VoxEU: The macroeconomic effects of automation and the role of Covid-19 in reinforcing their dynamics
Advancing technologies have mainly replaced the routine tasks of low-skilled workers, while the incomes robots generate flow to wealthier capital owners. The current Covid-19 pandemic is likely to reinforce these trends, writes David Bloom and Klaus Prettner for VoxEU.
Automation is rapidly advancing
Over the last decade, automation has increasingly been adopted as a full substitution of capital for labour—as opposed to a standard form of labour-augmenting technological change.
The number of industrial robots increased by a factor of three over the course of a decade, rising from a little over one million operative units in 2010 to a projected 3.15 million units in 2020. Over the same time, robots reportedly became capable of substituting for, or even outperforming, humans for many tasks, such as producing customised parts and medical implants using 3D printing technologies, diagnosing diseases, and assisting decision making, for example, by ‘robot judges’ (Ford 2015, Baldwin 2019, Re and Solow-Niederman 2019).
In a recently-released book (Prettner and Bloom 2020), we explore the theory, evidence, and policy related to the economic and social consequences of the world’s increasing reliance on robots, automated processes, and artificial intelligence.
Automation can be good for growth but not for income inequality
While automation can (and did) improve productivity, per capita output, and living standards in general (see, for example, Brynjolfsson and McAfee 2014, Acemoglu and Restrepo 2018, Graetz and Michaels 2018), two crucial aspects of automation raise concerns: its disproportionate impact on low-skill workers and its overall negative impact with respect to the share of income that goes to labour as opposed to capital. Both of these impacts tend to exacerbate income inequality.
Routine and low-skill tasks continue to be easier for robots to perform than non-routine, high-skill tasks (Arntz et al. 2017, Frey and Osborne 2017, Dauth et al. 2017, Acemoglu and Restrepo 2020). This implies that increases in the number of robots or improvements in their productivity tend to affect low-skilled workers much more adversely than high-skilled workers.
Moreover, high-skilled workers tend to specialise in tasks to which automation is complementary, such as robot design and maintenance, supervision, and management. The differential impact of automation implies that the wages of low-skilled workers might stagnate and even decline in the presence of automation (Lankisch et al. 2019). Simultaneously, high-skilled workers’ wages may rise as a result of automation, potentially increasing wage and income inequality (Piketty 2014, Prettner and Bloom 2020).
A key quote from the article:
The COVID-19 pandemic will likely accelerate the development and implementation of automation technologies because of greater incentives to substitute capital for labour. The reason is that the former is obviously not susceptible to pathogens that affect humans (although they might be quite susceptible to digital pathogens). In addition, working from home might become much more widespread, now that it has been tested on a large scale, acting against the corresponding status quo bias against remote working of firms and bureaucracies.
The full original article first appeared on VoxEU here on 25th June 2020.
Download
Download opinion"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).