There's a very challenging problem ahead of us that I think is good to address, and for sure: there's a lot of talk about this lately, but I think there's equally a lot of points that are being missed when it comes to the future problem about automation and how it's going to affect the workforce of the future.
A couple of points that need to be addressed:
The first point being how automation could eliminate up to 25 percent of US jobs by 2030 but how the lower wage tiers will get hit the hardest and how soon that's going to happen.
The second point I think it's important is to talk about is the variety of uncomfortable problems that we'll know will appear with even more inequality especially between lower wage workers and highly skilled professionals, and ultimately business owners.
The third point is why displaced workers aren't going to just surrender weakly and what they're most likely to do instead.
Personally, I think displaced workers are being portrayed as victim workers that aren't capable of adapting to what's coming so I think I want to touch on that and then lastly, of course: How are we going to pay for all of this?
The Collision of Demographics, Automation and Inequality
There's a lot of answers that are being thrown in the air right now, especially now that we are in an electoral year. A lot of candidates are throwing around different solutions with Andrew Yang’s UBI solution being the most famous and most talked about right now. I think whether we like UBI or any of the above points that I brought up, I think these issues related to the future of work are headed straight at us.
I think we underestimate the speed of how fast this is headed straight at us but at least over the next decade, as we're entering 2020, I think the better the answers we consider now, the better we all will be prepared.
Let’s bring our attention to one of the biggest research papers about this issue, made by Bain & Company.
They created a report back in 2018 called “Labour 2030: The Collision of Demographics, Automation and Inequality” and I think it touches these subjects in a very interesting way.
The first point might just be the most crucial one, and that is the fact that Bain & Company thinks that automation will eliminate up to 25 percent of all US jobs by 2030, with the lower wage tiers getting hit the hardest and getting hit the soonest.
That will be devastating.
And it's not that far away: Do you remember the last financial crisis back in 2008?
We're more than a decade past that, so right now - in 2019 - we are halfway between then and 2030. We're right in the middle.
Interestingly, Bane predicts that the manpower needed to build out the technology that will ultimately eliminate all those jobs will be enough to keep us all working until 2030.
Personally, I think it might happen before 2030 but the report goes well into details so they definitely have their reasons to think so, but I think what's more important to discuss is why this is happening.
Demographics and automation are mutually reinforcing trends, and one of these trends that's already easy to observe is that employers already turn to automation increasingly because the biggest reason is that companies can't find workers with the specific skills required and - more importantly - not in the sufficient numbers that they need.
One reason for that is the baby boomers slowly leaving the workforce, though many of them are delaying retirement as long as they can.But sufficient numbers of qualified people aren't simply available.
Employers don't really have any other solution than turn to machines in order to be at the level of productivity that they are required to be at. And this especially when the technology is making the machines better and less expensive.
Cognitive versus manual work
These progresses of job automation so far has been fairly benign when it comes to jobs. For the most part, it has replaced highly dangerous factory work or other boring and unpleasant, repetitive manual work, so as a result, this type of automation makes human workers more productive instead of specifically replacing them.
But as artificial intelligence technologies improves these machines, they will be able to perform cognitive tasks that once required highly trained and highly experienced humans.
At any given company, this trend can look like a good thing to the owners: You invest in machines, you lay off people, you reap more profits.
Although measures like these are usually applauded by Wall Street, it's pretty short-sighted in the aggregate because someone has to buy your products in the end so the workers that your company and other companies lay off won't be able to spend as much unless new jobs replace the one you just eliminated.
So in theory, automation will enable lower prices which will rise the demand and create more jobs but in Bain & Company’s report, they don't think it’ll happen that way.
They basically foresee up to 40 million permanent job losses in the US - even accounting for higher demand jobs, so what they're basically saying is that in the next 10-12 years the economy of the United States will swing from a labor shortage to a huge labor surplus. So with the labor force presently around 160 million, this implies an unemployment rate around 25 percent.
So it's hard to see how that could be called an economic boom by anyone, but if we try to see from an optimistic point of view and assume that you know other jobs that we don't even know yet what is will do appear for a lot of these displaced workers, then the situation still won't be ideal for either them or the economy at large.
This is because they will likely make less money and have less spending power.
The effect on wages
The report points out that wages will face downward pressure long before workers get replaced by machines. Basically, the mere existence of new technologies will ultimately cap wages, as the price of automating versus employing humans falls drastically.
Now, the result of that will be even more inequality between lower-wage workers and highly skilled professionals and business owners - so the inequality gap will widen.
It will create a variety of problems. One of which is consumption growth. The small number of wealthy people at the top can only spend so much because they save most of their income and lower-income people, in turn, spend more of their income, so this pattern that already is existent that we can see in our society will only intensify.
So you can picture that for yourself. This is a scenario that really doesn't have a happy ending.
Best case scenario? The reduced consumer demand caps growth and we'll see more decades of flat or mild growth as we're doing right now.
Worst case scenario?
That will be something like economic dislocation. Economic inequality leads to social breakdown and more calls for government intervention, higher taxes on the wealthy, more generous welfare programs, more regulations for businesses.
None of these outcomes are good, but it's really not clear how those things can be avoided and keep in mind: these projections aren't coming from some liberal think tank either. Bain & Company are as business-friendly as it gets.
This is really valuable insight that we should pay close attention to.
As we see large parts of jobs destroyed, displaced workers won't really surrender weakly, nor will they be happy that small numbers of highly talented - mostly older - workers receive most of the rewards. They will want help, and in democracy they will have the power to demand it, being the overwhelming majority.
This, in turn, could spark more populist movements springing up all over the world.
We already see populist movements on both left and right so it's already springing up, but it will probably keep gaining momentum and increasingly taking control of governments. If they do, the resulting policy changes could be significant mild measures like job retraining, but that probably won't suffice.
Instead, we could see a major expansion to redesign the safety net programs rather than trying to re-educate and retrain people to adapt to the changes in the future of work.
2020 is going to be a game-changing decade.