From a hundred years ago, workers feared the increasing use of machines in the industry would eventually make all workers unemployed. Although, the use of machines and automation changed the production process and labor tasks process in the twentieth century. The need for labor did not decline. The question however is still open. Does the adoption of automation and artificial intelligence in the coming decades eventually make all labor redundant?
Acemoglu and Restrepo developed a mathematical framework to examine how the advancements in automation affects the labor and the equilibrium wage. According to the model’s results. If the long-run cost of capital relative to the wage is sufficiently low, the long-run equilibrium involves automation of all tasks, and demand for labor diminishes so as the wages. This however, happens only under certain model parameters. The model assumes automation always replaces the low-ranked laborers. If the cost of capital is higher than a threshold, there exists a balanced growth path, in which the need for labor remains. The mechanism is as follows: automation reduces the cost of producing goods and services by labor. Thus, automation discourages further automation and creates new tasks for the labor. The new tasks are high skilled jobs. Under this equilibrium, the need for labor never disappears. However, the wage difference between high-skilled and low-skilled labor widens. That is because, the low-skilled jobs are passed to robots and the need for low skilled workers diminished alongside that. Of course as the economy grows, the definition of low-skilled jobs evolves and the tasks once considered to be high-skilled ones, eventually turn into middle and low-skilled. This is inline with the fact that college premiums have continually increased in the last several decades. According to this paper, the impact of automation is worst for workers when productivity gains are small. Such “so-so” automation creates little surplus wealth to increase the demand for workers in other parts of the economy.
Source: American Economic Association
Acemoglu, Daron, and Pascual Restrepo.2018. “The Race between Man and Machine: Implications of Technology for Growth, Factor Shares, and Employment.”American Economic Review, 108 (6): 1488-1542.
