opinion

Does technology equal doomsday for jobs?

Will automation destroy work? The debate on this question has become polarized. Doomsayers think the answer is “yes.” Techno-optimists claim that because past technological change has increased the demand for labor and wages, this time won’t be any different.

This polarization notwithstanding, to formulate effective policy it is important to think clearly about the impact of automation on work.

The economists Daron Acemoglu and Pascual Restrepo agree with the doomsayers that automation will replace workers in tasks that they previously performed. They call this the displacement effect. This effect decouples wages and output per worker and results in a decline in the share of labor in national income.

There are three countervailing effects to the displacement effect. First, the substitution of cheaper machines for human labor creates a productivity effect. For instance, the spread of automated teller machines (ATMs) was accompanied by an increase in the employment of bank tellers because ATMs reduced the cost of banking and encouraged banks to open more branches. This raised the demand for bank tellers who then specialized in tasks that were not automated by ATMs.

Second, automation increases the demand for capital which leads to capital accumulation and this leads to increased demand for labor. This is the capital accumulation effect. This effect was important in America in the early 20th century when agricultural mechanization led to increased capital accumulation and this led to higher demand for labor.

Finally, technological progress can also increase the productivity of capital in tasks that have already been automated. This progress will not lead to any additional labor displacement because the labor has already been displaced. However, this deepening of automation effect will give rise to a productivity effect that can be expected to raise the demand for labor. This is seen in the introduction of new vintages of machines that replace older vintages that are used in automated tasks.

These three effects may or may not offset the negative displacement effect but thinking about automation in this way shows that its impact on work is not necessarily negative. Also, automation is likely to create new tasks in which labor has a comparative advantage relative to machines. This creation gives rise to a reinstatement effect that directly offsets the negative displacement effect. In sum, paraphrasing Mark Twain, tales about the destruction of work by automation appear to be much exaggerated.

Amitrajeet Batabyal is the Arthur J. Gosnell professor of economics at the Rochester Institute of Technology but these views are his own.