Comment: LDTs have arrived

Articles abound on the coming wave of labour displacing technologies (LDTs), but it is so easy to remain skeptical about future prospects for automation as current levels of employment appear to be fairly stable and the demand for people with key skills is higher than ever. But LDT’s have already arrived and the visibility of their impact is only a matter of time.

Look closely and the picture is already startling. This is because although LDTs are compounding with other factors like demographical trends to undermine our economic system the superficial evidence is so fragmented that the coming crisis is far from evident.

To understand what is happening right now we must look at these various disguising strands. The first wave of LDTs has already past and is so familiar to us that we take it for granted. Once manufacturing jobs were the core of the labour market. The along came process technologies, CAM, CNC machines and cartesian robots and the shop floor turned into a lonely landscape populated by a few maintenance engineers. Running almost in parallel was a second wave of office technologies that speeded up administrative processes. These were less labour displacing – which lulled us into thinking that automation was not the enemy of jobs.

If we look at the broader context another factor disguising LDTs has been the decline in indigenous populations – particularly in Europe and North America. This has been eased to some extent by immigration, but longer term it will mean that technology will help sustain economic growth in spite of the shrinking workforce. But on a wider scale the period up to 2100 AD will see a 50% increase in world population and 88% of the population growth will be in Africa.

Other factors have been also been perceived as so socially beneficial that they are not taken as evidence that LDTs are having an impact. Hours of work, for instance, have been falling – only by 4% since 2000 across the OECD countries, but in specific countries such as Chile (-12.3%), Japan (-9.4%) and Costa Rica (-9.3%) the trend has been far more significant. Furthermore, the average duration of unemployment has been gradually increasing. In fact in the most advanced (G7) countries the increase since the year 2000 has been over 200%.

Another key trend has been equal opportunities. Women have been entering the labour force in greater numbers in many countries around the world. In the OECD since 2000 the proportion of adult women at work has grown from 59.2% to 63.6%. But male participation has remained stable and male unemployment grown by 8%. Women are also more likely to work part-time and be paid less than men.

By far the most visible evidence of LDTs is youth unemployment. Globally it does not seem to be a factor because those aged 15-24 are progressively kept out of the labour market by increasing their time in the educational system. There is too a decline in the relative significance of this age cohort because of the aging population and social trends two decades ago to reduce family size. Thus in Turkey those aged 20-24 used to account for 13.4% of the population in 2000, but today account for 9.4%. However, in more advanced economies – especially in Europe – youth unemployment has reached epic proportions – rising from 8.5% to 11.3% since 2000 in Germany – but climbing to over 30% in Spain. Portugal, Italy and Greece. Much of this trend is due to an absence of jobs for inexperienced workers – as it is easier to train an automated system to perform tasks than all but the brightest graduates and anyone with an uncertain work ethic.

One invisible trend is the impact of LDTs on new job growth. Without such technologies then all increased demand would translate into jobs. But much of potential job growth has been replaced by investment into capital equipment and new IT systems. Furthermore, LDTs are not generally realized in the form of humanoid robots. Therefore offices remain highly social and “normal” phenomena. The fact that everyone is working faster and smarter than 20 years ago – and with far less paper – is something that has just evolved into our consciousness

An important disguising factor has been the post-recessionary recovery. The world has only just recovered from the huge 2008-11 downturn and therefore in G7 countries job growth in recent years has been counteracting the effect of LDT. Outside the G7 the picture has been very different. As wages in the third world have risen and IT skill requirements transformed then the offshoring of production and routine services has begun to wane. Contracting out to take advantage of lower labour costs has been a huge block on the advance of LDTs. Whilst there was no need to invest in automation because manual labour was cheap then profitable growth could be achieved without worrying about ROI. Tapping into the massive grey economies of, for instance, Bangladesh and Mexico was also a great way to save on tax and social security costs. But now that era is coming to a close. 

What marks out whether a function can be automated is not that it is manual, but whether it contains either a set of distinguishable routines or relies on a large body of factual know-how. Thus most activities like driving, accounting, programming, legal due diligence, and even some aspects of HR lend themselves to LDTs. The process of labour displacement has already begun and the major barrier to automation is no longer shortage of capital, but a luddite-like fear of its impact at all levels of management. But as with the nineteenth-century machine breakers there is no way that conservative attitudes are going to hold back the inevitable. In fact, the longer it is resisted the more likely it will burst rapidly into the midst of corporate operations and lead to major job losses in the next few years.

The sector with the highest immediate vulnerability to LDTs is financial services. Since the year 2000 some 60000 redundancies have taken place in Italian banks. Of the remaining 300000 it is estimated that at least half will be shed in the next decade. Already funding has been set aside for 25000 redundancies in the next five years, but this is likely to account for only those losses that are due in the immediate future. Already many banks are emerging to add economies of scale to LDTs. In the insurance sector too widescale redundancies can be expected. Back in April Aviva offered 16000 UK employees retraining because they faced redundancy as call centres are closed down because automatic online services are taking over their roles.

We estimate that in the world’s economically advanced countries the impact on jobs brought about by LDTs in the last five years has reduced latent employment by 12-15% (relative to the situation without such technologies). Because it has primarily affected job growth to date it has not been easily visible. But over the next ten years the cuts will hit directly at the stock of current jobs and reduce them by a further 35%-40%.

The combined effect of LDTs and demographic change – especially in Africa will no doubt have a revolutionary destablising effect on the rest of the planet. What is good for company profitability will impoverish up to 60% of the population in the advanced economies unless governments respond with major ways to distribute wealth (something I doubt they are capable of doing or corrupt-free enough to achieve). In Africa the increasing number of University graduates with no jobs to utilize their skills will, when combined with a five-fold rise in populations lead to the overthrow of current autocratic political leaders. What will lie in their wake is something all of us should be worrying about, but sadly this eventuality will be just be ignored by the huge majority of politically apathetic and geographically naïve people in the west – until it is all far too late.

 

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