Automation and the labour market
Automation is a term used to describe new technologies that allow machines to do the work that people used to do. Technological innovations that replace labour have been an essential part of the capitalist economy since the introduction of the spinning jenny in the eighteenth century. Explain five effects of the process of automation to the labour market, naming five historical examples from economic life.
Labour-saving technological progress allows more outputs to be produced with a given amount of labour, and it also contributes to the expansion of production. (5 points)
By incentivizing investment, it compensates for some of the jobs it has destroyed and may even create more jobs than previously existed. The total job reallocation process is the sum of job creation and destruction. Typically, the net growth of employment is typically small and positive. (5 points)
Relation to the rate of unemployment and the cyclical phase: when unemployment is high, the vacancy rate is low; and when unemployment is low, the vacancy rate is high. Some factors prevent newly unemployed people from being matched with newly posted jobs (process of labour market matching) (5 points)
Contrary to the initial fear against the machine, the constant increase in the amount produced in an hour of work has not resulted in ever-increasing unemployment. It is wages that on average have risen, not unemployment. The wage adjustment gap phenomenon (5 points)
The short-run effects depend on the kinds of work a worker does:
The robots are labour-replacing. For routine jobs in which the machines and skills are substitutes, the value of a worker's endowment is reduced by the new technology because the robot can replace the worker. The robots are also labour-enhancing: For those jobs in which the machines and skills are complements, the value of a worker's endowment is increased by the new technology.
In the long run, Additional employment and opportunities for career progression and rising wages: These opportunities could be in human services such as health and care, where jobs are non-routine but often poorly paid. Opportunities for workers with routine skills to upgrade their endowments: Their labour becomes machine-enhanced rather than machine-replaceable. (5 points)
Examples: information technology sector, manufacturing sector, retail sector, transport, tourism (5 points)