Santosh Kumar Dash
hange is good. At least that is what we believe when it comes to technology which makes yesterday’s technology obsolete. If you have Ola/Uber, Swiggy/Zomato, Paytm/FreeCharge/PhonePe, and Flipkart/Amazon in your smartphone, life becomes easy. But such disruptive technological changes too have unpleasant effects.
First, it leads to rise in unemployment. Nobel prize-winning economist, Joseph E Stiglitz believes that rapid technological changes pose bigger challenges to employment creation in short to medium-run. Low-skilled workers face biggest risks in future as firms around the globe adopt new-age technologies like automation, artificial intelligence, robots and e-commerce firms. They challenged brick and mortar shops, which resulted in job losses. Although these firms created jobs like that of delivery boys, yet they were not sufficient to absorb dislodged workers. Then Amazon came up with ‘Amazon Go‘, a smart grocery store without cashiers and checkout, which automatically deducts payment from shoppers’ accounts. Now they can do away with low-skilled cashiers and salespersons. A study by ‘Morning Consult survey’ found that while 62 per cent of respondents were worried about loss of jobs due to outsourcing, 27 per cent feared job cuts due to technological advances. Technological progress first took away low-skilled manufacturing jobs. As digital technology gets ‘smarter’ it will erode low-skilled service sector jobs. High-skilled workers hope that they can escape from this juggernaut. But this may not be the case. Consider robot surgeons, robots taking over coding jobs (what software engineers do), robot lawyers or robot chartered accounts. As Business Insider said that thanks to automation, Infosys, India’s top software company, got rid of around 9,000 employees within a year. Automation is set to seep in with more intensity and curtail hiring. In “The Race between Education and Technology”, Claudia Goldin and Lawrence argued that skill-biased technological change increases demand for skilled labour. This accentuates earnings gap between skilled and unskilled labours, leading to increasing inequality. Rise in inequality also increases political influence of the rich in democracy. Moreover, if elected governments do not manage rising unemployment and inequality, it will have political repercussions. Rising inequality reduces pace of social and economic mobility.
Another long-term consequence of automation is that it will erode labour’s bargaining power. With declining dominance of labour unions in a technology-dominated world, employers have bigger say in setting terms for job contracts with employees facing stagnant wage growth. Even employers may threaten employees of salary cuts during difficult times like recession. Facing a Hobson’s choice, employees accept whatever offered resulting into rising inequality. Some argue that increasing minimum wage would reduce soaring inequality. If government increases minimum wage, employers will replace labour with capital, which is more automation.
Technology leads to higher corporate concentration, from many firms to few. Faster digitalisation and technology adoption enabled firms to reap all the benefits, known as winner-takes-it-all. Single firms like Google in search industry and Android or iOS in mobile internet operating systems sector dominate market, which gets concentrated and accrues almost all the pay-off. A paper titled “Strong employers and weak employees: How does employer concentration affect wages?, find that the Herfindahl index, a measure of industry concentration, increased steadily from 1977 to 2009 in US. High degree of corporate concentration leads to lower wages.
Higher technological progress leads to lower population growth. Losing permanent jobs, feeling frustrated, they defer marriages. Japan is a case in point. The rise of part-time or contractual or temporary jobs prompted couples to have fewer kids.
It is also a paradox that capitalism may call for a larger role of government. However, in the age of automation where a significant share of working-age population sits idle, it calls for welfare state to provide universal basic income (UBI), health facilities, education and training facilities, among others. Endogenous growth theories tell us that technological progress or productivity growth is the driver of (forever) economic growth. So, how much productivity growth is needed, keeping in mind that people care more about jobs rather than a unilateral transfer from the government such as UBI? Is economic growth non-linearly related to productivity growth? As productivity rises, it dislodges more workers. With reduced income, consumers buy less goods and services which will erode aggregate demand. Firms seeing reduced sales will also produce less, invest less on plants and machinery, research & development. Hence growth will decline and firms will fire more workers.
Further, since labour’s bargaining power is negatively correlated with automation, it may result in wage cut; thus depressing purchasing power and demand for goods. It is worth mentioning in this context that firms might feel happy thinking that robots will not join any strike or protest. However, then they should remember that robots will not buy their goods either.
Finally, trinity- technological progress, population growth and societal peace, cannot be sustained forever. If productivity rises forever, it will require less human to do the task, thus leading to more job losses. However, if population growth is higher than the replacement rate, it implies that ever-improving technological progress will throw more workers out of their jobs. If the gap between shares of capital and labour rises importunately (quite possible as capitalists gain control over political power), it may endanger societal peace since workers who lost jobs will resort to violence for existence. Productivity and population growth rate may co-exist, but not peace. Conversely, if we want to have both technological progress and peace, then not only the rate of population growth but also ‘total’ population has to decline. The total population will decline because ever-rising technological progress requires less population to the same task. On the other hand, if population growth (even the replacement rate) and peace have to co-exist, then there should be a check to rise in productivity growth.
The writer is an economist with Centre of Excellence in Fiscal Policy and Taxation, Xavier Institute Management, Bhubaneswar. Views are personal.