improved health care, solving climate problems, helping those with sight problems, helping to get much needed aid spread more equitably.

We need education and training fitted to a different labour market, with more focus on creativity, flexibility and social skills. We need more Moonshots from Governments and Industry as so well described by Mariana Mazzucato in her book the Entrepreneurial State: Debunking Public vs. Private Sector.

Machines are there to augment human intelligence and ingenuity, to improve our environment and workplace, we need to stop fearing the machines and learn how to better integrate them into our processes, destroy the fears and improve productivity. We are not going to stop technological progress, if we embrace it we are better prepared to gain from it.