Issue Brief

Combating job loss by automation through education.

The problem

Automation has in the course of its progress made many jobs in the agricultural and

manufacturing sectors redundant in the United States economy. It is estimated that since the year

2000 more than 5 million US manufacturing jobs have been lost to automation1, and that number

is predicted to even grow higher. However, automation now poses a greater threat to the service

industry as technology such as Machine learning and Artificial Intelligence (AI) are becoming

sophisticated enough to handle cognitively demanding jobs. The threat posed by automation to

the service industry is that it has the ability to create a lot of unemployment as the service

industry contributes 80.1% of US jobs2, and that is one of the reasons why a PWC study3

suggests that the US has the highest percentage of high-risk of automation jobs in the world

standing at 38%. This suggests that in the near future, millions of jobs that are mostly operated

by trained, highly-skilled, and educated individuals are going to be made redundant as computers

learn how to do perform these jobs more accurately and for a cheaper price8. The seriousness of

this problem stems from the threats of unemployment, threats that include social instability and

inequality9. Therefore, automation should be taken seriously because it could be the primary

cause of so many social and political issues in the future that could arise from long-term

unemployment and rising inequality. To add context on the type of issues that could be caused by

automation, it is believed by many experts that one of the reasons why the current President of

the United States of America Donald J. Trump was elected was due to his appeal to people who

have lost their jobs to automation10. Even though Trump suggested that it was Mexico and China

to be blamed for the loss of many jobs, the core of his supporters come from areas heavily

affected by unemployment and much of that was caused by automation. Hence, we could see
how the impacts of automation could play itself out through political and social tension, and that

could cause unnecessary suffering if there were no effective policies that can at least mitigate the

harm caused by automation. Additionally, because automation allows for higher productivity and

lower costs, it is virtually inevitable that most industries in a free economy would adapt by

increasing their use of automation while laying-off more workers in order to become more

profitable. Therefore, policies should be more comprehensive in how they deal with automation,

especially since automation is going to target multiple industries which adds further complexity

to the issue. However, it should be noted that automation increases the productivity of the

economy and that is very important especially since US productivity growth has been very low

for many years11. Therefore, policies should not go against automation, rather they should find a

delicate balance in which the issues of unemployment and inequality are addressed whilst also

maintaining economic growth.

Figure 1 from an article by The

Economist shows how susceptible
different white-collar jobs are to
automation.

Furthermore, the threat is exacerbated by the fact that the technology being discussed is not a

thing of the future-- it is currently sophisticated enough to automate a lot of jobs. In medicine,
for example, recent advances in AI and Deep Learning have been able to automate a CT scan and

have the robot recommend medically accurate advice to the patient4. In the world of finance, key

aspects of the industry are routinely being replaced by servers running trading algorithms5,

leaving in its wake the loss of many jobs. According to data from Coalition Ltd research firm,

there has been a fall of 31% in global fixed-income headcount since 20116 and statistics from the

New York Stock exchange show that since the year 2000 the number of floor traders has dropped

from 5500 to less than 4007. A few experts have even claimed that Wall Street will be the new

Rust Belt6 as the threat of automations role in producing mass unemployment in that industry

becomes clearer.

Automation will widen the inequality gap in the United States as the rich stand more to gain

from the new technologies than the poor. This mainly comes from two reasons- automated robots

will provide increased productivity for less pay (since robots dont receive a wage) thereby

making the people that own them a lot wealthier and from the predicted unemployment that will

gradually increase as robots find their place in the industry. Income inequality adds a layer of

complexity to the problem of automation because it is an inevitable outcome12 that will lead to an

increasingly polarized society. The problems that arise from that will likely make the American

democracy and civic society much harder to maintain as income inequality is the main driver for
societal ills such as crime, teen pregnancies, and social immobility13.

Source: Emmanuel Saez, Center for Equitable Growth, June 2015

Moreover, income disparity in the United States is already at a very unsustainable level. The top

0.1% of Americans make more than 184 times the income of the bottom 90%. The income

disparity is only going to grow wider with the new technologies coming into the market. This

will provide increased productivity; however, the benefits will only be reaped by the rich.
 Source: Emmanuel Saez, Center for Equitable Growth, June 2015

This graph shows productivity growth in relation to hourly compensation growth over time.

Productivity growth refers to how we use new technologies to produce more goods- automation

will likely increase the productivity growth rate substantially. However, this graph shows a trend

that productivity growth doesnt equate to wage increases- this means that the increase in wealth

caused by the productivity increase doesnt affect the income of laborers. Hence, we could

conclude that automation, if left unchecked, will increase productivity but at a much faster rate

than hourly compensation. This means that the issue of income inequality will worsen over time

because of automation.
The solution

Automation in the service industry means that highly-skilled jobs or tasks will gradually become

the responsibility of newer, more sophisticated technologies. However, human skills relating to

problem-solving, critical thinking, effective communication, as well as skills in handling

technology will have a far greater need in the future market14. These soft skills are becoming

ever more crucial because robots will soon be responsible for most of the jobs that require deep

technical skills. An issue with that is that these skills need to be learned first through education.

Therefore, the solution is to offer education that focuses on improving the skills needed by

the market and by making it cheap and easily accessible.

One way of doing that is by providing government subsidies to educational centers that already

provide these services. These subsidies will come from taxes that are levied on industries that are

automated the most. These subsidies will help reduce the costs associated with providing

education; hence, it would make education cheaper. Moreover, if there was a government

program that would provide subsidies to educational centers based on the amount of people that

they cater to, then the supply of education will increase to fit the demand as there would be an

economic incentive for them to do so.

This solution is beneficial because providing market-needed education will make the laborer

more economically viable, by being able to add more value, to the employer and it will most

likely raise the productivity rate. This would mean an even greater output in the economy as well

as preventing the job loss that would have otherwise been inevitable given that the United States

has a free economy. Moreover, it reduces the slack that would have been caused by other

solutions such as Universal Basic Income. Although UBI could reduce income inequality, it
would also discourage people from adding economic value to the world. Therefore, the best

solution is to provide cheap and easily accessible market-relevant education.

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Jackson, Abby. "CUBAN: Don't Go to School for Finance - Liberal Arts Is the Future." Business
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