Monday, October 6, 2014

Robots and Job losses

Currently there is a lot of discussion in the Dutch press about the threats that Robots cause for employment.  Minister Asscher (social democrat PvdA) started the discussion by bluntly stating that Robots steal jobs. He is worried about the dropping prices for robotic solutions and the competition this gives to people. Point is that if we want a growing prosperity (and who doesn't want that?) we need to grow output. 

Of course due to robots some jobs will cease to exist. In the past the job losses were mainly in dirty, manual, very detailed or repetitious jobs.  In the coming years we will also see job losses that require a mental skill but can be captured in a logarithm, thus in artificial intelligence.  Every person should consider whether his career ambition will clash with robotics, because if so, he/she better chose a different job.  

Let's look at a simplified calculation example:  if the EU has a GDP of 12,5 trillion Euro and 500 million people and we ignore population growth; and if we suppose that half the population works, at 40 hours a week, 50 weeks per year, this means we have an average productivity of 50.000 Euro per worker per year or 25 Euro per worked hour.  If we want to grow our prosperity, we have to work more hours at 25 €/h (which we should not want, and this is limited by the # hours in a day) or this figure of 25 euro/hour needs to increase. A desired economic growth of 2% means that next year the added value of the average output should be 25,50 €/h and the year thereafter 26,00 €/h.  

We can raise the added value output per hour 1) by creating jobs with higher added value in services (by entrepreneurship, stimulated by more schooling and better legislation) or 2) by producing more valuable products (so investing in innovation) or 3) by increasing productivity, i.e. producing the same products with less labor time. Increasing the productivity can be done 3a) by working harder (which has a limit) or 3b) by working more efficient (lean, good IT systems, less waste etc. etc, this also has a ceiling), or 3c) by using robots.  Robots allow a worker to produce the same goods with less hours. This has no ceiling, as far as I can think of.

So robotics is needed because the other tools available for increasing added value (innovation, working more hours, working harder) all have limitations in size and they need a lot of time. Creating high added value service jobs in large enough quantities will take even more time and also in services, robotics will be needed to help raise output per hour. More importantly: those other tools do not help raising the value added in sectors that already exist, which sectors will constitute most of the economy for the foreseable future.  

So the conclusion is that without robotics there will be much less economic growth.