How Automation, Demographics and Inequality Will Shape the Next Decade

The big question is whether the productivity gains from automation will offset the loss in demand from workers whose jobs have been eliminated by it. JL

Ben Schiller reports in Fast Company:

Automation (will) speed up (because) companies are likely to face a shortage of workers, encouraging them to invest in machines (and) automation is becoming more sophisticated, enabling companies to shift more roles more cheaply. It will boost productivity and short-term profits. (But), it will hollow out demand: Fewer workers means fewer people with the means to buy products. 25% of the workforce equates to 40 million lost jobs. The recession from 2008 to 2010 eliminated 9 million jobs, 6.3% of U.S. employment. Automation's benefits will go to investors and top 20% of workforce.

Income inequality has increased rapidly in the last few decades, as the gains from globalization, technology, and political changes have flowed largely to top earners. At the same time, wages among earners in the lower and lower-middle of the income scale have stagnated.

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And here’s the scary thing: These trends are likely to speed up in the next 10 years, according to consulting firm Bain & Company. By 2030, automation will eliminate up to 25% of all jobs in the U.S., hitting those at the bottom hardest. It forecasts that the benefits of automation will go mostly to the top 20% of earners as well as to investors funding artificially intelligent equipment.
Bain expects automation to speed up for two interlocking reasons. First, companies are likely to face a shortage of workers in the next decade, encouraging them to invest in machines. The long period of labor force growth starting in the 1950s is coming to an end, it says. The expansion of the labor force from women entering the workplace, the emergence of China and India, and the baby boomer generation, isn’t likely to be compensated by other trends, like people working longer or increased immigration.

Second, automation is becoming more sophisticated, enabling companies to shift more roles more cheaply (“humanoid robots are likely to reach commercialization early in the next decade,” Bain says). Retailers, for example, can replace almost their entire on-floor staff, from cashiers to salespeople. And what’s not sold in stores can be sold online and serviced by drones, self-driving trucks, and people-less warehouses. Even professional jobs are at risk, Bain says. Law firms are already using algorithms to scan legal documents. Financial services firms are employing machine learning to do work previously done by human analysts.
Automation, though, will be a double-edged sword for companies, Bain says. On the one hand, it will boost productivity and short-term profits. On the other hand, it will hollow out demand: Fewer workers means fewer people with the means to buy products. Twenty-five percent of the workforce equates to about 40 million lost jobs. By comparison, the recent recession, from 2008 to 2010, eliminated just 9 million jobs, or 6.3% of U.S. employment.

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“Automation may solve [labor shortages] by increasing productivity and powering growth but creates another by potentially eliminating millions of jobs and suppressing wages for many workers,” the report says. “Technological innovations will give rise to new corporate powerhouses, but at the same time, pervasive insecurity may haunt ordinary families and global enterprises alike.”
The report is notable because it comes from economists with no obvious political agenda. Bain & Company is not known for its progressivism. This is a dispassionate analysis of the future aimed at business executives. It says that automation is dangerous because it ultimately destroys the basis for profits. “While inequality raises many social and ethical issues, our focus in this piece remains on what likely will happen, not what should happen. The primary macroeconomic consequence of higher inequality is to constrain growth by limiting the growth of effective demand,” the report says.

If automation increases inequality, Bain says it’s likely that calls will grow for government intervention to redistribute incomes from the winners to everyone else. That could happen through a basic income guarantee, for instance, paid for through higher taxes on top earners. Markets will no longer be seen as “efficient and self-regulating coordinators of value creation,” but rather as part of the problem. Government, long derided, will come back into fashion.
“Populations suffering severe economic dislocation could view jarring levels of income and wealth inequality as a form of social failure–a failure to provide the vast majority of the population with the chance to earn a decent living despite the nation’s technological and economic wherewithal,” the report says.
“Today’s level of inequality already has prompted growing public concerns and debate. It seems reasonable to expect that at significantly higher levels, popular criticism would intensify and increase pressure for social policies to address it.”