Saturday, July 25, 2015

Automation and Technology Increase Living Standards (and unemployment does not necessarily result)

By James Sherk and Lindsey Burke of The Heritage Foundation.

Many Americans worry that automation will significantly reduce the need for human employees. This is highly unlikely to happen. Automation reduces the need for humans in particular tasks, but employees have historically moved to new or different sectors of the economy as a result. Little evidence suggests this time is different. Technological advances have reduced the demand for employees in routine jobs and increased the demand for employees in non-routine jobs. They have not reduced the need for human labor overall. Further, the rate of automation has slowed over the past decade."

"Lump of Labor Fallacy

Fears of mass technological unemployment are predicated on a “lump of labor” model of the economy—the belief the economy needs a roughly fixed amount of work performed.[4] In this economic model, machines automating work formerly done by people reduce the total amount of work remaining for humans, reducing total employment. Keynes forecast an impending crisis of unwanted leisure. He suggested future societies would establish three-hour workdays to give everyone enough work to avoid boredom.[5]
Almost all economists reject this model today. Economists have found that an almost unlimited amount of potential work exists in the economy because people’s material desires continue to expand. Virtually all Americans today enjoy material living standards vastly better than the wealthy of 1900. Nonetheless, most Americans today would purchase additional goods and services if they received a raise or bonus.

Automation does reduce the human labor needed to produce particular goods and services, but it also reduces production costs. Competition forces firms to pass these savings on to their customers through lower prices. These lower prices lead consumers to buy more of the now less-expensive product and leave them with more money to spend elsewhere, increasing the demand for labor in those sectors of the economy. The amount of work in the economy expands to use the available labor supply.

Economists strongly agree on this point. The University of Chicago recently asked a panel of prominent economists whether they agree that “advancing automation has not historically reduced employment in the United States.” Over three-fourths expressly agreed with that statement, and only one of the economists disagreed.[6]
America’s economic history illustrates how technology reallocates—but does not eliminate—human labor. In 1910, approximately one-third of all Americans worked on farms,[7] food was expensive, and the typical family spent almost half its budget on food. By 1960, technological advances such as the tractor had reduced the proportion of Americans working on farms to well under one-tenth.[8] This transition did not lead to mass unemployment. Instead, former farmhands began working in offices and factories. They enjoyed less expensive food and newly available manufactured goods.[9]"
"Productivity data show that the pace of automation has actually slowed in recent years. Over the past generation the earnings of less-skilled Americans have risen faster than the economy-wide average.

Slow Productivity Growth. Businesses do not appear to be automating human tasks at a faster rate than before. If they were, this would increase measured labor productivity growth."

"computers have great difficulty performing non-routine tasks. Although more fluid algorithms that take into account computer “learning” possibilities are being refined, computers still do what their program tells them to—and nothing else. Computer programmers must specify in detail every contingency that the machine might encounter. What often looks like computers adapting to their surroundings is in fact them following very detailed operating instructions.[18]

Consequently, computers cannot handle many non-routine activities that most people find straightforward. They are simply too complex for their programs to account for every possibility. For example, Autor points out that and other online retailers use human “pickers” to identify, retrieve, and pack the goods that they ship their customers."

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