With automation, more jobs will become redundant, which will add to the strain on the job market in India
03-Jul-2015 •Anand Tandon
A conversation stream that dominates the current economic debate in India is Make in India, the PM's ambitious programme to resurrect manufacturing in India. India's 'demographic dividend' - the presence of a large number of youth as a percentage of population - is often quoted as the primary reason why India will continue to witness economic growth while many other 'older economies', like Japan, stagnate. What underpins this is the assumption that these youths are gainfully employed and generate income which drives consumption growth. Sans the income, the dividend quickly translates into a problem of unemployment, overburden on land (the farmer debate), rising income disparity and social unrest. What India needs is jobs, jobs and more jobs.
In this context, technological developments in robotics and artificial intelligence are creating fresh challenges around the world.
In September 2013, researchers Frey and Osborne, from Oxford University UK, published a paper examining how susceptible jobs are to computerisation. Their conclusion: Over 47 per cent of the jobs in the US are in the 'high-risk' category, i.e., they can be automated over the next couple of decades. Specifically, they find that jobs in transportation, logistics, office and administration, production, etc., are in the high-risk category. Interestingly, service occupations, which were once assumed to require human interaction, have also become susceptible to automation.
The authors have examined the course of automation over the centuries. They point out that nineteen century mechanisation created jobs as machines simplified jobs. Those jobs needing scarce skills could now be performed by a larger number of less-skilled workers. Greater access to education meant that over time, the wage differential between the educated and the not-so educated narrowed as availability of educated workforce increased. This trend was halted with the advent of computerisation in the 60s.
Since 1980s wage differential and overall wage inequality have increased sharply. Computerisation and introduction of industrial robots allowed automation of routine jobs: the telephone operator, airline reservation, cash payments (ATM/cards), typists, etc. A recent study shows that as computerisation erodes wages of labour-performing routine tasks, labour moves to low-skill services instead of production. This leads to hollowing-out of the middle-class - with jobs being created in high and low-skill categories but not in the manufacturing 'middle'.
Widening reach of automation
Increasingly technology is threatening jobs - white collar ones. These seemed immune as they required use of abstract data or 'human' knowledge. For once, jobs requiring higher training may not replace the ones lost to automation. FedEx expects to replace a large fleet of pilots by a few, at a central location, that can fly its fleet of hundreds of planes. A company is using robots to teach mathematics in school. Associated Press is using automated software to create quarterly corporate earnings reports. Citibank is experimenting with software that will 'machine create' marketing mailers with messages that have the greatest chance of being viewed. J&J has an FDA-approved robotic system that replaces anaesthesiologists for low-level anaesthesia applications, while IBM has a system that diagnoses lung cancer with higher accuracy than doctors. The list is long and increasing.
Robots - the future of manufacturing
China has already moved far ahead in terms of manufacturing and is now manufacturing robots that will carry out jobs earlier requiring humans. The Chinese government is promoting companies manufacturing robots and has set a target of a third of all robots purchased to be sourced from local companies. This has led to a boom in companies making robots with fears that this may turn out to be a bubble. While this may indeed be true - a case of too much too early - China has also announced a company coming up in Dongguan that will replace the workforce by robots.
Questions still remain about the benefits of replacing human labour in all manufacturing processes. But as technology progresses and costs fall, the equation is tilting towards machines. Coupled with increasing cost of labour and lower cost of capital, this offers a serious challenge to economies with increasing populations. Where does this leave India over the next couple of decades? While population growth in India has slowed, it is still higher than the replacement rate. Unlike even China, Indian population will continue to grow over the next few decades. Finding jobs will remain a key problem.
Increasing income disparity
With few skills, a majority of Indians are not in a position to adapt to a highly automated economy. Dependence on agriculture remains large. Resistance to advancement in technology has been attempted at all stages in many countries but has never succeeded. Without adopting advanced technology, a lot of which will replace human jobs, India has no hope of being a major global manufacturing base. On the other hand, using automated manufacturing techniques will reduce job creation even from large-scale manufacturing that the government hopes to achieve.
Looking forward, it appears that opportunities lie in either making robots that extend the boundaries of what can be automated or owning such robots. For the rest, the pyramid seems to be a very large flat base of low-paying jobs not worth automating or a tiny pinnacle of enormously high-paying high-skilled jobs.
Every such prediction has failed to predict creation of new jobs that emerge even as old ones were being destroyed. It is likely this time will also be the same. Perhaps offering 'human friendship and empathy' will be the next big job opportunity in a world dominated by machines.
Anand Tandon is an independent analyst.
This column appeared in the June 2015 issue of Wealth Insight.