The Bank of England’s Chief Economist recently highlighted up to 15 million jobs in the UK that could be replaced by robots. Does his warning mean that the Luddites were right to oppose the introduction of technology?
In the 1800’s when the Luddites destroyed manufacturing machinery, the world was an entirely different place. But their fears were very much the same as those of today’s workforce. And indeed, every successive wave of labour-saving technology has been accompanied by a similar level of anxiety, ultimately unfounded. But with such significant numbers being quoted, can the same be true in the current climate, and what will be the impact on the UK labour market?
In his speech, Andy Haldane’s argument was that over the long-term the factor affecting the jobs market most markedly is that of technological change. It is certainly true that rising productivity levels can be attributed to the introduction of ever more labour-saving technology. In fact, productivity has grown by an estimated 1.1% every year for the last 250 years.
Displacement and Compensation
The introduction of additional technology creates both displacement and compensation. Displacement in that whatever the technology, it almost invariably means that less labour is required to guarantee the same level of production output. That labour is ultimately displaced. However, the rising levels of productivity have a knock-on effect in other areas of the economy. They drive higher wages and subsequent economic demand. In turn, this creates markets for other goods and services and therefore new jobs. That is the compensation element. Ultimately, a review of the story of the last 250 years indicates that the latter has outweighed the former.
Haldane did, however, argue that the process of adjusting from displacement to compensation is not a smooth one and suggested that the Luddites may have had a fair point. He highlighted technology as a driving factor in wage growth suppression by impacting on the labour share and holding down inflation, ultimately keeping it below the 2 per cent target set by the Bank of England. As a member of the Monetary Policy Committee he is well-placed to express such an opinion.
However, global and local changes in working age demography, including a continuing fall in the percentage of working age population in the UK, means that it is possible that the downwards pressure on labour from technology could be counterbalanced by upwards pressure driven by demographic change. Fewer workers means higher charges for their services.
Experts predict that it is the interplay of these two factors i.e. demographics vs. technology that will ultimately impact on the ability of the labour market to bargain locally and globally. Whilst no-one has a crystal ball, it is safe to say that the future looks uncertain at the very least. The Luddites may not have been entirely right, but understanding their concerns helps us to reflect upon the very real impact of technology in the coming years.
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