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The Biggest Threat To The Low And Middle Skilled Worker: Robots

US non-supervisory workers have seen better days. In addition to facing declining wage growth while higher ups’ pay steadily increases, there are grossly underfunded pension plans with an equally underfunded pension guarantee system to deal with, on top of a central bank that seems intent on enriching the few at the expense of the many by deliberately inflating the value of the assets most likely to be held by the rich while driving returns on everything else to near zero. But as we’ve noted in the past, there may be an even bigger threat to the manufacturing workers of the world: robots. 

Here’s more from VOX:

We find that industrial robots increase labour productivity, total factor productivity, and wages. At the same time, while industrial robots had no significant effect on total hours worked, there is some evidence that they reduced the employment of low skilled workers, and to a lesser extent also middle skilled workers…

 

Rapid technological change reduced the prices of industrial robots (adjusted for changes in quality) by around 80% during our sample period. Unsurprisingly, robots use grew dramatically. From 1993-2007, the ratio of the number of robots to hours worked increased on average by about 150%. The rise in robot use was particularly pronounced in Germany, Denmark, and Italy. The industries that increased robot use most rapidly were the producers of transportation equipment, chemical industries, and metal industries…

And as it turns out, robots may not be getting the credit they deserve relative to comparable innovations of the past…

We conservatively calculate that on average, the increased use of robots contributed about 0.37 percentage points to the annual GDP growth, which accounts for more than one tenth of total GDP growth over this period.  The contribution to labour productivity growth was about 0.36 percentage points, accounting for one sixth of productivity growth. This makes robots’ contribution to the aggregate economy roughly on par with previous important technologies, such as the railroads in the nineteenth century (Crafts 2004) and the US highways in the twentieth century (Fernald 1999). The effects are also fairly comparable to the recent contributions of information and communication technologies (ICT, see e.g. O’Mahoney and Timmer 2009). But it is worth noting that robots make up just over two percent of capital, which is much less than previous technological drivers of growth. 

...which may be bad news for non-supervisory human workers…

In summary, we find that industrial robots made significant contributions to labour productivity and aggregate growth, and also increased wages and total factor productivity. While fears that robots destroy jobs at a large scale have not materialized, we find some evidence that robots reduced low- and middle-skilled workers’ employment.

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We'll leave you with one question, two charts, and one quote from Goldman circa 2012: 

Correlation or causation? 

 

We think the sticky unemployment we are seeing in the US and in Europe has a lot to with jobs permanently eliminated by technology. The average duration of unemployment in the US has never been as high as in this downturn, and this follows the relentless export of jobs to lower-cost countries over the past decade or so, making it particularly painful (and for a period slowing down the penetration of automation). And, ceteris paribus, you could envision a world dominated by a machine-to-machine economy, where most things are done by intelligent technology, leaving only highly skilled people with the lion’s share of the limited jobs. This would lead to further income inequality.