How Automation Can Spur Job Creation in the Long Run

A major concern for policymakers and workers around the world is the loss of jobs that will result from increased automation. But a new working paper by researchers at Massachusetts Institute of Technology demonstrates that – while increased automation may cause job losses in the short run – advances in technology will lead to job-creation in the long-run. The authors show a cyclical balance between the growth of labor-intensive industries and the automation of jobs.

Daron Acemoglu and Pascual Restrepo suggest that advances in technology lead to an increasing automation, pushing down wages and increasing unemployment. However, they argue that the decrease in wages has a positive effect on job creation – as labor gets cheaper, companies start hiring. Advances in technology and automation also lead to a new set of jobs that require different skill sets, spurring further job creation. Eventually, wages begin to rise again.

For example, a number of jobs in book stores and retail shops have been lost due to the emergence of online shopping portals like Amazon. This job loss however has been offset by new jobs that have been created in engineering, warehouses and logistics, also enabling the companies to sell their products to larger markets. Similar trends may emerge in the transportation industry as driverless cars and drones take over.

Over time as the complexity of automation grows, the jobs created will only grow in number and in importance. As Acemoglu and Restrepo point out, “in each decade since 1980, employment growth has been faster in occupations with more novel jobs and tasks”.

However, one obvious problem is the need to re-train and support workers as the economy moves through the disruptive phase of job losses arising out of automation. The cycle calls for a strong social security net that will support workers as their industries are going through the transition, as well as a nimble skill training mechanism that can quickly adapt to the changing needs of different industries and keep up with advances in technology.

A mechanism like India’s National Skill Development Corporation (NSDC) which allows for quick disbursement of funds to private operators is one example of an approach to tackle this problem. The NSDC funds private training providers through soft loans and investments, allowing providers to expand their operations and adapt their training to the needs of the hour. As different industries engage with advances in technology, the NSDC can shift its funding to these industries.

Such models will allow for training at scale, and yet be flexible enough to quickly shift priorities as the needs of the economy start to change – presenting rapidly industrializing nations with a viable option to provide their workers with access to technical training, and making automation-led job creation a reality in the long run.