Markets

Automation Technology and Its Impact On Jobs

Fundamental to technological advancements are a transition from manual labor to automation. While automation has been a buzzword over the past 5 years, this concept has been streamlining manual processes as early as the steam engine in the 1800s. Yet, this new era of automation and artificial intelligence has invoked fear of a society in which computers replace both blue collar and white collar jobs. Despite what it may seem, technology has not replaced labor, but improved task efficiency and provided workers the time to focus on other tasks. Over the course of history, the adoption of new technology has created jobs, increased productivity, raised earnings, and increased the demand for skilled labor.

History of Automation

Over the course of history, advancements in technology have transformed repetitive human processes into cheaper tasks rapidly performed by machines. The past three centuries have exhibited three waves of automation, from the advent of machinery to artificial intelligence witnessed today. In the 19th century, the introduction of automation replaced dirty and dangerous jobs with industrial equipment. This marked the Industrial Revolution in America, with the introduction of tools such as the cotton gin, steam power, and machinery which relieved humans of onerous manual labor.

In the years following, machinery has focused on replacing dull, clerical chores with automated interfaces. Take computers for example. In the early 20th century computerization could seamlessly execute mathematical calculations, traditionally performed by a room full of workers. Yet, the strides made in the 19th and 20th centuries do not compare to the technological advancements of the past 15 years. With the availability of cheap computing power and increasing storage capacity, the internet, artificial intelligence, big data and improved analytics are automating routine tasks but also complex decision making formerly left to professionals.

Productivity

The fundamental purpose of automation and technology is to improve productivity, generate increased output and reduce costs. Over the course of history, productivity has been the closest indicator of long term economic growth. Not only does rising productivity increase overall growth, but influences living standards, consumption and income per capita.

By definition, productivity is the amount of output produced per unit of labor. Largely contributing to productivity growth has been improved technologies driving advances in energy, transportation, communication and logistics. Since productivity is relatively difficult to measure, labor productivity and Gross Domestic Product (GDP) often reflect the advances in output.

Consequently, with increasing investments in technology, global output and labor productivity has exploded. In the past century, estimates suggest a majority of the increases in total productivity have been as a result of increases in labor productivity. Likewise GDP in the United States has exhibited exponential increases from $320 billion in 1950 to $17 trillion today. Despite increasing domestic production, technology has intertwined the global economy and as a result, GDP and output have expanded.

Earnings

With many advances occurring in automation and artificial intelligence, many Americans are skeptical whether technology will begin to replace labor. However, based on a historical perspective, technology has displaced routine work into highly skilled labor. Needless to say, technology enables workers to produce more goods and services and therefore create higher wages and living standards among the middle class.

The increases in wages is an outcome of competitive labor markets compelling employers to pay workers a wage proportionate to their productivity. With that said, virtually all Americans today enjoy material living standards vastly better than those in the 1900s. By comparison the GDP per capita in 1913 was $5,301, while in 2014 it was $54,800.

Employment

Throughout history, advances in technology have ignited frustration over the potential of job displacement and unemployment. However if you go back in history, 90% of American worked on farms in the 1800s and now less than 2%. Yet at no point in history, aside from the Great Depression and 2008 Recession, has there been mass unemployment.

As technology has automated routine jobs, those jobs were replaced by new jobs. This still remains to be the case as great visionaries such as Bill Gates and Steve jobs helped create the computer industry. Even in the last 15 year, when computer technology is experiencing its greatest progress, the labor force in the U.S. grew from 150 million in 2000 to 160 million in 2014.

Among the greatest innovations in history, the internet has been adopted in the shortest amount of time by a majority of Americans. Needless to say these advances may have displaced certain types of work, yet in the 21st century, we have witnessed a rapid growth of software developers and computer engineers.

The Future of Automation

Up until this point automation has enhanced efficiency predominantly in blue collar and manual work. Technology from the steam engine to the internet have not only improved our lives but created new business models and driven economic growth. Only until recently, technology has begun to disrupt traditional skilled labor. The emergence of financial technology has made strides in automating investing, which traditionally required a financial advisor. Despite what it may seem, this transition was not intended to replace traditional financial services, but create more accessible platforms to the middle class

However as technology continues to unfold, machines will soon be composed of artificial intelligence and deep learning. This encompasses a complex set of algorithms mimicking the neural networks and decision making in humans. In this situation, the demand for technical professions such as software developers and engineers will become more prominent. Ultimately, technology will free us up even more from our day to day toil and allow us to create positive and socially beneficial work environments.

Since the advent of machinery, the story of automation displacing jobs has always frightening individuals. Historically however, technology has created more efficiency, productivity and even higher living standards. While many recent developments in automation and AI have threatened to upend skilled labor, human relationships will remain fundamental in many industries.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Trevir Nath

Trevir Nath graduated in 2011 from Rutgers University with a Bachelors in Economics & Psychology. His Psychology and Economics degrees increased his understanding of financial markets from a human behavior perspective. Looking to further his understanding of financial markets, he went on to obtain his Masters in Economics from the New School graduating in May 2014. He currently writes about personal finance, investing and its interaction with technology. His work also appears for numerous financial websites including Investopedia.

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