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The Unique U-Shaped Effect of Automation on Today’s Labor

  • Dave Turbide
March/April 2017

Automation continues to be a very significant factor in the loss of manufacturing jobs. Ever-increasing productivity is a two-edged sword as fewer workers are needed to produce more goods. The simple truth is that this long-standing trend likely will accelerate. Robots are increasingly replacing factory workers, especially those who perform repetitive activities. In fact, a recent report from Oxford University, “The Future of Employment,” says that robots will replace nearly half of all jobs within the next two decades—and that’s not just factory jobs. Skilled workers including lawyers, pilots, doctors, and accountants also are facing competition from robots and artificial intelligence.

Now, the other side of this coin is the fact that advancing technology also creates jobs. The question is whether these new positions will be plentiful enough to absorb the available labor, especially the people who were displaced by the technology in the first place.

In “The Future of Employment,” authors Carl Benedikt Frey and Michael Osborne report on their efforts to analyze historical experience with technological innovation and the resulting shifts in jobs and wages. Among their observations, they include: “Throughout history, technological progress has vastly shifted the composition of employment, from agriculture and the artisan shop, to manufacturing and clerking, to service and management occupations. Yet the concern over technological unemployment has proven to be exaggerated.”

They add that an increase in production efficiency that reduces the price of one good will increase real income and thus increase demand for other goods. Therefore, technological progress has two competing effects on employment. First, as a new tool such as automation substitutes for human labor, there is a destruction effect that requires workers to reallocate their labor supply. Second, there is the capitalization effect as more companies enter industries in which productivity is relatively high. This causes employment in those sectors to expand.

Interestingly, the report also notes that workers being displaced today often have the opportunity to cross-train and learn about more promising fields, yet many still settle for low-wage service jobs—particularly those that are unlikely to be replaced by automation any time soon. Frey and Osborne say this results in an increasingly polarized labor market, with growing employment in high-income, cognitive jobs and low-income, manual occupations, accompanied by a hollowing out of middle-income, routine jobs. This then creates a U-shaped distribution of job opportunities.

Avoiding the gully

Industries and labor markets are always shifting. Many positions that people hold today simply did not exist 10 or 20 years ago or are radically different in nature than they were before. Technology often is the driver of such transformation, and the pace of technological change will only continue to surge. Of course, nobody knows the final effect of automation and robots on manufacturing—if there even is a quantifiable and measurable final effect— and when, if ever, this trend will slow. We do know, however, that people’s skills and talents will have to grow and adapt as jobs are created and eliminated.

The bottom line is that there still is ample opportunity for workers to acclimate and thrive, as long as people are willing and able to change. Otherwise, it is likely that their earning potentials will unfortunately fall down the ravine of that U-shaped labor market graph.

Dave Turbide, CFPIM, CIRM, CSCP, CMfgE, is a New Hampshire-based independent consultant and freelance writer and president of the APICS Granite State Chapter. He also is a Certified in Production and Inventory Management and Certified Supply Chain Professional master instructor and The Fresh Connection trainer. Turbide may be contacted at dave@ daveturbide.com.

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