2003 December 08 Monday
On Automation, Job Losses, And Immigration

Glenn Reynolds of Instapundit fame has a column up on Tech Central Station which explores the question of whether robots will lead to mass unemployment (my guess: YES!). Along the way he points out that the rise of unemployment due to robotic automation may lead to an increase in anti-immigration sentiment.

First, lots of low-skill jobs are disappearing forever. Second, that trend is likely to accelerate. Third, even if (as I suspect) the economy generates new jobs to replace the old ones, the new jobs may not be as low-skill, and they won't magically appear in synchrony with the disappearance of the jobs they replace. The upshot is that there are likely to be both economic and political repercussions from technological change, and the technological change that drives them is likely to occur at an accelerating pace. That will produce both short-term and long-term consequences.

In the short-term, we're likely to see a swing toward protectionism and perhaps even a growth of anti-immigrant sentiment; the former is already beginning to show up in the 2004 election dialogue, and the latter may still appear before things are over. In the longer term the consequences are likely to be more significant than Brain thinks, though it's hard to say exactly how.

The part where he says "the new jobs may not be as low-skill" is the most important for setting immigration policy in the short and medium term. If automation is going to lead to unemployment among lower skilled workers first then it certainly makes sense to adjust immigration policy to keep out the lower skilled immigrants. The selective growth of the skilled part of the workforce would help delay the day when automation leads to the problem of mass unemployment.

Does it make sense to translate this growing sentiment against immigration into changes in public policy? Do technological trends provide a compelling argument for changing immigration policy? Reynolds points out that people have been predicting mass unemployment due to automation for decades and yet this has not yet come to pass. However, a very worrying trend in the United States and other Western nations has been the relative and absolute decline in wages of the lower skilled and unskilled workers. One of the causes of this trend is the large influx of low skilled immigrants.

In Britain the real wages of the bottom 10 percentage have stagnated for two decades.

UK workers in the bottom 10% of the income distribution have seen almost zero real growth in their wages over the last 20 years. In contrast, workers in the top 10% of the income distribution have had real wage increases of around 50%. Two potential causes have been cited for this widening wage gap: international trade and technical change.

An article from The Economist published in 2000 reports real wages for the least educated have been declining for at least 20 years.

As the demand for brains has risen relative to the demand for brawn, so wage differentials have widened in favour of the better-educated. Since 1979, average weekly earnings of college graduates in America have risen by more than 30% relative to those of high-school graduates (see chart 12), increasing the wage gap to its widest for at least 60 years. The wage gap between college graduates and high-school drop-outs has grown by twice as much. Since average real wages rose relatively slowly for much of this period, the real pay of the least educated has actually fallen over the past 20 years.

Technological advances are causing a widening gap between skilled and unskilled workers.

This paper confronts a CGE model to observed evolutions in France, between 1970 and 1992, through a structural decomposition analysis. The choice of the model and the assumption of constant elasticities over time enable the structural change of the economy between two equilibria to be summarised through a set of four types of state variables, reflecting the effect of technical change, changes in factor supplies, shifts in consumption patterns, and international trade. Simulations then allow the contribution of each of these shocks to be assessed. We find that technical change had a strong positive impact on the relative wage of skilled to unskilled workers, while the impact of changes in factor supplies is strongly negative. The effect of international trade is far less important. However, if we take into account a trade-induced effect on productivity, then we find that trade substantially increased wage inequalities.

Declining demand for unskilled labor has driven down wages rates for the least skilled in the US while it has caused persistent high unemployment in continental European countries.

In the United States, for example, wages of less-skilled workers have fallen steeply since the late 1970s relative to those of the more skilled. Between 1979 and 1988 the average wage of a college graduate relative to the average wage of a high school graduate rose by 20 percent and the average weekly earnings of males in their forties to average weekly earnings of males in their twenties rose by 25 percent. This growing inequality reverses a trend of previous decades (by some estimates going back as far as the 1910s) toward greater income equality between the more skilled and the less skilled. At the same time, the average real wage in the United States (that is, the average wage adjusted for inflation) has grown only slowly since the early 1970s and the real wage for unskilled workers has actually fallen. It has been estimated that male high school dropouts have suffered a 20 percent decline in real wages since the early 1970s.

In other countries, the impact of the demand shift has been on employment rather than on income. Except in the United Kingdom, the changes in wage differentials have generally been much less marked than in the United States. Countries with smaller increases in wage inequality suffered instead from higher rates of unemployment for less-skilled workers.

Technological advances in combination with a continuing large influx of low skilled immigrants will eventually combine to make the supply of unskilled labor so great in the United States that even the US minimum wage will be too high to prevent mass unemployment. In Europe the more regulated labor market is causing this effect already. Unemployment rates in many European countries are several points higher than US rates and this has been true since at least some time in the 1980s (see the graphs here where the unemployment gap between the US and Europe opens around 1984). America's labor market in the future will have many similarities to the current labor markets in Europe with high unemployment and high welfare payments to support the unemployed. A drastic reduction in unskilled immigration could delay the day when mass unemployment becomes common in the United States.

Update: Georges Vernez, then director (not sure if he still is) of Rand Corporation's Center for Research on Immigration Policy, testified to Congress on April 21, 1998 about the lack of job growth for unskilled jobs in California and the resulting flight of native born along with a decline of labor market participation among the least skilled.

On the cost side, however, the employment prospects and wages of less-educated workers have dropped steadily because a greater number of workers--both native-born and foreign-born--are competing for a fixed number of jobs. Of the 7 million new jobs created in California from 1960 to 1990, 85 percent were filled by workers with one or more years of college and 15 percent were filled by workers with only a high school degree. Since there has been no job growth in the unskilled sector, less-educated newcomers are now taking jobs vacated by retirees or by workers moving out of the state.

These immigrants are also taking jobs from native-born high school dropouts. The employment rate among these workers fell from 67 percent in 1970 to 47 percent in 1990. Although the main reasons for this decline are increased world-wide competition, technological advances, and the availability of cheap labor in developing countries, immigration to the state has also been a factor. We estimate that immigration has caused 15 to 25 percent of this decline. Employment among high school graduates has also declined, although not as sharply.

Overall, between 1960 and 1990, we estimate that between 130,000 to 190,000 native-born people were not working as a result of immigration. This figure represents about 3 to 5 percent of all those unemployed or out of the labor force.

Immigration has also had a downward effect on the wages of unskilled workers. Between 1970 and 1990, the real wages of native-born high school dropouts declined by 24 percent in California, with about one-tenth of this decline attributable to immigration. Foreign-born workers have also suffered wage erosion.

Labor market participation among the least educated and least skilled has declined quite dramatically. People are leaving California because their wages have declined due in part to immigration. The vast bulk of job growth is happening for the more highly educated. The future of declining availability of work for the less skilled is already here. It is already happening.

Share |      By Randall Parker at 2003 December 08 04:20 PM  Immigration Economics


Comments
Steve Sailer said at December 8, 2003 7:28 PM:

But think of all the jobs that people get paid for today that nobody thought were worth doing 40 years ago: all the counselors and consultants. Awhile back, they would have been working in factories actually making real stuff.

Steve

Bob Badour said at December 8, 2003 7:51 PM:

Steve, if Randall is correct, there should be a lot more growth in the employment transition counselling profession.

Bob said at December 8, 2003 10:42 PM:

Socialism will be the way of the future once technology truly gets to the point where it can disemploy massive sectors of the population. Capitalism is on the way out, Marx was just wrong about the timing.

Ed said at December 28, 2003 1:48 PM:

On the contrary, socialism is rooted in the 19th Century. The highly skilled, educated laborer "owns the means of production," i.e., their own skills and imagination. Computing power becomes increasingly inexpensive, lowering the cost of entry into many, many fields. Capitalism, better described as free markets, empowers individuals and unleashes their creativity. If socialism were the wave of the future, then Europe would be leading, not following, economically. Marx was wrong about nearly everything.

Frank said at April 9, 2004 12:12 AM:

It is time to realize that eventually *all* employees, regardless of skills or education, will be replaced by machines, and that this could actually be a very good thing. If guided by a responsible, competent government, the process of increasing automation could create the ultimate leisure state, where the grinding yoke of wage slavery is nothing but a bad memory. It would be just like ancient Rome, but this time around the "slave labor force" that kept things going back then would consist of obedient and hyper-efficient machines, and "bread & circuses" would be replaced by "haute cuisine and virtual reality". Automation --and automation alone-- can create heaven on earth. It's more than just one of many possible futures; it's a *moral and rational imperative*.

[ From http://www.transtopia.org ]

[...]

Even in this still relatively primitive day & age there are very few jobs that couldn't be done by robots and/or computers, and practically none that couldn't be done more efficiently with increased tech support. Automation may be somewhat costly in the beginning, but due to the mechanism of economies of scale and the superior efficiency and productivity of machines (they work better, faster, 24/7, they never complain, don't steal, never go on strike etc.) and the elimination of wages, pensions, and other costs that are associated with human workers (machines don't need any "social benefits"; they're the perfect "slaves") it would not only be possible to recover these investments relatively quickly, but it would also allow the government to put increasingly large segments of the population on a new kind of "super welfare", i.e. provide them with all kinds of high-quality free or almost free services like healthcare, cryopreservation, life extension treatments, public transportation, housing, schooling (primarily aimed at optimally developing one's rational faculties), entertainment, nourishment etc.

[...]

Indeed, if we take the USA as an example, "merely" getting rid of all superfluous government employees (i.e. up to 90% or so), cutting the absolutely monstrous military budget down to size, and ending the immoral, insanely expensive War on Drugs would free up more than enough funding to lay down the foundations for a sustainable "work-free paradise" (as opposed to the Socialists' "workers' paradise") where everyone who genuinely can't or doesn't want to work is entitled to a decent basic income and essentials like quality healthcare, housing, and broadband internet access.

Of course, in order to prevent "systemic overload", foreign freeloaders would have to be kept out, and the domestic ones actively discouraged from (over)breeding. Incidentally, the guaranteed basic income / freeloader management combo would also take a big, and probably permanent, bite out of crime and other poverty and low IQ-related unpleasantness. In other words, a win-win solution!

Automation, not immigration! Technology will set you free.

Orwell said at March 3, 2005 9:51 PM:

I think that you are naiive if you think that only the unskilled are being affected by the relentless, inescapable march of enabling technologies.

Only the *most* creative of jobs, those requiring a PhD level education are really immune, and automation technologies will put serious downward pressure on wages there by making the competition for the tiny number of remaining jobs intense. And how will those 'on their way up' afford the education necessary to get the training to get a job in the brutal economies of the future?

They won't...unless they are rich..

I see a crisis coming on us very quickly.. We are going to have to figure out a solution..

Orwell said at March 3, 2005 9:57 PM:

Don't blame immigrants...

Washington is allowing lots of immigration precisely to keep salaries low.. (and business costs down) Birthrates in developed countries fall. Making abortion illegal wont help much either. Look at Romania.

But ultimately, the worker-less workplace will become a reality all over the world.

We really should start discussing the possible alternatives now.. or it could be very ugly...

Denial won't help.. A lot of our disappearing jobs are going for good..

law said at April 2, 2007 9:06 PM:

What people don't realize is that the time it will take to automate everything is going to be large and most people won't sit around and do nothing in the future, they'll simply look for more industries to invent and more products to provide. There will be industries that do not exist today. The shift in the work force will be towards increasing the percent of the population that work as corporate executives. In fact outsourcing and automation which decrease costs lead to a larger amount of companies that can exist in one industry at the same time. Education will end up taking up a larger percent of the work force then today because the government will most likely require 4 year degrees to be manditory and many more people will seek PhD's/MDs/DOs/DDS/MBAs etc, while new even higher level degrees may be invented. We'll eventually drop to a 35 hour work week, then a 30 hour work weeks, just like france but we'll do it with better timing. France dropped their work week to 35 hours and their national debt went up by about 100 billion because of it (100 billion is more significant in their economy, for us it would be more like 1 trillion). A larger percent of the population will go into entertainment and the arts because with shorter work weeks people will have a lot more time to do things. Jobs will be created to oversee robots. For example the trash truck will probably still have a human operator observing the robots dumping the trash into the truck. I don't think we'll ever see a sustained high unemployment rate. It might rise over 10 percent before the government decides to do something about ensuring that more people get a higher level education. I think the capitalist econonmy will cause an explosion of possible services and products that people will be able to have. Space exploration and space related employment will increase. Most people think along the lines of complete socialism or capitalism. The reality is one cannot exist without the other very well. We have no examples of successful socialist states that built their success on socialism. France built it's somewhat decent level of success on capitalism, and socialism today is threatening to harm their econonmy significantly. Cuba has no econony, china is only doing better because they are liberalizing the market (switching to capitalism), north korea isn't doing any better then cuba. Russia was a huge failure.


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