The debate around the impacts of technology is heating up

The debate around the impacts of technology is heating up

In 2005, there were less than one million industrial robots in the world. Today there are 1.8 million – higher than the population of Philadelphia. And looking forward, the International Federation of Robotics project that growth in the number of industrial robots will accelerate and reach around 2.6 million by 2019.

Typically, technological changes have a positive impact on labour productivity. For example, the information technology boom, which started in the late 1990s, increased US productivity to 2.8% per annum (1995-2004 period) compared to its long-term average of 1.9% per annum (see Figure 1). But what do technological breakthroughs mean for businesses and society as a whole?

PWC Table

Technological breakthroughs can help businesses contain cost…

Technology already plays a major role in the manufacturing sector but as robots become better and more sophisticated, we expect their impact to gradually permeate more industries, and, potentially the services sector, which accounts for most jobs in industrialised economies. Most business leaders are already taking notice of these changes and are factoring it into their corporate strategy.  At a global level, our latest annual survey shows that 77 % of CEOs think that technological progress is the megatrend most likely to transform how businesses interact with their stakeholders (see Figure 4).

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For businesses, technology can lower costs and increase efficiency. For example, robotics could help businesses make better use of their existing capital stock and increase margins. If so, this could create further demand for traditional forms of investment (e.g. warehouses and machinery). The prices of goods and services could also drop (or increase more slowly) if businesses pass on these  productivity gains to consumers through lower prices, which they should do so long as markets are competitive.

…but what impact does technological change have on jobs?

Innovation is usually cited as the main driver of a decrease in labour’s share of total output (see Figure 5) and the increase in the Gini coefficient – a measure of income inequality (see Figure 6).

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Pwc Tech 3GIF

While technological change could have helped shape these trends, we don’t think it’s the only game in town. Increased competition from China and other emerging markets, and offshoring to those countries, may also have played a  role, although this trend could moderate over time (or even reverse) as we have seen reshoring pick up in some advanced economies. Also some other factors  that could explain the rise in inequality include declining trade union power  since the early 1980s in many advanced economies as well as changes in tax systems in some countries that have favoured higher earners (notably in the US and the UK).

It is, however, realistic to suggest that more “sophisticated” technological change could have displaced some labour, particularly at the lower skilled end of the market. For example, in the US (and other western economies) this could partly explain the loss of 6.5 million manufacturing jobs over the last 35 years (but   with no corresponding drop in output). This approach, however, ignores the fact that labour could have been absorbed into other sectors of the economy — the   US services sector, for example created around 50 million jobs over the same period.

Are these societal trends likely to continue?

Looking ahead, technology that complements labour is expected to have less adverse effects on jobs than technology that replaces labour. In many consumer services sectors, for example, where human contact and care is of central importance, there is less scope for robots – at least for the time being – to replace humans.

In other areas, however, automation may represent more of a threat to jobs, though the debate on the scale of this effect remains heated. Frey and Osborne (2013) estimate that around 47 % of current jobs in the US could be at high risk from technological progress over the next two decades, but an OECD study finds that only 9 % of jobs would fall into this category, if you look in more detail at the multiple tasks required for these jobs. Digital technologies also create new jobs, as we have argued in past research, so the effect is by no means all negative.

Who will be the main winners from technological progress?

Technological breakthroughs are a disrupting force for businesses and workers. But for those businesses that can adapt fastest to new technologies, and workers with characteristics that machines don’t currently have, such as creativity and empathy, improvements in technology could deliver substantial economic gains.

Rise of robots – good news or bad for businesses and society?

Waves of innovation have always shaped the way households, businesses and society operate and interact. Technological progress has also been the key driver of rising standards of living, particularly since the Industrial Revolution.

Industrial RobotHowever, recently the debate has focused on the impact that technological change will have on the labour market. We have previously argued that technology can actually create jobs and we believe in some sectors, for example, where human contact is important, there is currently less scope for robots to replace people.

It is however likely that future technological change will eventually displace some workers, though these is some debate as to exactly how many jobs are at risk. This would obviously impact workers who could face lower job prospects, but there would also be knock-on implications for society and on the level of income inequality.

Linked to this, we examine how policymakers can combat rising inequality by looking at a range of large and small rich economies who have managed to contain income inequality, and have identified a common set of stylised policies they follow. These are to:

•             Provide equal educational opportunities;

•             Support low income workers; and

•             Maintain a fair and transparent tax and public spending system.

We also assess whether it is sufficient to look at GDP when assessing the extent to which Western economies have recovered from the financial crisis. Our analysis shows that household spending growth per person has not kept pace with real GDP growth in most advanced economies. In the UK, for example, real household spending per person is still lower than its pre-crisis level.

We also continue to monitor developments on Brexit as post-referendum statistics are gradually being published in the UK. Taking these changes into account we are still expecting GDP growth to slow next year, but are now projecting UK growth of around 0.9 % in 2017 (up from 0.7 % previously). At the same time, a falling pound could push inflation back above its 2 % target by 2018.

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