SHF2017丨Christopher Pissarides: Work in the Age of Robots and AI

Thank you very much to the organizers for giving me this opportunity toaddress to you here on the topic of new technology and the labor markets. Myinterests, as you have heard in the introduction, have always been the labormarkets, the focus of my work was devoted to unemployment and inequality, howto deal with the problem of unemployment, all those things support what wasmentioned a minute ago, the universal basic income. How to deal with long-termunemployed, how bad the Brexit vote was and is going to be for Britain andEurope, unfortunately, for those of us who support European integration as thefuture model for the continent.

But I have also been simultaneously interested in the structural changesthat take place in our economies as we introduce new technologies, and ofcourse the new technologies that have been introduced currently is automation,robots, artificial intelligence. The United States as in so many are industrialtechnologies is leading the way with Boston area and Massachusetts becoming thecenter for robotic developments but China is also pushing forward. In fact, itis the second country in terms of robotics whereas the UK and Germany are alsoclose by. But the Chinese policy, known as “Made in China 2025” is based onautomation in industry and introduction of robots in artificial intelligence.Now it is getting integrated with “the Belt and Road Initiative” by PresidentXi Jinping. So the changes I’m going to discuss in the next twenty minutes andthe disruptions that these new technologies are going to bring to the labormarkets is very relevant to China as it is to North America and Western Europeand Japan, of course, and Korea, and the OECD countries.

I’m going to argue that governments need to take urgent action if we aregoing to avoid getting even more inequalities and long-term problems from labormarket with the introduction of technologies. But let me say beforehand that Idon’t have “technologiphobia”. I think technology should be encouraged andadopted as soon as possible and the countries that do it first are the onesthat will prosper. But there are other things that we should be dealing withand this is what is going to be the emphasis of my work.

Sustained economic growth comes from new technologies, there might beepisodes of economic growth that do not require new technologies, but if we aregoing to get sustained growth, we do require them. If China is going tocontinue growing at the rates that we experience, you have to rely on newtechnology. The era through which our growth came by moving agricultural laborfrom rural areas to urban areas is gone. New technology is going to be thefuture. What is new technology? Well you basically discover how to make thingsmore cheaply, so you become more competitive, you discover new products so thatyou attract new consumers, new markets, that’s how it works. Unfortunately, newtechnology does not affect the whole economy uniformly, it favors some sectorsagainst others, some sectors gain, some lose, and that is what I call bydisruption in structural transformation. That is what we have to deal with.When there is economic growth, we cannot expect the whole economy to go up uniformly.It is used to be known as growth lifts or boats, in fact, it does not lift orboat, some boats sink when there is new technology and that is what we have tobe careful to deal with.

Now the current technology, by which I mean 21st century technology isbased on computers of course, the Internet, artificial intelligence, and I’mgoing to argue that the structural transformation that is coming to oureconomies from the new technologies is different from the earlier ones that weexperienced. Now, earlier technologies and the most recent ones beforecomputers, the biggest shock, if you like, in the technological and industrialproduction that we experience was electrification, the invention ofelectricity. With electricity, we could set up factories, mass production,consumer durables… Now, electricity, in the previous era there was the steamengine, in the late 19th century and 20th century there was electric power.Now, electric power destroyed many unskilled jobs, the simplest that we allunderstand is the one of the domestic assistant. In the beginning of the 20thcentury we have documentation says that every family could afford or employ atleast one domestic assistance. In America it used to be Irish immigrants, andEurope, it used to be agricultural labor going on to the cities. The cleaner,the cooks, the tailors, all those people, all those jobs were destroyed byelectrification by the advent of vacuum cleaners, refrigerators and consumerdurables. In industries, the changes were even more devastating, you know thecoming of assembly lines, the production of massive durables, motorcars,aircrafts, all these things that destroyed enormous amount of jobs.

With computerization, however, computers do not destroy unskilled jobs;computers destroy routine jobs, because what the computer does is you canprogram the computer to do some routine calculations. Those routinecalculations may not be unskilled, they might need a lot of skill to do, butthey are routine, they can be programmed into machines, they do not requiremuch thinking computer-wise. And what we see from the earlier stages of theintroduction of computers, that’s late 20th century if you like, after the1970s, is that we’re losing a lot of jobs that is in the middle of the skilldistribution, that’s usually where routine jobs are. I have listed for youhere, the cashiers, the booking agents, the booksellers, the typists, theclerks, some routine service jobs have been replaced by computers, and we nowbook our flights on the Internet, we don’t go to a travel agent, we buy ourbooks on the Internet, because these are routine operations. But, theimplication for wages is not very good from a social point of view. Becausewhat you have is that the bottom part of the skill distribution, you know, thecleaners, the security people, they do not use computers in their work, buttheir job survive because computers cannot do their work. Because they do notuse computers, they do not gain any productivity from the introduction ofcomputers therefore their wages stagnate. They have no wage growth; we see thisin many western countries especially the United States where the growth of thelast 30 years or so has not benefitted the bottom and of the wage distribution.And definitely since 1980s, all the gains in growth went to the top of thedistribution. The middle of the distribution suffers even more because theirjobs are replaced by computers whereas the top part of the distributions, youknow the managers, the decision-makers, they benefitted enormously from theintroduction of computers, because they use computers in their work and thatincreases their productivity. Therefore, we have a new technology that iscomputerization that benefits the top end; they get wage rises, harms themiddle end, their wages fall, and keeps their bottom end steady, because itdoes not benefit them. So we get an increase in inequality as we got in the1980s, this is something that governments have to act, I don’t think manygovernments outside the Scandinavian has been successfully dealing with that,but this Scandinavian model is a very good model to at least study andunderstand how it works, and see whether it can be applied elsewhere. I know itcannot be applied in the United States, especially under the current administration,but I know that there are many more other countries in the world that couldbenefit by studying the way they re-distribute their income to avoid thisinequality problem here.

Now what about robots and artificial intelligence? Well the problem with robotsfrom an employee’s point of view, if you like, is that the jobs taken over byrobots are not routine jobs; they are jobs that involve brainpower. And I usedan example of a driver-less car, they aren’t cars now driving, they’re saferthan normal taxis, if you like, they do not have a driver, they rely oncomputer perceptions to drive. Now these jobs are thinking jobs, drivers haveto think how he can avoid traffic, how he can avoid hitting a child who iscrossing the road when the light is red. And all these things are done byartificial intelligence. 3d-printing is not routine, and there are many otherexamples we can use. Letter delivery, for example, where they stop anddelivers, a head list delivery in Boston, something like that, I was told recently.Therefore, robots and artificial intelligence are replacing skill workers, butthe problem is we do not know yet, what type of skill workers will be replaced,we know very little about the sectors that will be affected. Each innovationwill put at risk different kind of jobs, it is not possible for eithercompanies or workers to plan ahead, in fact if you look at the managementliterature, you’ll see the biggest fear of employers now is that somethingoutside their sector may come and take their position just because they haveability elsewhere. Just like if you take an ordinary car of a kind that afamily would buy now, a car coming out of the factory now, something like 40percent of the cost of that car is the computer and artificial intelligence thatthe car has. Therefore, someone from outside, someone like Alibaba or Google,someone would come in and compete with the car manufacturer. Well you neverthought, a search engine on the Internet could be your competitor. That is thebiggest fear that companies are facing now from what we hear their CEOs talk atthe World Economic Forum, in Davos, for example. That is something thecompanies have to plan. And I believe the best way to plan about it is to beflexible, both about the education in training they gave to their workers andalso their own market, not to think that I’ve established a niche in thismarket and I’m going to be here for the next two or three generations. Thesethings change very rapidly. That’s not something I’m not addressing mainly herebecause of the shortage of time, instead I’m switching on to the impact ofrobots and artificial intelligence in new technologies, generally, on theavoidance of work, and how we can manage that so we don’t get into the problemsof unemployment. Now there is no doubt that new technologies and robotics willreplace human work overall, and in fact we have famous examples from the past.You will be amused now. This one is from one of my intellectual heroes, JohnMaynard Keynes, as early as 1933, he wrote machines will replace human beingsin the labor market and in two generations we have to cut out our work 15persons per week if everyone wants to stay employed, or otherwise there will bemass unemployment, you know, it was a very brave and wild prediction, hementioned not in his famous book, the Revolution of Economics, but another onecalled Economic Consequences for our grandchildren, something like that. InEssay in Persuasion, in fact the title of the book was called, now if you lookat our work across developed countries, you can see Keynes was right to someextent, on average we hire high productivity work shorter hours, and in othercountries that do not have high productivity need to introduce newtechnologies, increase their productivity, reduce their hour of work, take moreleisure and enjoy their life more. Unfortunately, China is not included inthese statistics, I can’t find a reliable Chinese statistic to show you, butcountries that work the fewest hours of work in the OECD is Germany andNetherlands, which was the champions of OECD in new technologies, and thecountry that works the longest working hour is the OECD is Greece, which isbeing criticized frequently recently as a very lazy country. That’s becauseGreece is an unproductive country and they work longer hours whereas Belgiumand Germany are more productive and they work fewer hours, and you can seethere’s a correlation between weekly hours of work and productivity. Thatmeans, as we’re introducing a new technology, we shouldn’t worry about losingjobs, because we can still have full employment and make sure that we take wework less hour each person, that’s what I call “job sharing”, a lot part—timejobs, that’s what Germany and Netherlands have, it could become new jobcreations.

I’ve been given a five-minute warning; I wish I had ten minutes to explainit to you where the new job creation come from but I’m going to do it anyway.The new job creation will come from sectors that could not be automated. Andmany of these sectors are what you may call luxuries, it becomes wealthier withthe introduction of new technologies like the robots, essentially what we do isthat, you can imagine being the owner of a robot, let the robot do all theboring stuff you don’t bother to do, and spend the money the robot will earnyou on luxury goods and services. Now what is luxuries? Well after thinkingabout it for a long time, you will be happy to hear that the biggest luxury isgood health and care. Hire a top physician, a top nurse to look after you andyou really feel well, that is a luxury that many of us do not have, or at leastwe do not use to have because we could not afford these services. Education isa luxury. You go on to learn more than you think you need, staying at schooluntil your mid-20s instead of leaving at 15 or 16. That is a luxury industryobviously, for obvious reasons. Boring stuff like realistic management,household services, personal services, those are the sectors that we createjobs. Whether we like it or not, our society is becoming both wealthier andaging. Aging societies do spend more on what older people cannot be bothered todo; there would be job-creating sectors. They spend a lot more on care, hiringhouse cleaners, and real estate management, and what’s more, the older peoplethat we have nowadays are pretty wealth because they have not experienced waror massive recession that we have in the 1930s, so there are a lot of moneythat we call “silver generation spends”, the “silver market” is developing. Thecolor silver, as you imagined, come from the top of our heads, although some ofus do have a bit of hair, actually to show the color, but it is known that thesilver market that has been created more and more. Of course, there is no othercountry that have a bigger “silver market” than Japan, as you will see in aminute. Now the health sector does provide, especially the caring in health isa luxury. You can see here, that as income per head goes up, then the percentthat spends on health and care increases, United States, however is an out-liarhere, it is silly how much health and care costs in United States, I hope thoseof you are not from the United States, you don’t experience it. But it also hasto do with the weighty market, the structure. [Laugh] It has to do with theweighty market, but it is a very good correlation, you can see China actuallyis way below in spending of health and care, but you see it is very consistentwith what other countries are doing, given its GDP per capita. Now anotherfactor that pushes you in that direction, that there would be jobs created inhealth and care sector is that we have aging population, which pointed out. Nowyou see the problem Japan is facing, you might think 2050 is too far away;actually, it is not too far away. I intend to be around because the Queen ofEngland is going to send me a birthday card; I will be 100 at 2050. Maybe it isKing William who will send me the birthday card, but look atJapan, for every five people who ages 20 to 64, there will be four people over65. It’s not easy to manage, the only way to do it is to go for newtechnologies, increase productivity, create job for generations under 64, to improvehealth standards for all people to work over the age of 65, China, is going tohave this kind of problem because of the “one Child Policy” to a large extent,in fact the only country that does not have this kind of aging problems is theUnited States, you can see, European Union, China and Japan will have it, youcan see the only way to solve this problem is the robots and the jobdistractions that has been coming. And you can see the correlation here, UnitedStates spending far more than any country in health and care, China is waybehind, now the other number I want to show you is the employment percentage,now we can predict fairly accurately where spending on these sectors will be,and currently China has 6 percent, but it should go up to about 10 percent by2025, which the government should take into account.