In my 2009 book, The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future, I argued that advancing technology — and especially software automation — would increasingly threaten the jobs taken by college graduates, and might eventually undermine the incentive to attend college. At the time, this was a very unconventional view. Here’s part of what I wrote:
The unfortunate reality, however, is that the college dream is likely at some point to collide with the trends toward offshoring and automation. The fact is that college graduates very often become knowledge workers. These jobs — and in particular more routine or entry level jobs — are at very high risk from automation. The danger is that as these trends accelerate, a college degree will be seen increasingly not as a ticket to a prosperous future, but as a ticket to a job that will very likely vaporize. At some point in the future, the high cost of a college education, together with diminishing prospects for college graduates, is likely to begin having a negative impact on college enrollment. This will be especially true of students coming from more modest backgrounds, but it will have impact at all levels of society.
This is, obviously, a very unconventional view. Most economists and others who study such trends would probably strongly argue exactly the opposite case: that in the future, a college degree will be increasingly valuable and there will be strong demand for well-educated workers.
This is essentially the “skill premium” argument — the idea that technology is creating jobs for highly skilled workers even as it destroys opportunities for the unskilled. I think the evidence clearly shows that this has indeed been the case over the past couple of decades, but I do not think it can continue indefinitely. The reason is simple: machines and computers are advancing in capability and will increasingly invade the realm of the highly educated. We’ll likely see evidence of this at some point in the form of diminished opportunity and unemployment among recent graduates and also among older college-educated workers who lose jobs and are unable to find comparable positions.
We may not see an actual closing of the gap in aver-age pay for college v. non-college graduates because opportunities for workers of all skill levels are likely to be in decline. I am not suggesting that high school graduates who would have otherwise gone to college will choose to remain completely unskilled, but I do think there is likely to be a migration toward relatively skilled blue collar jobs if there is a perception that these occupations offer more security.
As new high school graduates begin to shy away from a course leading to knowledge worker jobs, they will increasingly turn to the trades. As we have seen, jobs for people like auto mechanics, truck drivers, plumbers and so forth are among the most difficult to automate. The result may well be intense competition for these relatively “safe” jobs. As high school graduates who might previously have been college-bound compete instead for trade jobs, they will, of course, end up displacing less academically inclined people who may have been a better fit for those jobs. That will leave even fewer options for a large number of workers.
Economists are now finding hard evidence that this trend has been underway since 2000. In a recently published paper, three Canadian economists argue that there has been a “great reversal in the demand for skill and cognitive tasks.” Here’s part of the abstract for the paper:
Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together.
At present, high percentages of high school graduates are continuing to enroll in college, often taking on punishing levels of debt in the process. As nearly any recent college graduate knows, many of these people are ending up working in lower wage service jobs (Baristas for example). I think it is entirely possible that future high school graduates will begin to look at these outcomes begin shying away from college.
Inexpensive online education may offer a partial solution, but it won’t necessarily address the fact that the most important incentive for seeking further education is being undermined. If there is no job waiting after all that work, a great many people probably won’t be motivated to make the investment, and the result may be a less educated population. In a world that is becoming increasingly complex and connected, and in a future that will hold unprecedented global challenges, the last thing we need is an an even less informed and educated population and electorate.
I think this is perhaps one of the greatest challenge we will face in the future. As technology destroys both high and low skill jobs, the conventional solutions — nearly all of which tend to emphasize still more education and more training — are very likely to be ineffective. A great many people will do all the right things but nonetheless fail to find a foothold in the economy of the future. What will we do then?
Robot Co-workers – The Economist
Real Robot Talk – The Economist
Jobs for People to Assist Algorithms – NY Times
Could this Robot Save Your Job? (no)- NPR
IBM Watson to Pass the Medical Licensing Exam – Computerworld
Cloud Based Brain for Robots - Gigaom
Rise of the Robots beyond the Assembly Line – Seattle Times
Telepresence Robots – The Economist
Robotic Sorter – Singularity Hub
Robots will Steal your Job, but that’s Ok (book — I’m not so sure it will be ok…) – Federico Pistono
Definitely not ok: How AI (and a few other things) could wipe us all out – aeon Magazine
The Robots are Coming – The Washington Post
A multi-part series from the Associated Press:
- Recession, Technology Kill Middle Class Jobs
- Can Smart Machines Do Your Job?
- Imagining a Future where Machines have all the Jobs (I think this makes me sound a bit more pessimistic than I am…)
- Will Smart Machines Create a World Without Work?
Autonomous Healthcare Robots - Singularity Hub
Robot Serves Up 360 Hamburgers per Hour – Singularity Hub
British Army using Micro-Drones in Afganistan – TechCrunch
March of the Machines – CBS, 60 Minutes
Paul Krugman has recently taken a keen interest in the rise of robots and automation — an issue that I have been focusing on since the publication of my book on this subject back in 2009.
In a recent post, Krugman says the following:
Smart machines may make higher GDP possible, but also reduce the demand for people — including smart people. So we could be looking at a society that grows ever richer, but in which all the gains in wealth accrue to whoever owns the robots.
I think there is a fundamental problem with this way of thinking: as jobs and incomes are relentlessly automated away, the bulk of consumers will lack the income necessary to drive the demand that is critical to economic growth.
Every product and service produced by the economy ultimately gets purchased (consumed) by someone. In economic terms, “demand” means a desire or need for something — backed by the ability and willingness to pay for it. There are only two entities that create final demand for products and services: individual people and governments. (And we know that government can’t be the demand solution in the long run). Individual consumer spending is typically around 70% of GDP in the United States.
Of course, businesses also purchase things, but that is NOT final demand. Businesses buy inputs that are used to produce something else. If there is no demand for what the business is producing, it will shut down and stop buying inputs. A business may sell to another business, but somewhere down the line, that chain has to end at a person (or a government) buying something just because they want it or need it.
The point here is that a worker is also a consumer (and may support other consumers). These people drive final demand. When a worker is replaced by a machine, that machine does not go out and consume. The machine may use energy, resources and spare parts, but again, those are business inputs—not final demand. If there is no one to buy what the machine is producing, it will get shut down. Think of on industrial robot being used by an auto manufacturer. The robot will not continue running if no one is buying cars.*
So if we automate all the jobs, or most of the jobs, or if we drive wages so low that very few people have any discretionary income, then it is difficult to see how a modern mass-market economy can continue to thrive. (This is the primary focus of my book, The Lights in the Tunnel).
There is plenty of evidence that consumers are already struggling with the structural shift occurring in the economy. The years leading up to the current economic crisis were, of course, characterized by people consuming on the basis of debt rather than income. A just-released report shows that an ever increasing number of Americans are raiding their retirement accounts to pay current bills.
Does Paul Krugman really believe that it is possible to have a “society that grows ever richer” while a tiny number of robot owners hoover up more and more of total income — and the jobless masses consume the output by running up their credit cards or cashing in their 401(k)s?
The point is that the robot revolution is not just about income inequality. It will ultimately impact the sustainability of economic growth.
Innovation requires the existence of a market. New ideas will not receive the necessary backing if investors do not anticipate healthy market demand. A future with a dearth of viable consumers will be a far more zero-sum future. It will mean less of the type of innovation we associate with Steve Jobs — and more of the type you would find at Goldman Sachs.
One of the main points I make in my book is that I think we will ultimately have to treat the market itself as a kind of renewable resource. Jobs and wages have historically been the primary mechanism that redistributes income (and purchasing power) from producers back to consumers. Widespread reliance on robots and automation may ultimately cause that mechanism to break down — and that will be a threat to continued prosperity.
So what is the solution? In the long run, I think there will be no alternative except to implement direct redistribution of income. One possibility is a guaranteed minimum income funded by more progressive taxes (on the robot owners), and possibly by other sources (for example, a carbon tax).
It goes without saying that implementing such a solution would be an enormous social and political challenge. And it will intertwine with the other major problems we face. Meaningful action on climate change, for example, will become even more difficult in world where much of the population is increasingly focused on individual income continuity.
Make no mistake, responding to the impact that accelerating technology has on the job market could turn out to be one of the defining challenges for our generation.
* Not all robots are used in production, of course. There are also consumer robots. If you own a toy robot, it may “consume” batteries. However, in economic terms, YOU are the consumer — not the robot. You need a job/income or you won’t be able to buy batteries for your robot. Robots do not drive final consumption — people do.
Update: Rise of the Robots – Paul Krugman, NY Times.
Advances in Deep Learning (Neural Networks) – John Markoff, NY Times.
Series on AI / Brain Science – Gary Marcus, New Yorker
Are Droids Taking our Jobs? – Andrew McAfee, TED
How to Invest in an Automated Economy – ABC News
Robots Taking Jobs – Techonomy
More on Momentum Machines (with a photo a robot-constructed burger – Looks more 5 Guys than McDonald’s) – Huffington Post
A Vine-Pruning Robot - Singularity Hub
“Foxbots” arriving at Foxconn’s Chinese Factories – Singularity Hub
Watson-mobile – Business Week
Technology will Replace 80% of What Doctors Do – Vinod Khosla, Fortune
(also see: Dr. Watson: How IBM’s supercomputer could improve health care – Washington Post)
Back in June, I wrote a post suggesting that fast food automation could potentially have a dramatic impact on low-wage jobs:
Millions of people hold low-wage, often part-time jobs in the fast food industry. Historically, low wages, few benefits and a high turnover rate have helped to make fast food openings relatively abundant. These jobs, together with other low-skill positions in retail, provide a kind of safety net for workers with few other options.
In the current economic environment, these jobs are, of course, much harder to get. McDonald’s recent high-profile initiative to hire 50,000 new workers resulted in over a million applications — numbers that give McDonald’s a lower acceptance rate than Harvard.
What about the future? Most forecasts assume that the fast food industry will continue to be a significant job creator. The Bureau of Labor Statistics ranks food preparation as one of the top four fastest-growing occupations, and that trend is expected to continue at least through 2018. Is it possible that these projections miss the impact of technology? Could these jobs begin to disappear?
Increased automation in fast food and beverage providers is likely to someday offer increased convenience, speed, and ordering accuracy. Robotic food preparation could also be viewed as more hygienic as fewer workers come into contact with food. And of course, price will ultimately be the determining factor … If jobs in the fast food industry start to disappear, or even if the rate of job growth slows significantly, the implications for the workers that depend on these jobs of last resort will be dire. There may be few other alternatives for workers at that skill level, especially since other low-wage retail jobs may be similarly threatened.
Momentum Machines is a new San Francisco-based start-up that is planning to automate the burger production process. The company’s website claims its robot will save the average restaurant $135K/year in wages and overhead and that the machine will pay for itself in one year.
One news story notes that the company
… has developed a robot designed to take the place of humans in burger restaurants. Its creators believe their patty-flipping Alpha robot could save the fast-food industry in the United States about US$9 billion (Dh33.05bn) a year. Designed to entirely replace two to three full-time kitchen staff, it can grill a beef patty, layer it with lettuce, tomatoes, pickles and onions, put it in a bun, and wrap it up to go – no less than 360 times an hour. Momentum believes kitchen robots are not only more cost-effective than human staff, they are also more hygienic.
Momentum Machines is a tiny company that has just emerged from start-up incubator Lemos Labs. However, I think it is very likely that we’ll see soon see a lot more interest in this area from both start-ups and larger companies. If one of the major fast food chains gains a competitive advantage with technology like this, the entire industry will have to follow suit — and it could happen quite rapidly.
Here’s another good article at Xconomy (thanks to commentor “wjtgpf”). Includes a great quote from a company co-founder:
“Our device isn’t meant to make employees more efficient,” said co-founder Alexandros Vardakostas. “It’s meant to completely obviate them.”
Alexandros might want to take some lessons in how to spin things from Jeff Burnstein of the Robotic Industries Association…
The graph below, based on data from the Federal Reserve Bank of St. Louis, shows manufacturing employment in the United States as a fraction of all employment. As you can see, the line heads downward in an almost perfectly straight line beginning in the mid-1950s. Notice that the line doesn’t become steeper as globalization takes hold after the passage of NAFTA in 1994 or the rise of China over the past decade or so. The line just slopes consistently downward.
This is primarily the result of technology, and in particular, automation. Manufacturing in the U.S. has become dramatically more productive and requires fewer workers. If we were to graph manufacturing output (rather than jobs), the line would slope upward, not downward. The value of U.S. manufacturing production is now far greater than it was in industrial era of the 1950s, even after adjusting for inflation. We just make all that stuff with a lot fewer people.
One of the most interesting things about the graph above is that, if technology is the primary driver, then employment in China must inevitably follow the same path. In fact, there are good reasons to believe that manufacturing employment’s downward slope will be significantly steeper for China. The U.S. had to invent the technology to make manufacturing more productive, while in many cases China only needs to import it from more developed nations. It is also true that China is beginning its journey at a time when information technology (which is the primary enabler of automation) is many orders of magnitude more advanced than in the 1950s when U.S. manufacturing employment was at its peak. (See this recent article on skilled robots from the New York Times).
In the U.S. (as well as in other advanced countries), workers shifted out of manufacturing and into the service sector — which now accounts for the vast majority of jobs. Will China be able to pull off the same transition?
The U.S. had the luxury of building a strong middle class during an earlier time. Technology was advancing consistently and increasing productivity, but it was not so advanced as to create a mismatch between the type of available jobs and the skills of workers. Unionization was strong in the private sector and helped ensure that the lion’s share of productivity increases ended up in workers’ (rather that corporate owners’) pockets. Those workers, in turn, became the broad-based consumer class that purchased the output from all those factories and kept the overall economy humming.
The situation in China is quite different. Consumer spending accounts for only about a third of China’s GDP (as opposed to 60% or more in nearly all developed countries). While China has built a significant middle class in absolute terms, it remains small as a percentage of the country’s huge population.
Workers enjoy few of the rights and protections that characterized the U.S. workforce of the 1950s. As I wrote in my book, The Lights in the Tunnel:
The [Chinese] government actively enforces discrimination that tends to drive wages even lower. Much of the work in China’s factories is performed by migrant workers who officially live in the countryside but are allowed to come to cities or industrial regions to work. These workers typically live in factory dormitories and do not have the right to bring their families to the cities or to genuinely assimilate into an urban middle class. Wages for these workers are far lower than for urban dwellers, and the money that they do earn is for the most part either saved or sent home to help support their families. These workers are not in a position to become major drivers of local consumption any time soon.
According to the New York Times, those worker dormitories apparently play an important role in Apple’s (or Foxconn’s) ability to bring production online at any time of the night or day:
A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.
Even that level of worker availability and efficiency isn’t enough for Foxconn, which recently announced the introduction of huge numbers of robots. That may be a great way to drive production, but it’s hard to see how China will succeed in dramatically shifting its economy toward domestic consumption.
And that has to happen before a shift to a service economy can take place. As consumers become more wealthy they begin to spend a larger fraction of their incomes on services — things like banking, insurance, healthcare, education, entertainment and travel — and that in turn drives service sector employment. At least that has been the path followed in other developed countries.
In the absence of consumer spending, China’s economy remains highly dependent on manufacturing exports and, especially, on fixed investment. An astonishing 50% of China’s GDP is driven by investment in things like factories, housing and infrastructure (the U.S. figure is around 15%). The problem is that all that investment has to ultimately pay for itself, and that happens via consumption. Once a factory is built it has to then produce something that gets sold at a profit. Homes, retail buildings and apartment complexes likewise have to be sold or rented out. Obviously, no economy can indefinitely invest anything like 50% of its output without eventually finding a way to get a positive return on that investment.
Achieving that return requires consumers — either at home or abroad. China continues to rely heavily on consumers in the U.S. and Europe, but that’s unlikely to be a sustainable formula for growth. The debt crisis and the resulting austerity is cutting into economic growth and consumer spending in both Europe and the U.S.
As manufacturing automation increases (perhaps dramatically) in China, in the U. S. and other developed countries the most disruptive impact from technology will be in the service sector — where millions of white collar jobs and service jobs in retail, distribution, food service and other areas may ultimately be at risk. After all, if robots can build an iPhone, then its a good bet that they will also someday be able to build a hamburger or mix a latte. The result may be continuing high unemployment, stagnant wages and tepid consumer spending throughout much of the developed world.
The real problem China faces is that it is late to the party. Just as it reaches its manufacturing employment zenith, it faces a potentially disruptive impact from automation technology. And that will happen roughly in parallel with similar transitions in the service sectors of the countries that currently consume much of its output. In the face of that, can China succeed in re-balancing its economy toward consumption, increasing personal incomes, and building a vibrant service sector to keep its population employed?