Race Against the Machines

Does automation destroy jobs?

Sabots from Brittany. Photo: Thesupermat. Source: Wikipedia

The concern that new technology will put people out of work has been around at least since 18th-century French peasants threw their wooden shoes, or “sabots,” into industrial machines to destroy them – thus becoming the first “saboteurs.” In the early days of the industrial revolution the Luddites in England broke weaving equipment out of fear that the new contraptions would destroy their jobs. At one point, the British had more soldiers fighting the Luddites in England than they deployed in Portugal and Spain to fight Napoleon.

Today, people have similar concerns about automation – the use of robots and computers to completely replace human workers. Because we now have supercomputers in our pockets and access server farms with terabytes of data over the web, some experts are predicting the destruction of over 2 billion jobs over the next decade. But how realistic is this?

Word cloud. Source: USPTO, VoxEU

Some researchers used a machine algorithm to evaluate over five million patents issued by the US Patent and Trademark Office over the past 40 years, looking specifically for automation patents – not patents on new drugs or gasoline additives or Post-it notes. Automation completes a task without human intervention, like assembly-line robots or tax-prep software. The researchers then examined where the patent application was filed from, and what the ensuing employment effects in that region were.

Total patent applications, by year. Source: Mann & Püttmann

Not surprisingly, the percentage of automation applications has grown from 25% to 67% of all patents. We live in an age of increasing automation, particularly of routine tasks. A little more surprisingly, though, was the conclusion that more automation is associated with more employment. More automation patents in a geographical area precedes a significant increase in that region’s employment-to-population ratio. The new jobs probably won’t be in the same company, or even in the same industry. In fact, in zones where automation is most heavily implemented, there is a shift from routine manufacturing jobs towards non-routine service sector jobs.

But – as at other times, in other technological revolutions – decreasing jobs in one area lead to increased jobs elsewhere. 150 years ago, most Americans were employed in agriculture. When tractors replaced plough-horses, food production became a lot more efficient, and that labor became more productive somewhere else in the economy. We’re all better off now, as a result

It may be that automation is different, and replacing brain-power via computers and software is more perilous to the economy than replacing muscle-power via machines and motors. But 5000 years of history teaches us that people are infinitely creative and ambitious. I’m pretty sure we’ll find something to do.

Douglas R. Tengdin, CFA

By |2017-12-11T08:02:53-04:00December 11th, 2017|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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