A new study suggests the National Living Wage could spur automation and leave thousands out of a job. Not only is this an unlikely scenario, it overlooks the promise of automation to boost flagging productivity and create an altogether better world of work.
Higher wages, more robots?
Could a policy intended to improve the fortunes of the lowest paid backfire spectacularly?
This is the message of a new report from the Institute for Fiscal Studies, which argues that the National Living Wage (NLW) may inadvertently incentivise employers to automate jobs as they try to control labour costs.
The NLW was established in 2016 at a rate of £7.20 per hour for the over 25s, and is set to rise to £8.56 by 2020. Once fully established, it will boost the earnings of a significant chunk of the labour market. The Resolution Foundation estimate that the number of employees on low pay will fall from 5.1m in 2016 to 4.3m by 2020.
However, the IFS has cast doubt on whether the wage rise is worth celebrating. They point out that many of those set to benefit will be in jobs that are highly routine and thus a clear target for automation. This includes supermarket cashiers who could be replaced by self-service checkouts, and warehouse operatives who could be substituted for picking and packing robots.
The alarming findings have received no shortage of attention in the mainstream media. Yet they should be challenged on two fundamental grounds.
The labour cost fallacy
The first is that there are many factors other than labour costs that determine the intensity of automation – not least the cost of technology itself. The price of robotics and AI continues to fall, but many machines remain out of reach even to large businesses, let alone SMEs and those operating in tight margin industries like retail and logistics.
RIKEN’s Robear robot, which is used to lift patients in social care, comes with a price tag of between $168,000 and $252,000. Agricultural machines able to harvest soft fruit in place of human pickers can set farmers back $250,000. On top of this initial outlay are costs associated with maintenance, training and insurance.
Consumer preferences are another hurdle to automation. People are remarkably quick at adapting to new technology, but there will always be cultural no-go zones where the use of AI and robotics is deemed unacceptable. Many of us would be comfortable with a fully automated banking service, but what about receiving a life or death health diagnosis from an AI interface?
Then there is organisational inertia. A recent survey by Deloitte found that only 15 percent of global executives believe they are prepared to have a workforce “with people, robots and AI working side by side”. Staff need training and encouragement to use new technology, while middle managers have to buy into its value and understand what it is capable of.
Much of this bears out in survey data. A 2017 RSA/YouGov poll (undertaken long after the NLW had been announced) found that just 14 percent of UK business leaders were actively investing in AI and/or robotics, while 20 percent say they plan to but that it will take a ‘several years to seriously adopt this technology’. A further 29 percent say they have no desire to because the tech is either unproven or too costly.
These findings throw cold water on claims that the NLW could usher in an automation revolution. Indeed, as a 2015 survey commissioned by the Resolution Foundation identified, most employers say they’re more likely to respond to higher wage bills by seeking to raise the productivity of their workforce (30 percent), or by accepting lower profits (20 percent). Only 15 percent say they plan to cut jobs or slow down recruitment.
Automation meets augmentation
My second challenge to the IFS study – or perhaps more to the media reporting of it – is the implicit assumption that automation is necessarily harmful and something to fear.
Technology complements workers just as much as it competes with them. Robotic systems in social care can relieve staff of back-breaking work, AI tools in health care can help doctors more accurately and swiftly diagnose diseases, and chatbots used in customer service can help call centre operators by drafting partially automated responses.
McKinsey estimate that only 2 percent of the average worker’s time today is spent on creative tasks, and just 9 percent is dedicated to social and emotional reasoning. In contrast, 67 percent is spent on ‘recognising known patterns’, which is hardly the makings of a fulfilling job. Automation holds out the prospect of phasing out the dull, dirty and dangerous work that none of us want, while raising productivity that is the basis for a better quality of life.
The merits of automation must be considered in the context of today’s labour market challenges. The reality is that the UK does not have a problem with mass unemployment. Worklessness is at a 42 year low, there are now more people who want to work fewer hours than more, and redundancy rates have been creeping downwards for the last couple of decades.
Yet we do have a problem with the quality of jobs, as was recently emphasised by Matthew Taylor’s Review on Modern Working Practices. Real wages are still below their pre-crisis levels with the average worker getting by on the pay packet of 2005. A major reason is our abysmal productivity growth, rooted in business underinvestment, which is among the lowest of the G7 nations.
Facing up to a new machine age
None of this is to doubt that automation can be harmful, with losers as well as winners. If mismanaged, the adoption of AI, robotics and other technologies could increase inequality, entrench geographic divisions and leave some demographic groups worse off. But automation is ultimately a force for wealth creation, and it is up to policymakers, employers, educators and others to spread that prosperity into all corners of our economy.
This means paying more attention to lifelong learning, shifting the burden of taxation away from labour towards capital, promoting employee ownership schemes that share company profits, encouraging employers to co-create automation strategies with their workforce, and getting behind the UK’s high tech and high growth industries that will provide the well paid jobs of the future.
So no, don’t begrudge workers their National Living Wage. Warning that it might ramp up automation is not only farfetched, it spreads the unhelpful notion that machines are something to be feared.
Let’s strive for automation, but let’s do it on our terms.