Pandemic, automation and perpetuation of inequality

Making furniture requires human touch, as we have been accustomed to see for years. But a visit to a prominent furnishers' factory last year buried that age-long notion of mine. The short visit to that factory was almost like a journey to wonderland for a layman - huge machines processing wood, robotic arms bending up and down and spraying colour on furniture, requiring minimum human engagement.

For the last couple of years, the buzzword in production and economic literature is automation. Even Bangladesh, a labour-intensive RMG export-based economy, is experiencing automation in certain pockets. We came to know that machines would replace repetitive low-skilled jobs. This is already a reality, as the huge factory of the above furnisher requires only 2,300 workers.

Coupled with Covid-19, the automation process has gained further traction, notching milestone after milestone. Almost every week, the advances of AI hit the newspaper headlines, with a fair share of clicks. But the milestones have opposite implications for people - a good one for the capital owners but a bad one for the labourers. In this connection, two narratives have appeared in the economic literature on technology. One narrative goes on to say that technological advances raise productivity, that is, output per person. Despite some transitional costs, it has resulted in a higher standard of living - an optimistic narrative. But there is another side of the coin, a pessimistic one. It pays more attention to the losers.

The increasing inequality in many countries in recent decades may result from technological pressure. The computer revolution has reduced relative demand for jobs involving routinised work in advanced economies—bookkeeper or factory line worker. Computers, combined with a smaller number of—generally more skilled—workers, have been able to produce the same goods. As a result, relative wages for people with fewer skills tend to fall in many countries.

Macroeconomists usually describe production as something resulting from the combination of physical capital stock (comprising machines and structures, both public and private) and labour. But treating robots as a new type of physical capital, one that in effect adds to the stock of available (human) labour, definitely draws attention. Production will still require buildings and roads, for example, but now people and robots can work along with traditional capital. So what happens when this robot capital gets productive enough to be useful? In case, robots are almost perfect substitutes for human labor, the good thing is that output rises per person. But on the other side, inequality worsens, for several reasons.

First, as robots increase the supply of total effective (workers plus robots) labor, it drives down wages in a market-driven economy. Second, when it is profitable to invest in robots, there is a shift away from investment in traditional capital, such as buildings and conventional machinery-huge sources of employment. It results in further lowering of the demand for those who solely depend on traditional capital. But this is just the beginning. Both the good and bad news intensify over time. As the stock of robots goes up, so does the return on traditional capital (warehouses are more useful with robot shelf stockers). Eventually, therefore, traditional investment picks up too. This in turn keeps robots productive, even as the stock of robots continues to grow.

Over time, the two types of capital grow hand in hand until they increasingly dominate the entire economy. The traditional and robot capital combined produces more and more output, even with diminishing help from labor. And robots are not expected to consume, just produce (though the science fiction literature is ambiguous about this!). So there is more and more output to be shared among actual people. And that's the rub-as robots overpower human labor, the bargaining capacity of the workers is diminished gradually. In that case, wages fall, not just in relative terms but absolutely, even as output grows. This may sound odd, or even paradoxical.

Again, some economists criticise the fallacy of technology fear-mongers’ failure to realise that markets will clear and demand will rise to meet the higher supply of goods produced by the better technology, and workers will find new jobs. But there is no such fallacy here. We all know that politics is the condensed form of economics. As human labourers are no longer the driving force of production, it is highly likely that trade unions won't be in a suitable position to pursue pay rise and other amenities for the workers.

With falling wages and rising capital stocks, (human) labour would be a smaller and smaller part of the economy. As Thomas Piketty said, the capital share is a basic determinant of the income distribution. Capital is already much more unevenly distributed than income in all countries, irrespective of income bracket. The use of robots would drive up the capital share indefinitely, so the income distribution would tend to grow ever more uneven.

Low skill, low pay

With data from the labour force survey (2005/06; 2010; 2016/17) of Bangladesh and combining it with the US occupation network data, DU Economics professor Sayema Haque said, “It can be inferred that there has been a gradual decline of routine intensive tasks involving repetitive and routine activities with lesser involvement of analytical skills.” Further, there has been a significant decline in wages for routine tasks, indicating greater returns towards more skilled and lesser routine intensive activities.

Sayema Haque, on the basis of research, said in an article in the October issue of Sanem newsletter Thinking Aloud, that COVID-19 like shocks could have serious implications on the income level of low and mid-skilled workers and for occupations involving more routine intensive tasks. The skilled workers could work from home during the lockdown, while the routine workers who stock grocery store shelves and staff nursing homes continued to risk their lives on the front lines. In fact, informal workers are the worst hit and many of them fell below the poverty line again-health concern and diminishing demand combined.

Way out

Reskilling, upskilling, increased investment in education - economists have come up with so many solutions. No doubt, the nature of jobs is changing. AI and robots will do so many things previously carried out by routine workers. As the trend goes, the pay of the skilled workers are going up regularly, while for those of the low skilled workers, it remains stagnant. In the United States, since the 1970s, growth in “real wages” has slowed compared to overall economic productivity. Previous economic research has pointed to two explanations for this stagnation, especially among lower-paying jobs in the manufacturing sector: globalization has flooded the market with cheap goods from China and exhausted domestic-manufacturing wages in the process; while technology has steadily ushered in more job-killing automation. Covid-19 will put the last nail into the coffin, at least, in this case. As we see that the tech giants and even the startups have made huge profits in 2020, while for others, it is a struggling story. It will worsen inequality.

Reskilling may be the call of the day, but as Thomas Piketty has said, you need a conscious attempt to raise low skilled workers pay-definitely a political move. Every pandemic was followed by some kinds of reforms, but as Piketty said, you need a kind of social consensus and movement for that.