What is the Real Impact of Automation?

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With all of the recent advancements in automation whether due to robots or computerization/artificial intelligence, how will the workforce be affected? There seems to be a difference in opinion depending upon whose research you consider and how the research was conducted. For example, some research uses an occupation-based approach to gauge impact while others use an approach based on job tasks.

Oxford University research in 2013 calculated the potential impact of computerization on 702 occupations in the U.S. labor market. It estimated about 47 percent of total U.S. employment is at risk. This work also provided evidence that wages and educational attainment have a strong negative relationship with an occupation’s probability of computerization.

In its 2016 work, the Organisation for Economic Cooperation and Development (OECD) estimated the automatibility of jobs for 21 OECD countries based on a task-based approach. In contrast to other studies, OECD took into account the heterogeneity of workers’ tasks within occupations. This task-based work found automation had a substantially lower impact. On average across the 21 OECD countries, 9 percent of jobs are automatable. This work found noticeable differences across OECD countries. For instance, while the share of automatable jobs is 6 percent in Korea, the corresponding share is 12 percent in Austria. Differences between countries may reflect general differences in workplace organization, differences in previous investments into automation technologies as well as differences in the education of workers across countries.

A recent 2017 study conducted by the McKinsey Global Institute suggests that automation now has the potential to change the daily work activities of everyone, from miners and landscape gardeners to commercial bankers, fashion designers, welders and CEOs. McKinsey focused on individual activities rather than entire occupations. Given currently demonstrated technologies, very few occupations—less than 5 percent—are candidates for full automation (i.e., every activity making up these occupations is automated). However, almost every occupation has partial automation potential—a significant percentage of its activities could be automated. McKinsey estimated that about half of all the activities people are paid to do in the world’s workforce could potentially be automated by adapting currently demonstrated technologies.

This being said, McKinsey believes the impact of automation will be gradual, and five key factors will influence the pace and extent of its adoption. First is technical feasibility, since the technology has to be invented, integrated and adapted into solutions that automate specific activities. Second is the cost of developing and deploying solutions, which affects the business case for adoption. Third are labor market dynamics, including the supply, demand, and costs of human labor as an alternative to automation. Fourth are economic benefits, which could include higher throughput and increased quality, as well as labor cost savings. Finally, regulatory and social acceptance can affect the rate of adoption even when deployment makes business sense. Taking all of these factors into account, McKinsey estimates it will take decades for automation’s effect on current work activities to play out in its entirety.

Much of the current debate about automation has focused on the potential for mass unemployment, but people will need to continue working alongside machines to produce the growth in per capita GDP to which countries around the world aspire. Therefore, McKinsey productivity estimates assume that people displaced by automation will find other employment. Many workers will have to change, and it expects business processes to be transformed.

The size of labor force shifts over many decades that automation technologies can unleash is not without precedent. It is similar in magnitude to the long-term, technology-enabled shifts away from agriculture in developed countries’ workforces in the 20th century. Those shifts did not result in long-term mass unemployment, because they were accompanied by the creation of new types of work. No one can definitively say whether things will be different this time, but McKinsey’s analysis shows that humans will still be needed in the workforce: the total productivity gains McKinsey estimates will only come about if people work alongside machines.

The McKinsey study further highlights how automation can be an engine of productivity and economic growth that can help with the demographic challenges most nations will face as their populations age. Today, there are 46 million Americans over the age of 65 (15 percent of the population). By 2060, the over-65 group is projected to hit 98 million people (24 percent of the population). So, automation-powered economic growth could be a substantial benefit.

As the work by Oxford, the OECD and McKinsey show, automation will continue to impact the workforce and economy over time. Given all of the factors discussed, determining its exact impact is not clear cut. Therefore, looking at the pace of automation is probably better in the form of ranges and approximations rather than specific predictions. Furthermore, any analysis of impact should fully consider the benefits just as much as the drawbacks of automation as they relate to workforces and economies.

Related posts:

Robots, Automation and Workforce Reduction

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Ryan Lahti is the founder and managing principal of OrgLeader, LLC. Stay up to date on Ryan’s STEM-based organization tweets here: @ryanlahti

(Photo: Tesla Motors Assembly Line, Flickr)

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