Recently there was an article regarding how the driverless truck is coming, and it’s going to automate millions of jobs. Similarly, intelligent automation of the workforce has become a heavily discussed topic since the World Economic Forum DAVOS 2016 gathering where the fourth age of the industrial revolutionwas an area of focus. The discussions got me thinking about economic indicators used to measure economic activity.
When machines displace an industry completely, like truckers or taxi drivers, how do we account for this in our economic indicators? As of today, the number I’m fascinated with is the unemployment rate.
Unemployment rate is the percentage of labor force that is currently unemployed but was available for job in last four weeks and was actively seeking employment in that period.
Unemployment Rate = Unemployed/(Employed + Unemployed)
Short Term Impact in Unemployment
Now what happens when automation replaces a job:
Unemployed increases — you lose your job to a robot
Employed decreases — a robot, not a human, is now employed.
Therefore, Unemployment Rate increases
Medium Term Impact in Unemployment
Now this is where things get interesting — let me caveat the Short Term effect with the fact that discouraged workers may be able to find work and get added to the employed variable. My counter argument is that in a world where automation is proliferated at a rapid pace, discouraged workers (especially blue collared & back office workers) where automation will be hit the hardest, will stay discouraged as the rate of automation will outpace the rate at which one can retool their skill set later on in their careers. So now
Unemployed increases/decreases — Robots take jobs, Unemployed goes up. Discouraged workers give up against the machine and attempt to retool — they leave the equation.
Employed goes down — Employed goes down as robots, not humans, take jobs.
Note: the question I’m still trying to answer is if discouraged workers outpace unemployed worker in the medium term. If jobs are being replaced at a rate faster than unemployed moving to discouraged — unemployment goes up. If the opposite occurs, unemployment goes down.
Therefore, the Unemployment Rate fluctuates quite a bit
Permanent Impact on Unemployment
If we continue down this road of AI & Automation, front office and white collar jobs will be severely impacted too — not to say they won’t be in the short term but usually people in power find ways/excuses to stay in power … “who will manage the robots?”
Also, if we’re trying to automate our lives and have Automation & AI run the show, the theme of becoming unemployed and then discouraged doesn’t necessarily become a fluid two-way mechanism, that is people coming in/out of the process, but rather a permanent state.
Unemployed worker = Discouraged worker = ZERO
Therefore, Unemployment Rate is ZERO.
Great my country is at zero unemployment — now what?
The unemployment rate premise was based on a foundation that there was fluidity in the job market, humans do the work, and market cycles create new job opportunities. With the rise of the fourth industrial revolution and the upsides we gain in Automation & AI, none of that foundation exists. We may get pretty close to a unemployment rate of zero, but that also means we have a record number of people sitting on the sidelines. What happens to the new found fortune of time for these retirees:
1. We Party: we no longer need to work so we indulge in all of life’s enjoyment. We go socialist and the government takes care of us cause they have nothing else to worry about — the market becomes instantaneously perfect (supply & demand are now dictated on discrete predictable actions of a computer). We become recluse, gluttonous, tv watching zombies.
2. We Revolt: income inequality shoots through the roof, GDP tanks because households don’t have income to consume goods, Automation & AI are used to cut out the low & middle class, crime is through the roof, and we are left with no choice but to revolt against the machines:
3. We Do What Matters: we move past trivial mundane tasks that are our jobs, and we start attempting to answer the more important questions — and maybe that’s the point.
Automation & AI should help free up our time (in both our personal & professional lives) so we can focus on the stuff that really matters.
Source: Medium-The End of Unemployment