ECON1016 Current Economic Issues

Topic 4: automation anxiety

Richard Upward
University of Nottingham

Semester 2 2022/23

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Outline
1. Introduction

2. A brief history of automation anxiety

3. Jobs lost and jobs created

4. The effects of technological change on the labour market

5. Empirical evidence

6. Summing up and looking forward

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Empirical evidence

I In this lecture we consider some empirical evidence

I How economists have used data to test their theories
I And to measure the effect of technological change on labour markets
I This isn’t easy: technological change is not like an experiment
I In what ways is it not like an experiment?

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Outline
1. Introduction

2. A brief history of automation anxiety

3. Jobs lost and jobs created

4. The effects of technological change on the labour market

5. Empirical evidence
5.1 Wage inequality
5.2 Evidence at the industry level
5.3 Effects of technology on firms
5.4 Job polarization
5.5 Job displacement

6. Summing up and looking forward

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Wage inequality

I The relative supply and demand model shown on Slide 57

I The model suggests that the wage premium should go down if relative supply
increases
I Katz & Murphy (1992) estimated
( ) ( )
ws St
ln = β0 + β1 × t + β2 × ln
wu Ut
I They found that β2 was negative: increases in relative supply do lower relative
wages
I β1 was positive: demand was shifting each year in favour of high-skilled workers
I This model does not explicitly tell us why β1 is positive
I It just tells us that, over time, the demand for S relative to U workers is increasing

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A big increase in the relative share of skilled workers

College to High-School log relative supply 1963–2008 (US)

Source: Acemoglu & Autor (2011, Fig.2)
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Wage inequality

I The model is very simple: it assumes that the rate of technological progress is
constant
I Technology is not directly measured; it is assumed
I The estimated model does quite well in predicting the wage premium
I This is consistent with SBTC
I But it also consistent with other theories
I There have been hundreds of subsequent papers examining the cause of increased
wage inequality

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Prediction from the simple supply-demand model

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Outline
1. Introduction

2. A brief history of automation anxiety

3. Jobs lost and jobs created

4. The effects of technological change on the labour market

5. Empirical evidence
5.1 Wage inequality
5.2 Evidence at the industry level
5.3 Effects of technology on firms
5.4 Job polarization
5.5 Job displacement

6. Summing up and looking forward

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Evidence at the industry level

I Berman, Bound & Griliches (1994) ask: what is the source of the increase in
demand for skilled workers?
I Employment of nonproduction workers increased in the 1970s and accelerated in
the 1980s
I Employment of production workers in manufacturing fell
I Did this shift occur within or between industries? Why does that question matter?
I Berman et al. find that most of the increase in demand was within industry
I Skill upgrading is positively associated with investment in computers and R&D
expenditure

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Outline
1. Introduction

2. A brief history of automation anxiety

3. Jobs lost and jobs created

4. The effects of technological change on the labour market

5. Empirical evidence
5.1 Wage inequality
5.2 Evidence at the industry level
5.3 Effects of technology on firms
5.4 Job polarization
5.5 Job displacement

6. Summing up and looking forward

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Effects of technology on firms

I Doms, Dunne & Troske (1997) is a much more “micro” study which has direct
measures of technology adoption at the firm level
I Survey of manufacturing plants which asked about their use of automation
equipment such as computer automated design and numerically controlled
machines
I Firms which use these new technologies employ a larger fraction of workers in
scientific, engineering, managerial, and precision-craft occupations
I But: is this correlation or causation?
I The time-series evidence suggests that investing in these new technologies does
not actually increase the employment of high-skill workers
I In contrast to findings on the effect of investment in IT technology

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Outline
1. Introduction

2. A brief history of automation anxiety

3. Jobs lost and jobs created

4. The effects of technological change on the labour market

5. Empirical evidence
5.1 Wage inequality
5.2 Evidence at the industry level
5.3 Effects of technology on firms
5.4 Job polarization
5.5 Job displacement

6. Summing up and looking forward

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Changes in occupational shares

16 EU Countries, 1993–2010
Source: Autor (2015, Fig.3)
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Changes in wages by occupational skill percentile

US, 1979–2012
Source: Autor (2015, Fig.4)
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Outline
1. Introduction

2. A brief history of automation anxiety

3. Jobs lost and jobs created

4. The effects of technological change on the labour market

5. Empirical evidence
5.1 Wage inequality
5.2 Evidence at the industry level
5.3 Effects of technology on firms
5.4 Job polarization
5.5 Job displacement

6. Summing up and looking forward

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Job displacement

I It is widely accepted that automation does displace workers, even if the aggregate
effect is positive
I How long does it take displaced workers to find another job?
I Does displacement have long-term effects?
I In a classic study, Jacobson et al. (1993) investigate the long-term effect of job
loss

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Large losses even after five years

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Outline
1. Introduction

2. A brief history of automation anxiety

3. Jobs lost and jobs created

4. The effects of technological change on the labour market

5. Empirical evidence

6. Summing up and looking forward

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Summing up

I Technological change affects which factors of production are used by firms and at
what prices
I We have covered three ways in which technological change is modelled:
1. Changes in factor prices (“computers get cheaper”)
2. Factor augmentation (“computers make skilled workers more productive”)
3. Task replacement (“computers replace workers who do routine tasks”)
I To some extent, each tells a similar story: technology increases output and
benefits some workers, but harms others (at least in the short run)

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Aggregate effects are massively positive for the last 200 years

Source: O’Rourke et al. (2013, Fig.1)

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Some policy issues (Goos 2018)

I Education
I Worker mobility
I Income redistribution and compensation
I Universal Basic income

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Looking forward

I A common idea often expressed in the media is that eventually (or even quite
soon) the range of tasks which machines can do will be vastly greater (as in the
Frey and Osborne paper)
I Environmental control and machine learning
I Does this mean the end of work?
I Principle of comparative advantage is very important here
I Creation of new tasks; we cannot know what these tasks are
I And is that good or bad?
I Keynes’ idea that we can all work a few hours a week
I But the distribution of work may be very unequal
I Redistribution

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“Discussions of how technology may affect labor demand are often focused on
existing jobs, which can offer insights about which occupations may suffer the
greatest dislocation, but offer much less insight about the emergence of as-yet-
nonexistent occupations of the future. If someone as brilliant as David Ricardo
could be so terribly wrong in how machinery would reduce the overall demand
for labor, modern economists should be cautious in making pronouncements
about the end of work.” (Mokyr et al. 2015, p.44)

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References
Acemoglu, D. & Autor, D. (2011), Skills, tasks and technologies: Implications for
employment and earnings, in ‘Handbook of Labor Economics’, Vol. 4, Elsevier,
pp. 1043–1171.
Autor, D. (2015), ‘Why are there still so many jobs? The history and future of
workplace automation’, Journal of Economic Perspectives 29(3), 3–30.
Berman, E., Bound, J. & Griliches, Z. (1994), ‘Changes in the demand for skilled labor
within US manufacturing: evidence from the annual survey of manufactures’, The
quarterly journal of economics 109(2), 367–397.
Brynjolfsson, E. & McAfee, A. (2014), The second machine age: Work, progress, and
prosperity in a time of brilliant technologies, WW Norton & Company.
Doms, M., Dunne, T. & Troske, K. R. (1997), ‘Workers, wages, and technology’, The
Quarterly Journal of Economics 112(1), 253–290.
Frey, C. B. & Osborne, M. A. (2017), ‘The future of employment: how susceptible are
jobs to computerisation?’, Technological forecasting and social change
114, 254–280. 84/85
References (cont’d)

Goos, M. (2018), ‘The impact of technological progress on labour markets: policy

challenges’, Oxford review of economic policy 34(3), 362–375.
Jacobson, L. S., LaLonde, R. J. & Sullivan, D. G. (1993), ‘Earnings losses of displaced
workers’, The American Economic Review pp. 685–709.
Katz, L. F. & Murphy, K. M. (1992), ‘Changes in relative wages, 1963–1987: supply
and demand factors’, The Quarterly Journal of Economics 107(1), 35–78.
Mokyr, J., Vickers, C. & Ziebarth, N. L. (2015), ‘The history of technological anxiety
and the future of economic growth: Is this time different?’, Journal of Economic
Perspectives 29(3), 31–50.
O’Rourke, K. H., Rahman, A. S. & Taylor, A. M. (2013), ‘Luddites, the industrial
revolution, and the demographic transition’, Journal of Economic Growth
18, 373–409.

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