Will Automation lead to Unemployment?

Will Automation lead to Unemployment?

Recent research analyses the effects of automation on employment levels and wages in Japan. What the findings imply may just be seminal.

The world today is rife with debates among policymakers, industrialists and academics regarding automation being potentially labour-replacing in its adoption in industries worldwide. Several previous studies have, in fact, corroborated this as well: the adoption of robotic technologies have, on several occasions, led to the reduction of both employment levels and wages, such as in the adoption of industrial robots in the United States. With the incoming industrial revolution set to be driven by automation and artificial intelligence, a symbiotic relationship between robotic automation and the human-labour force needs to be established, sooner rather than later. Japan could be, in this regard, a pivotal point towards assuring the sustainability of robotic adoption in the world.

The Japanese Landscape

Japan was one of the earliest adopters of robotic technology in the world: producing its first industrial robot, the Kawasaki-Unimate, in 1968. This propelled its position as the first firm business adopter of domestically-produced industrial robots in the world. The earliness of the adoption and the fact that these robots were almost all domestically produced – makes Japan a prudent case study for researchers to analyse the impact of automation on the employment levels and wages within a nation.

Figure 1: Stock of robots by country; Source: Adachi, Kawaguchi, Saito (2021). Data sourced from the International Federation of Robots (IFR) and the Japan Robot Association (JARA).

Through the 1970s and the 1980s, forced by the agenda of reducing human-intensive labour in harsh work environments, Japan rapidly expanded technological penetration within its industries. The ensuing robot-rush amongst competing industries, therefore, allowed Japan to become a highly mechanised industry-engine much sooner than most other competing economies.  According to the researchers: “This unique feature of Japan, however, poses a substantial challenge for researchers who attempt to estimate the causal effect of robot penetration on employment, because technology adoption is endogenously determined. Increase in technology adoption and increase in labour demand might occur simultaneously when product demand expands in an industry.”

Marginal Robotics

This challenge was overcome by “exploiting the technological progress in robot production that is captured by the fall in the price of robots.” As was evident from the research, decrease in robot prices varied substantially across robot application types. This heterogeneous change in robot prices across types was found to have a direct relation to the kind of industries utilising them. For example: when the price of welding robots fell starkly, the automobile industry, which made abundant use of welding robots, also saw a concurrent price drop. Correspondingly, the electronics industry, where the use of assembling robots is more common, saw no such price drop owing to relatively constant prices of assembling robots. These inter-industry trends of price fluctuations thereby allowed the researchers to analyse any possible causal impact of robot adoption on employment.

Figure 2: Unit-value of robots; Source: Adachi, Kawaguchi, Saito (2021).

Using this methodology, the researchers found that robots were, in fact, complementary to employment: “We examine this finding both at the industry level and the region level. At the industry level, we show that a 1% decrease in robot price increased adoption by 1.54%. Perhaps more surprisingly, we also find that a 1% decrease in robot price increased employment by 0.44%. This finding implies that robots and labour are gross complements. Therefore, taken together, our two-stage least-squares estimates suggest that a 1% increase in robot adoption caused by price reduction increased employment by 0.28%.”

Further analyses indicated that an increase of one robot for a thousand workers would increase employment by 2.2% – which is starkly different from the 1.6% decrease noted in the United States in previous research. The difference, however, makes sense owing to the time period and the export-oriented nature of Japan’s electric machine and automobile sectors. The cost-reducing effect of robot adoption contributed not only to the expansion of exports but also to expanding labour demand.

Although several other caveats were noted in the analysis (such as the difference of impacts between the manufacturing and the non-manufacturing sectors), this research is seminal in its methodology of establishing the fact that the adoption of automation technology is not always (necessarily) bad news for the human workforce.

 Reference: Adachi, D, D Kawaguchi, and Y U Saito (2020b), “Robots and Employment: Evidence from Japan, 1978-2017”, Discussion papers 20051, RIETI.

You can access the full paper at: https://www.rieti.go.jp/jp/publications/dp/20e051.pdf

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