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The Income Inequality Implications of Job Automation: Over 47 Percent of Jobs May Be At Risk

01/09/2014 02:10 pm 14:10:55 | Updated Mar 11, 2014

There is a popular story about job automation that goes like this: During a tour of one of Ford's modernized auto plants, CEO Henry Ford II jokingly asks United Automobile Workers president Walter Reuther, "Walter, how are you going to get these robots to pay UAW dues?" Reuther quickly delivers a prescient retort, "Henry, how are you going to get them to buy your cars?"

The story illustrates a problem with labor automation that has been brought up time and time again since the days of England's Luddites, by John Maynard Keynes in the 1930s, and by workers in the late 80s with the rise of computer technology. Their claim has been that new technologies will replace workers, cause mass unemployment, and a resulting drop in consumer demand that will destabilize the economy. The thing is, as time went on all of these claims proved to be false and new jobs were created to replace the old.

However, the argument has been raised once again, and this time people think things are different. Researchers at Oxford University released a study in September estimating that upwards of 47 percent of U.S. jobs are at risk of being replaced by technology within the next 20 years. The difference now lies in the unprecedented rate of change, along with how pervasive that change is. Computers are an example of what is known as a general-purpose technology that can be utilized by almost every industry in numerous capacities, and is so powerful that it interrupts and accelerates normal economic progress. Furthermore, computer power grows exponentially as opposed to linearly, making it difficult for society to keep up with the change.

Martin Ford echoes the findings of the Oxford study in his book, The Lights in The Tunnel, and states that low-skill repetitive tasks are not the only jobs facing automation. It is not simply the fear of losing UPS drivers to Amazon Drones, or truck drivers being replaced by self-driving cars. High-paying, high-skill service jobs like legal research and radiology imagery analysis are also at risk of being replaced as computer intelligence rapidly advances. The question is not if, but when the exponential growth of computing technology will allow for jobs that may be viewed as safe from automation to be taken over.

Wrote Erik Brynjolfsson and Andrew McAfee in their 2011 book The Race Against the Machine:

If technology decreases the relative importance of human labor in a particular production process, the owners of capital equipment will be able to capture a bigger share of income from the goods and services produced.

The logic is easy to follow, lower production costs achieved through automation are accrued primarily to shareholders through stock appreciation and capital gains. We aren't seeing mass structural unemployment yet, but researchers have pointed out that our nation's growing income inequality is indicative of increased offshoring and automation. Simply look at how GDP per capita has grown steadily over the years while real median income has remained stagnant.

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Fig1. - Index of Growth in Real GDP Per Capita and Real Median Family Income, 1960-2010. Source: Monthlyreview.org

The gains must be going somewhere though. Economist Ed Wolff determined that between 1989 and 2009, 100 percent of the wealth increase went to the top 20 percent of households, while the bottom 80 percent actually saw a decline in their net wealth over the same period. Even within the top 20 percent inequality is significant. The top 5 percent received 80 percent, and the top 1 percent took in 40 percent of the wealth gained over those 30 years.

It is important to note, that while worker productivity has risen and empirically the number of jobs available has declined, the population still continues to rise at an exponential rate. Since 2000 the population has grown by almost 30 million, and in order to keep the 2000 level employment-to-population ratio of 64 percent stable, the economy would have had to create 18 million jobs. Instead there was a decrease in new jobs. This marked the first decade since the great depression that saw no net job creation.

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Fig2. - U.S. Job Growth By Decade 1940s-2000s. Source: Ritzhold.com via Washington Post

President Regan's former Assistant Secretary to the Treasury, Paul Craig Roberts, pointed out the same figures, noting that we are already not producing enough jobs to keep up with population growth. When you couple this trend with job polarization and substantial income inequality it has the potential to develop into a serious economic crisis.

Even though the effects of technological unemployment may not warrant immediate action, it is important to raise general awareness and to open up discussion of how we can confront whatever challenges may present themselves in years to come. Reflecting back on the anecdote at the beginning of this article: If robots can't by cars, and the general population is too poor to afford cars, who is going to buy them and keep our economy afloat?