The prospect of automation, or more generally huge productivity improvements in different sectors of the economy, has a lot of people worried that millions of people will lose their jobs over the course of the next century. What will all the taxi drivers do, the reasoning goes, when driver-less cars are perfected? Alternatively, what happens to all the manufacturing workers when automation makes their jobs obsolete?
This line of thinking has a serious problem: it assumes that aggregate demand for goods and services remains constant in the face of productivity improvements. Normally this won't be the case, because people generally want more, or at least better, stuff. If productivity improvements mean that society can now produce a 4k TV with half the amount of labor as it could two years ago, people will probably start buying more 4k TV's. Of course, some goods are inferior goods (people buy less of them as their incomes increase), but in aggregate Say's Law -- that supply creates its own demand -- seems to ring true, at least in the long run.
Maybe, at some point in the future, economy-wide productivity will be so high that people consciously choose to work fewer hours, or some parents will choose to stay at home instead of work full-time, but this would be nothing to worry about. In this case, lower employment is just the consequence of people acting in their best interests. With much higher wages, people can afford to spend more time doing leisurely activities, which they very well might prefer to more income.
Fear about automation is not entirely unfounded, though. In many industries, such as manufacturing, demand really does reach a ceiling -- each person only wants to buy so many refrigerators, for instance. This is part of the reason that manufacturing employment has fallen from over 17 million in 2000 to about 12 million last year. At some point, demand for certain goods and services stops growing with income.
People who formerly had well-paying manufacturing jobs might be forced to take a low-paying service sector job, meaning that they will end up with a real pay cut while most consumers reap the benefits of cheaper manufactured goods. At this point, though, the problem is no longer about people losing jobs; it's about distribution of income. Policies that increase incomes for people who work in the service sector -- whether they take the form of direct transfers, minimum wage increases, or something else -- would go a long way toward solving the problem posed by technological enhancements or productivity growth.
Needless to say, at least for the foreseeable future, automation need not necessarily be that big of a concern. We shouldn't worry about millions of people losing their jobs; they will probably find work elsewhere. Instead, we need to make sure that no one is left behind as we steadily proceed toward a world without scarcity.
This line of thinking has a serious problem: it assumes that aggregate demand for goods and services remains constant in the face of productivity improvements. Normally this won't be the case, because people generally want more, or at least better, stuff. If productivity improvements mean that society can now produce a 4k TV with half the amount of labor as it could two years ago, people will probably start buying more 4k TV's. Of course, some goods are inferior goods (people buy less of them as their incomes increase), but in aggregate Say's Law -- that supply creates its own demand -- seems to ring true, at least in the long run.
Maybe, at some point in the future, economy-wide productivity will be so high that people consciously choose to work fewer hours, or some parents will choose to stay at home instead of work full-time, but this would be nothing to worry about. In this case, lower employment is just the consequence of people acting in their best interests. With much higher wages, people can afford to spend more time doing leisurely activities, which they very well might prefer to more income.
Fear about automation is not entirely unfounded, though. In many industries, such as manufacturing, demand really does reach a ceiling -- each person only wants to buy so many refrigerators, for instance. This is part of the reason that manufacturing employment has fallen from over 17 million in 2000 to about 12 million last year. At some point, demand for certain goods and services stops growing with income.
People who formerly had well-paying manufacturing jobs might be forced to take a low-paying service sector job, meaning that they will end up with a real pay cut while most consumers reap the benefits of cheaper manufactured goods. At this point, though, the problem is no longer about people losing jobs; it's about distribution of income. Policies that increase incomes for people who work in the service sector -- whether they take the form of direct transfers, minimum wage increases, or something else -- would go a long way toward solving the problem posed by technological enhancements or productivity growth.
Needless to say, at least for the foreseeable future, automation need not necessarily be that big of a concern. We shouldn't worry about millions of people losing their jobs; they will probably find work elsewhere. Instead, we need to make sure that no one is left behind as we steadily proceed toward a world without scarcity.
