Robots and the Rise of AI: Will New Technology Lead to Greater Unemployment?

shutterstock_530775229“The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.” (Warren Bennis, American scholar and author)

We often read how the advent of new technologies, such as Artificial Intelligence (AI), will result in higher job losses. And of course the last thing we need in South Africa is increased unemployment.

A lesson from history: The ATM story

ATMs turned 50 in June and at the time of their invention, it was predicted that substantial job losses would follow.

In fact employment levels rose as banks used the savings from fewer tellers to invest in more branches to sell other bank products such as mortgages and insurance. This resulted in more jobs created at better pay as ATMs reduced repetitive work for more skilled employees.

The logical deduction from this is that, historically, the productivity gained from technology should actually lead to more economic growth with people having higher incomes.

But – that isn’t always what is happening

Globally, productivity has been low since 2004 and incomes have not grown significantly except for the top 1% of earners. This seems counter-intuitive as we are in the middle of a technological revolution – let’s look at why that is.

The global labour pool

The technological revolution of the 1980s gave a big push to globalisation which integrated economies around the world. Jeans were designed in New York, cut in Vietnam, assembled in China and rolled out globally.

This integration introduced nine hundred million new workers from emerging markets to world labour markets. This led to a surplus of labour and depressed wages globally.

The paradox of current productivity

Today with wages low because of excess global labour, there is little incentive to push for productivity initiatives. In essence, this leaves an uncomfortable status quo with the middle class feeling stuck, the poor making modest gains whilst the highest earners at the top get even richer.

Research has also shown that there is a lag effect between new technology and productivity gains. The introduction of electricity helps explain this. By the 1890s electricity was being mass produced for consumers but it took until the1920s before it was used for widespread industrial production. The reason cited for this is that to use electricity, factories had to be completely redesigned and it took thirty years to figure out how best to do this.

These two factors (excess global labour and the lag effect) explain why, despite technological advances, we are currently experiencing low productivity.

Where does this leave South Africa?

Talk of mass layoffs due to technological improvements in the short term is probably exaggerated. History suggests, however, that in all probability in the next generation, new technology will be harnessed and will result in job losses.

In the meantime, there are opportunities to integrate with the global market via unskilled labour. In time these employees enhance their knowledge and begin to move up the skills ladder. It happened in Asia – why can’t it happen here?

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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