Source | www.weforum.org | John HawksworthChief economist, PwC
Automation is nothing new – machines have been replacing human workers at a gradual rate ever since the Industrial Revolution. This happened first in agriculture and skilled crafts like hand weaving, then in mass manufacturing and, in more recent decades, in many clerical tasks.
As the extra income generated by these technological advances has been recycled into the economy, new demand for human labour has been generated and there have, generally, still been plenty of jobs to go round.
But a new generation of smart machines, fuelled by rapid advances in artificial intelligence (AI) and robotics, could potentially replace a large proportion of existing human jobs. While some new jobs would be created as in the past, the concern is there may not be enough of these to go round, particularly as the cost of smart machines falls over time and their capabilities increase.
There is an element of truth in this argument, and indeed our own past research suggests that up to 30% of existing jobs across the OECD could be at potential risk of automation by the mid-2030s.
But this is not the whole truth for two main reasons, which we explore in detail in recent research published for the UK and a new report on China which will launch at the World Economic Forum’s meeting in Tianjin in September 2018.
Firstly, just because a job has the technical potential to be automated does not mean this will definitely happen. There is a variety of economic, political, regulatory and organizational factors that could block or at least significantly delay automation. Based on our probabilistic risk analysis, our central estimate is that only around 20% of existing UK jobs may actually be displaced by AI and related technologies over the 20 years to 2037, rising to around 26% in China owing to the higher potential for automation there particularly in manufacturing and agriculture. We refer to this as the ‘displacement effect’.
Secondly, and more importantly, AI and related technologies will also boost economic growth and so create many additional job opportunities, just as other past waves of technological innovation have done from steam engines to computers. In particular, AI systems and robots will boost productivity, reduce costs and improve the quality and range of products that companies can produce.
Successful firms will boost profits as a result, much of which will be reinvested either in those companies or in other businesses by shareholders receiving dividends and realising capital gains. To stay competitive, firms will ultimately have to pass most of these benefits on to consumers in the form of lower (quality-adjusted) prices, which will have the effect of increasing real income levels. This means that households can buy more with their money and, as a result, firms will need to hire additional workers to respond to the extra demand. We refer to this as the income effect, which offsets the displacement effect on jobs.
How AI can both destroy and create jobs through the displacement and income effects (this is a simplified analysis – in practice there will be a more complex range of economic effects at work as captured in our detailed modelling) – Image: PwC
Our new research put some numbers on these job displacement and income effects for the UK, which we have found from past research is fairly typical of OECD economies as a whole; and China, the largest of the emerging economies.
Estimated displacement, income effect and net effect of AI and related technologies on jobs in China and the UK over the next 20 years – Image: PwC