Jobs Going This Time Aren’t Coming Back

March-April usually means the start of a new financial year and new opportunities at work in India. Appraisals, new assignments, new responsibilities. My mind turned to the rather high rate of joblessness in India (a subject of much debate) and whether it will be an important issue in the elections that are just a few days away. After all, we have 12 million people coming out of our universities every year and looking for work; in the digital era, surely that is a concern in most people’s minds.

So how serious a threat is automation and AI? According to most studies, around 30-40% of jobs are not going to exist in another 20 years and almost 25% of jobs will be lost to AI and automation by 2030. McKinsey in its report, Jobs lost, jobs gained: What the future of work will mean for jobs, skills and wages says that the technical automation potential using currently demonstrated technologies is around 50%. They also say that 6 out of 10 occupations have more than 30% of activities that are technically automatable. In McKinsey’s estimation of the percentage of change in labour demand by occupation for industrialised and emerging economies assuming mid-point automation, around 15% of workers are likely to be displaced by 2030, affecting approximately 400 million people.

But are all jobs under threat? The Brookings Report, Automation and AI: How machines are affecting people and places is a study of how automation will affect the US, but it has relevance for the entire world. First, the report says that automation and AI do not replace jobs, but tasks; and since we perform two types of tasks, routine and predictable physical tasks and cognitive tasks, it is the former type that is most at risk of being replaced by automation and AI.  Production, transportation and food production are at the greatest risk, while creative industries, management and professional jobs, including healthcare, are at the lowest risk. Automation potential is therefore highest for low wage jobs and for rural and small towns in the US. Also, men, young workers and under-represented communities work in more automatable jobs, which means the most vulnerable people – economically and socially – are the ones who will be worst hit by the looming jobs crisis.

But then again, haven’t we faced automation before? And to what extent does greater information technology capital improve productivity where machines replace human beings? As economists Daron Acemoglu, David Autor, David Dorn, Gordon Hanson and Brendan Price find in their 2014 study, Return of the Solow Paradox? IT, Productivity, and Employment in US Manufacturing, higher investment in computerised technology in manufacturing by IT-using companies in the US didn’t result in much higher productivity, rather it depended more on the IT-intensity used. Further, they find little evidence of faster productivity growth in IT-intensive industries, after the late 1990s. Even more significantly, they find that the rapid growth of labour productivity in IT-intensive industries is associated with declining output and declining employment.

I wonder if some industries – and indeed even some parts of the manufacturing industry – improved IT-related productivity more than others, given that a lot of manufacturing was moving out of the US to other countries. And could businesses have tolerated declining output in IT-using and IT-intensive industries, because they were enjoying better pricing power.

If we look at the impact of higher automation on wages, we find that higher computerization in industry did indeed lead to higher demand for better-educated and better-skilled labour and consequently, higher wages in the US, according to a paper by economists, David Autor, Lawrence Katz and Alan Kreuger in 1997, titled Computing Inequality. Examining the trend from 1940-1996, they find that the demand for college graduates in the US rose sharply after 1950 when computers began to make their appearance at the workplace and rose fairly steadily between 1950 and 1980, unusually fast in the 1980s before slowing down in the 1990s. At the same time, wages for college-educated, computer-using employees kept rising, showing a positive correlation with the rising demand for better-educated and skilled workers.

They also study the importance of skill-upgrading (relevant in today’s context of preparing for the automated and AI world) in improving the wage-share bill. And more importantly, while concurring with authors of another firm-level study, they point out;

We do not view the spread of computers as simply increasing the demand for computer users and technicians, but more broadly as a part of a technological change that has altered the organization of work and thereby more generally affected the demand for workers with various skills. The computer revolution may thereby be an important component of secular increases in the relative demand for skilled workers in recent decades.

This too has relevance in the days of AI and automation. So, better education and re-skilling are clearly the answers to today’s employability problem. As the Brookings Report highlights, the five agendas for the future should be 1) Embrace growth and technology; 2) Promote a constant learning mindset; 3) Facilitate smoother adjustment; 4) Reduce hardships for struggling workers; 5) Mitigate harsh local impacts.

The World Bank has also prioritized this as an important agenda for the future and has stressed the need for governments to be more involved, especially in education and healthcare. In their World Development Report 2019: The Changing Nature of Work, they say that since 2001, the share of employment in non-routine cognitive and socio-behavioural skills has increased from 19% to 23% in emerging economies and from 33% to 41% in advanced economies.

The World Bank has created a new Human Capital Index, which they have released as part of this report. It measures the amount of human capital that a child born in 2018 can expect to attain by age 18 in view of the risks of poor education and poor health that prevail in the country in which she was born. The index itself has three components: 1) Child survival rate from birth to the age of 5 years; 2) A measure of expected years of quality-adjusted schooling and 3) Two broad measures of health – stunting rates and adult survival rates.

Where does India stand? India ranks 115 out of 157 countries with a human capital index of 0.44. Some of our smaller neighbouring countries such Bangladesh, Sri Lanka and Nepal are ahead of us. The point worth noting is that the highest human capital is to be found in four Asian economies: Singapore, South Korea, Japan and Hong Kong leading the Index in that order. There are three Northern European economies in the top 10: Finland, Sweden and the Netherlands.

On the changing nature of task content in India, research scholars, Pankaj Vashisht of Indian Council for Research on International Economic Relations (ICRIER) and Jaydev Dubey of Jawaharlal Nehru University, in a World Bank sponsored “Jobs for Development” research project, find that non-routine cognitive analytical task intensity and non-routine cognitive interactive task intensity have increased in India between 1983 and 2011, requiring a different level of education and skill development. They report that while non-routine cognitive task intensity has risen in India, the routine cognitive task intensity has not declined or stayed the same; rather routine cognitive task intensity has risen by 3.2% between 1983-84 and 2011-12, with most of the increase taking place before 1998-99. They attribute this to the agriculture and services sector, where a large number of routine cognitive tasks survived. They also think that the improvement in the manufacturing sector after 1998-99 was because of FDI liberalization policies in 1998-99, which led to greater equipment import and more automation in Indian factories.

Their paper points to the dualistic nature of the Indian economy with a growing organized sector where routine cognitive task intensity has been declining, but also a large unorganized sector which accounts for 90% of employment where routine cognitive task intensity has increased because of low levels of automation, as a serious challenge to be overcome.

This, and the other kinds of inequalities that automation and AI will engender in the not-too-distant future, make it imperative for everyone – from governments to businesses and ordinary citizens – to prepare themselves better for these occupational challenges and to provide protection against setbacks which could be quite severe.

Technological changes seem to be so disruptive and far-reaching this time, that they have transformed entire industries. As Yuval Noah Harari says in his book, 21 Lessons for the 21^st Century, the biggest difference this time are the simultaneous revolutions in info-tech and bio-tech:

Even more importantly, the twin revolutions in infotech and biotech could restructure not just economies and societies but our very bodies and minds. In the past, we humans have learned to control the world outside us, but we had very little control over the world inside us…

The revolutions in biotech and infotech will give us control of the world inside us and will enable us to engineer and manufacture life. We will learn how to design brains, extend lives, and kill thoughts at our discretion. Nobody knows what the consequences will be.

The last sentence of his statement is cause for concern. Governments and regulators around the world are so behind the curve, they have no idea – and perhaps no inclination either – to install checks and safeguards. Sometimes, I think they might even be working with the tech giants in taking the world to this future, without preparing citizens for what’s coming.

A recent article in the New York Review of Books by Stephen Buranyi, former researcher in immunology and now science journalist, on gene editing sounds out an ominous warning. It talks of the lack of regulation in gene-editing and scientific research which might lead to what many in the scientific community consider inevitable now – crossing the red line of germ-editing. That would be like crossing the Rubicon indeed.

While I haven’t yet read her book, Surveillance Capitalism, I recently read Shoshana Zuboff’s conversation with The Guardian and an article by her in Fast Company on how the unregulated tech industry is going to rule our lives in future. The Economist thinks she is being excessive in her criticism of the way the industry operates, but I think she might be right in cautioning the world about some of the industry’s excesses.

While reading the World Bank World Development Report, the thought crossed my mind that since economic wars in future are going to be of the technological kind, is it not possible that some governments, especially those in the West that are facing the backlash of globalization and the anger of their citizens, work with large tech corporations in reversing globalization through automation and AI. After all, when labour cost arbitrage has run its course and there is nowhere else to take your manufacturing facility, it makes sense to return production to home base. And now, technology even allows it. With 3D printing making huge advances, additive manufacturing as it is called, makes immense sense for many products.

I am pleased to note that I am not alone in thinking so. Harari does raise the issue of reversing globalisation through technology as well, even if not in the same terms. With more authoritarian and nationalist governments around the world, there is every reason to be concerned. It will mean the loss of livelihood and jobs for millions in developing and emerging economies.

Automation and AI will bring the largest, unbridgeable kind of inequality, the kind of which the world has not experienced so far. If this sounds terribly like Aldous Huxley’s Brave New World, it is perhaps because we are standing at the threshold of just such a future. A world of Alpha individuals born in hatcheries (think laboratories), separated from the rest of humanity by our native and artificial intelligences (there could, of course, be the question of what is native anymore, since we will be born with designer-brains). There will be the Reservation (think poor, starving communities racked by ethnic strife, famine and war) and the World State.

How will mankind deal with the disruption? It all depends, as always, on the powers that be. In the meantime, India is squandering away her precious demographic dividend.

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I will be sharing a video of an engaging discussion between Thomas Friedman, author and New York Times columnist, and McKinsey Global Institute’s James Manyika on the future of globalisation in the May selection of reading and viewing at The Whistle Library, exclusively for subscribers to The Whistle newsletter.