Wrecking ball or winning ticket

In between the extreme scenarios of the potential impact of automation lurk several dilemmas for policymakers, reports Stephen Walters GAICD.

The coming disruption from automation is generating much debate.

Volumes have been written about the expected impact on the jobs of today, and even the jobs of the future. Some of the discussion has been alarmist, predicting doom for workers not nimble enough to adjust. However, there is more than one school of thought here.

Depending on who you listen to, automation either is a wrecking ball poised to ruin the working lives of millions of Australians, or a rare opportunity not to be missed. Indeed, rapid adoption of new technology has been a key driver of productivity. A better productivity performance will, in turn, help lift Australia’s potential growth rate, the effectivespeed limit for the economy. This means more jobs and higher incomes.

The gloomier economists believe around half of today’s workers will be replaced by computers or robots, and not just those working on the farm or the factory foor where most of the previous change was concentrated. Increasingly, they predict, service sector jobs will be at risk.

CEDA Report predicts "radical reshape"

A report by the Committee for the Economic Development of Australia (CEDA) in 2015 predicted a “radical reshape” of labour markets. It found a high probability that 40 per cent of jobs in Australia will be replaced by computers within a decade or two, and a medium probability that another 18 per cent of roles will be eliminated.

At the same time, the boost to productivity from the adoption of new technologies could further lift the return on capital at the expense of labour. Already, the widening skew between the soaring profit share of GDP and the sliding wages share makes many workers feel they have missed out on the proceeds of prosperity. Such disruption may have profound implications for income inequality as lower-paid jobs disappear. It also raises policy dilemmas. What support, if any, should be provided for displaced workers and by whom?

As RBA governor Philip Lowe indicated in June, society is still grappling with the tension between the winners and losers from technological change, and the policy implications. The governor suggested that Australians needed to get over their fear of foreigners and robots and embrace the positive aspects of globalisation, some of which are not necessarily apparent at first glance.

Other researchers, though, take a more benign view — if we can get our act together.

A recent report by economics and strategy consulting firm AlphaBeta estimated that productivity gains from automation could deliver a $2.2 trillion windfall to Australia’s national income over 15 years. Rather than spell doom for many workers, the report claimed that reducing routine and manual work would make workplaces safer and more satisfying. Still, older workers unable to find alternative roles would be most at risk of being displaced.

Similarly, work by the World Economic Forum was constructive on the digital revolution, a key element of what economists call the “fourth industrial revolution”. While there may be a rise in income inequality, the surviving workers would end up in more rewarding workplaces.

Perhaps the most likely impact will be somewhere between the polarised views, but the truth is that no-one really knows. The results from the economic modelling, as always, are only as good as the assumptions made.

There are, however, key messages from these studies. One is that technological change isn’t new — it has been happening for centuries. The evidence also shows that the damage to labour markets is not worsening. The AlphaBeta report found that job losses today owing to productivity enhancements broadly match those in the 1950s.

Less benign is the finding that the pace at which Australian firms adopt new technology lags behind most advanced economies. Our underperformance here should prompt business leaders and policymakers at the least to consider the implications of automation, as best we can, given the uncertainties.