Abdulrahman Al Babtain

Dr. Chris Spielvogel

RCL 138

14 April 2017

Issue Brief

Addressing the problem of automation by investing in education

Introduction

The development of technology is a constant human endeavor that is not only the prime driver

for economic growth1 but also the most important factor when it comes to reducing suffering.

The development of stone tools and weaponry, for example, brought with it the ability to access

all foods in nature and to protect the primitive peoples from predators2. The advancement of

simple mechanical devices, such as pulleys and levers, enabled humans to magnify their muscle

strength to produce more work with less energy spent. The technologies developed during the

industrial revolution, such as the steam engine and the telephone, allowed societies to ease to

develop a modern lifestyle characterized by mass-consumption that made them live longer and

happier lives.

Today, the next step forward in terms of human technological advancement is the development of

Automation technologies. Automation, in the context of this paper, refers to the use of control

systems, such as computers and robots, and information technologies to handle different

processes and machinery in an industry to replace a human being. Given the rate of

technological advancement that we have today, automation will soon become sophisticated
enough to handle tasks that require a high-level of cognitive ability (I.e. legal advice and medical

diagnosis). However, the introduction of all new technologies to society always carries some

costs to it and in the case of Automation, the cost is its purpose which is to replace human labor.

In our modern day societies and economies, human labor- which is going to be referred to as

employment- is one of the most important features. People usually have to perform some form of

labor to receive compensation that allows them to consume goods and services. Therefore,

because labor is essential to our survival, it is not surprising that macroeconomics is mainly

concerned about reducing unemployment and increasing economic growth. Automations, like

most technologies that focus on productivity, will most likely increase economic growth;

however, it will also simultaneously cause employment to decrease substantially as automation

technologies start to replace human laborers in various industries.

Due to the high costs of automation and its inevitability in our modern societies, an important

question has been raised: How can society help mitigate the costs of automation, including

unemployment and income inequality, whilst using it to increase productivity across all the

industries of the economy? No society has fully answered this question- most societies chose to

ignore this question and instead blame the costs of automation on other issues such as

immigration and foreign trade3. However, in this paper, I will attempt to answer this question by

stating that investing in education, especially in training soft skills, is the best way to address

the problem of automation.

The intricacies of 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 automation4, 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 jobs5, and that is one of the reasons why a PWC study6

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 price7. The seriousness of

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

inequality8. 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 automation9. 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 years10. 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 patient11. In the world of finance, key

aspects of the industry are routinely being replaced by servers running trading algorithms12,

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. These soft skills are called soft because they dont deal with any technical know-

how; rather, they are a set of skills that deal with social, communication, and character skills that

allow people to work together more productively. These skills will be much more crucial in the

future because people will have to deal with finding more efficient ways to use and distribute

resources and wealth. If youre in the financial industry, for example, your employer might not

ask you if you can produce stock-future reports (or any technical tasks), rather they would be

more concerned with you finding solutions to greater problems (such as should this company

merge with that company or any problems that involve human factors) and if you can effectively

communicate your solutions to your peers. This is because automation will most likely focus on

completing technical tasks in a faster, cheaper, and overall better quality than what people can

achieve. However, robots and computers are still not sophisticated enough to handle human

behaviors and factors as well as how humans currently do- otherwise robots would be our

overlords. However, for people to correctly identify and communicate their solutions- they need

to be educated first. This is especially true since our societies- and by extension our issues- are

becoming more complex and therefore the people should be more equipped to solve these issues.

Thus, investing in human-capital, which mostly refers to education, is the natural choice for this

situation.
Mark Cuban, a billionaire who has interests in the technology industry, stated that education in

the liberal arts which focuses on the development of these soft skills among others will most

likely be the most valuable one in the near future because of automation.

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. This would be done by assessing the level of the involvement of automation

in overall production in a given industry and then taxing it accordingly. The taxes should also

help mitigate the pace of automation and raise more funds to deal with other issues. The

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.

However, the solution to the problem has its limitations. Investment in education would not

necessarily return the employment level in an automated economy to a level that would be

considered acceptable and good today (about 2-5%). This is because it is largely dependent on

the motivation and the ability of the person to achieve a level of education that would be needed

in that economy. Moreover, education wont necessarily translate to economic value- not all

education is relevant to economic production.

Nevertheless, Education, given the information that I used in writing this paper, is the most

promising solution to a very serious problem. It allows for labor mobility, which is the ability of

one person to perform different types of labor, to increase in a given society because education

allows people to develop a skillset that can be translated into a lot of different jobs. Therefore,

people might stand a higher chance of getting em However, it shouldnt be thought of as a cure

for the ills of automation, but more as an analgesic that can provide some relief for the symptoms

caused by automation. This is because there is no cure and society will just have to learn to adapt

with automation.
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