How will robots affect living standards?

Readers Question: This is hypothetical, but I wondered what would happen if we developed robots resembling humans who could perform any task a human could perform, but more effectively and essentially for free?

More specifically, how would this development affect employment and real per capita GDP, and what would the pros and cons be? What regulation, if any would be necessary?

Robots (and increased technology) have the capacity to improve living standards. The full extent will depend on how these productivity gains are distributed. In a way, the development of robots is a similar principle to the general improvement in technology we have seen since the start of the world.

When new technology is invented, in the short-term it can create winners and losers. Some workers may appear to lose their job as machines (or in this case) robots take over. But, there will also be new jobs created in the economy.

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The impact of robots on GDP

If robots can do the work of several people, then it will cause a significant increase in labour productivity. Rather than employ seven people to make a car. An automobile firm can invest in one robot and just need one worker to operate it. These productivity gains will increase aggregate supply and the potential output of the economy. Ceteris paribus, the successful deployment of robots will increase real GDP.

The impact of robots on inflation

The introduction of robots will help to reduce costs of production and will be a downward pressure on inflation. Without robots, a car firm would have to increase wages as real incomes rise. However, with the introduction of robots, the firm can employ fewer workers. Although robots will be a one-off investment, it will likely reduce overall costs.

The impact of robots on employment and unemployment?

If a robot takes the place of nurses/doctors – will these doctors become unemployed?

In the short-term, some workers may be made redundant if they decide to replace all their workers with robots (e.g. using AI to replace call centre workers with automated responses.) However, although some may lose their jobs, there are a few other effects likely to occur.

The lower cost of production can enable cheaper prices. Therefore, consumers (or government as the payer of health care) has more disposable income to spend on other things. We can spend more on new services, such as getting massage, yoga teacher e.t.c. Therefore, the cost savings, lead to other jobs. Also, there will be jobs in the development and building of robots.

It is possible the introduction of robots causes some structural unemployment. For example, if unskilled miners lost their jobs to robots – they may not find it easy to get the jobs in new areas, like yoga teachers and masseurs.

Also, it is unlikely that robots will fully replace doctors. It is more likely that robots may be used to do mundane tasks – like check blood pressure, paperwork and order prescriptions. This would free up human doctors to spend more time on valuable health care work, such as talking to patients, encouraging them to stay positive and take a healthy diet. Most doctors are time-stressed, robots may not replace – but just make the job easier or enable them to spend more time with patients not currently considered a high enough priority.

The impact of robots on equality

Will robots increase equality or increase inequality?

There is no hard and fast answer. It depends on many factors not linked to the technology itself. If a few large tech firms have significant monopoly power, then they may be able to gain significant economic rent (profit) from owning the technology with high barriers to entry and economies of scale. In this case, the main gain from productivity gains may go to a few people who own the companies. Workers and consumers may see less benefit from new technology and lower costs.

However, it is equally possible that new technology could lead to higher real wages for workers and lower prices for consumers. It will depend on tax rates, how competitive markets are, and whether workers gain a share of company profits.

The impact of robots on the working week

Will robots lead to a shorter working week?

In theory, robots will definitely enable a shorter working week. If robots increase labour productivity, tasks can be done with fewer worker hours. Robots can also do household tasks, leaving even more time for leisure.

However, there is no guarantee workers/society will choose to work fewer hours – despite the rise in productivity. Sometimes, workers may prefer to work long hours and not enjoy having more time off. More likely, firms may not offer shorter working weeks, but prefer to use trained workers to their full. Rather than give shorter working hours, the firm may see the technology as an opportunity to expand output and increase profitability.

Back in the 1930s, John Maynard Keynes predicted a 15-hour working week. His logic was that improving technology would enable people to do their jobs with fewer hours. However, his prediction didn’t come true. We have chosen to produce more and create more tasks rather than do the same with less work. (See: Maximum working week)

Will robots reduce the quality of service/quality of life?

It is easy to get caught up with efficiency and costs. But, increased automation and use of robots could have unintended consequences. For example, when you speak to a human, you get a very different feeling of speaking to a robot. A patient may become reassured by the human touch of speaking to a nurse who smiles and emphasises with them. A robot could be very depressing because it feels informal, non-human and well robotic! For some services like health care, education, the personal touch is an important, unquantifiable aspect of the good/service. If we push for more automation, we may lose out on valuable personal interactions and our quality of life may be diminished – even if we get lower prices of goods.

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By on November 1st, 2019

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