Future of Work

The popular view that emerging technologies like Artificial Intelligence (AI), Robotics will dramatically improve our personal and professional lives usually gets contrasted against the threat of the millions of jobs that are at risk from automation. Against this backdrop, a report last year based on a three year study by MIT offers a balanced perspective on the relationship between these emerging technologies and future of work and the labor market.

The report does not see a dystopian future where there are no jobs for majority of the humans but does highlight risks of income inequality and related rifts in society that will grow unless addressed by labor market policies and institutions, improving worker rights and worker training. The key findings of the report are that;

  1. Emerging technologies are both creating new work and replacing existing work and in net leads to more jobs:
    • The bleak future of a jobless future and full automation is not credible and we can hold off on our worst case fears regarding new technologies. Automation saves labor but does not eliminate employment. This is because of 2 main reasons; first it makes workers more productive in tasks that are not automated; secondly automation drives productivity resulting in raising total income for economy and lastly automation creates more jobs. To illustrate their point, the report shows that most (63%) of the jobs that exist today had not been created back in 1940 according to Bureau of Labor Statistics (BLS).
    • The report projects that in next two decades there will be more job openings than workers and robotics and automation will bride that gap. However majority of the new jobs are projected to occur in areas that will pay below median wage.
  2. Impacts of technological change unfold gradually:
    • There are substantial time lags from the birth of an invention to full scale adoption to the extent that it becomes part of mainstream population. However as mentioned in a previous post this time lag of technology adoption has been progressively getting shorter.
    • Most significant effects of technology that are currently impacting labor markets and those which saw a dramatic increase in usage due to Covid-19 have been in existence for at least decades (internet, mobiles and computers) and are not due to robotics and AI.
    • “Top-down” approaches to automation (where the tasks are adapted to the technology) are less successful than “bottom-ups” approach (where workers start with tasks to be done and adapt technology). This is based on viewing the use of AI and Robotics across diverse sectors such as Insurance, Health Care, Manufacturing industries and some of the interesting nuggets of insight in the report are;
      • AI and Robotic applications takes years to mature.
      • Companies can greatly influence how the technologies are adopted and should use to provide and offer guardrails for workers.
      • Small and Medium size companies which make up 98% of manufacturing establishments in U.S have been slow to adopt AI and robotics as they are mainly ‘high-mix/low-volume’ and current automation is still too inflexible to switch from one job to another.
      • RPA has not delivered the expected results due to the heterogeneity of most of the available jobs and inflexibility of RPA. Similarly, deep learning based approaches to automation has not shown their promise within industrial/manufacturing environments.
  3. However the report agrees that increasing use of new technologies have not translated into increase in incomes and have caused income inequality which will exacerbate unless addressed through reforms in labor market institutions and policies:
    • The key issues that the US is facing with the adoption of these new technologies are – poor job quality and stagnant wage growth for majority of labor force and de-coupling of wage growth and rising productivity.
    • In the US over last 4 decades, median wage growth increased by 9% while productivity growth by 66% and this income inequality will continue to grow unless addressed through policy measures. The report notes that this stagnating median wages is primarily driven by fall in wages for those in US without a college degree which peaked at 1980. Use of technology has progressively reduced the need for physical labor and increased demand for cognitive skills which come with a college degree.
    • Unlike the US, other OECD nations which have adopted these technologies and experienced economic growth have also at the same time delivered better results for workers. Low-skill U.S. workers earn only 79% as much as low-skill U.K. workers, only 74% as much as low-skill Canadian workers, and only 57% as much as low-skill Germans. According to the report, US is getting a low return on the income inequality and the majority of the working population is having a significant economic disadvantage which has long term societal negative implications at the cost of higher levels of entrepreneurship, innovation and higher productivity and profitability whose gains are going to very small % of the population.
    • Also, these new technologies tend to complement the work of higher educated workers while eliminating or reducing those jobs which are non-transferable and relatively more repetitive and manual contributing to income inequality.
  4. It is critical to invest both in worker training, job quality, labor market institutions and in integrating them in the innovation process so as not to tear the society apart from income inequality while driving new job creation and economic growth:
    • The last chapter of the report has sound policy recommendations on how to drive innovation while addressing the societal ills that come with high unemployment and high income inequality. On the basis of the above findings, the report makes recommendations for the future;
      • investing in education and training with a view to improving skills throughout a worker’s life
      • improving quality of jobs specially for low paying jobs by providing support for worker representation and strengthening labor market institutions.
      • alongside workers, strengthening role played by employers in fostering productivity
      • expanding and lastly
      • shaping innovation through capital market and tax reforms

These recommendations aim to address “technologically-enabled” health of the future of the U.S labor market and is worthy of of study by innovators, workers, companies and lawmakers.

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