Does Automation Lower Wages? Unpacking the Complex Relationship Between Automation and Worker Earnings

When discussing the impact of automation on wages, one might initially think, as some did in the past, that the rise of steam power or the internet would lead to a decrease in wages for human workers. However, history and current trends suggest a different narrative: while automation does eliminate jobs, it can also increase productivity and raise wages in meaningful ways. Let's explore this complex relationship further.

Automation vs. Wages: A Broadly Disruptive Force

Automation, a broad term encapsulating various technologies and processes, often leads to job displacement. For instance, the installation of a single robotic system can replace, on average, sixteen human workers. This displacement is a significant challenge for industries heavily reliant on manual labor, such as manufacturing. Yet, it's crucial to understand that job displacement does not necessarily equate to a decrease in wages for the remaining workforce.

Displacement and New Opportunities

The advent of automation does not evenly distribute job losses. While some roles become redundant, new positions are created, particularly in the maintenance and assembly of automated systems. However, this transition can be challenging for workers whose skills are no longer in demand. This shift presents opportunities but also requires retraining and skill development.

Furthermore, the economist argument is that automation primarily raises wages by increasing productivity. As machines take over more mundane and repetitive tasks, human workers are freed to focus on more creative and value-added activities. This reallocation of labor enhances overall productivity and, in turn, can lead to higher wages. However, the transition period can be difficult for those who lose their jobs to automation.

Redefining Economic Metrics: Beyond Monetary Value

In discussing the impact of automation on wages, it's important to move beyond a narrow focus on monetary metrics such as nominal wages. Traditional economic indicators like GDP and real wages, while useful, may not fully capture the true benefits of automation. For instance, real wages adjusted for inflation only tell part of the story.

Instead, a more meaningful metric is how much time workers need to spend to obtain goods and services. When workers can produce more efficiently, they have more discretionary time to enjoy the fruits of their labor or pursue other activities. This concept goes beyond mere monetary compensation and reflects the true value of labor in terms of time saved.

Time, Productivity, and Choice

Consider the example of building a guitar. If automation makes it possible to build a guitar faster, the time saved can be used for playing the guitar or pursuing other hobbies. Moreover, the ability to produce multiple guitars in less time opens up the possibility of exchanging some for other items, which would otherwise require even more time to produce.

This raises an important point: the true measure of an economy's well-being is how much time workers have to spend on activities they value, not just how much money they earn. Automation, by increasing productivity, frees up more time for workers to enjoy life and pursue new opportunities.

The Role of Consumer Demand in Driving Jobs

A common misconception is that automation will lead to a job shortage. However, the supply of jobs is driven by consumer demand and the need for goods and services. So long as there is still demand for products and services, there will be jobs to meet that demand. Automation merely shifts the nature of those jobs, often creating new roles in technology and innovation sectors.

Moreover, as technology advances, new wants and needs emerge, perpetually maintaining the demand for human labor. Even something as groundbreaking as the iPhone required months of labor, and it was only invented through the efforts of millions of workers. If we were to face a true job shortage, it would indicate a highly productive and fulfilled society, where the time consumed to produce and obtain goods is close to zero.

Conclusion

In conclusion, while automation may displace jobs in certain sectors, it does not necessarily lower wages. Instead, it can increase productivity and improve the overall standard of living by reducing the time needed to produce goods and services. The key for workers and policymakers is to navigate the transition to more value-added roles and ensure that retraining programs are in place to support the workforce during this period of transformation.