Automation: Hindrance or Help?

James Pethokoukis has a couple of interesting articles on the role of automation in maintaining our economy and current per capita wealth (let alone increasing them). 

First, he makes the point that a major drag on economic growth is lack of workers. In the past economic growth has come both from employment growth and higher productivity. He cites a McKinsey Global Institute study.

GDP growth was exceptionally brisk over the past half century, driven by the twin engines of employment growth and rising productivity. However, declining birthrates and the trend toward aging in many advanced and some emerging economies mean that peak employment will occur in most countries within 50 years. The workforce in Japan is already shrinking in size, and the total number of workers in China will start to decline within a decade. This expected decline in the share of working-age population will place the onus for future economic growth far more heavily on productivity gains. (emphasis added)

Take one of those legs away by lack of employment growth because of no population growth and it's going to be hard to walk, let alone run.

But automation can give employment growth without rising population and could at least keep GDP per capita stable.

Our analysis of the automation adoption scenarios suggests that automation could help bridge the projected growth gap caused by a deficit of full-time equivalents worldwide. Automation alone will not be sufficient to achieve long-term target growth across the world, given the decline in the working-age population and the need for high productivity to achieve that target. Especially in fast-growing countries, other measures to boost productivity will be needed. However, notably, the productivity gains from automation could suffice to at least maintain today’s GDP per capita.

The McKinsey Global Institute study rates robots on a level with the steam engine in increasing productivity.

For example, between 1850 and 1910, the steam engine has been estimated to have enabled productivity growth of 0.3 percent per annum. Analyses of the introduction of robots in manufacturing and IT estimate that they have accounted for annual productivity increases of 0.4 percent and 0.6 percent, respectively.

Second, the big question is what to do with displaced workers who have medium or low skills that don't fit into the new economic format.

Though less than 5% of jobs can be 100% automated, 60% of jobs can have 30% of what they do automated.

The knee jerk reaction is to protect workers by hindering automation. But, that will neither protect jobs long term or help economic growth. Imagine the U.S. with all farming still being done on small family farms without automation. First, we couldn't compete with other nations. Second, even if we could, the cost of food would be in the range of four times higher than it is now. We would be spending 40% of our income on food rather than the current 10%. And with a lot less choice.

from The Atlantic

from NPR

The NPR piece points out that even with the automation of the 1960's, we are spending a little more than half as much as our grandparents spent on food. That's probably due to free trade policies as well as increased automation and more productive seeds, cultivation methods and animal husbandry in the last 55 years.

So, what to do? There's no magic bullet. Encouraging people to have more children won't work. And we have had too many problems with raising the workforce via immigration because most of those who come are low skilled.

That leaves trying to train a workforce that is more productive or can fill in the gaps where automation isn't feasible. That would mean better retraining of current workers and proactively encouraging young people to prepare for an increasingly mechanized work force.

Easier said than done. But, this seems to be the only option when the work force population is stagnant or decreasing and increasing productivity is the only workable tool to maintaining or increasing per capita wealth.