‘Automation’ can be defined as the automatic production of goods and services using robots with minimal human intervention.

Increased automation leads to increased labour productivity because fewer workers are needed to produce the same number of goods, so automation could lead to unemployment in the future.

Could a robot take your job? Visit willrobotstakemyjob.com and type in your profession to see if you are at risk.

I entered ‘economist’ to see my future. The reply was that I should ‘start worrying’: my automation risk level was 43%. I did, indeed, start worrying, so I typed in ‘driver’ to see if I could move to an alternative profession. The reply this time was ‘You are doomed’, with a 98% probability of automation.

The World Economic Forum suggests that automation may replace 20% of all jobs within 20 years. One recent report claims that automation and artificial intelligence will replace not only jobs but, in some cases, entire professions.

With so many people losing their jobs, how will governments react? Richard Branson believes that increasing automation will eliminate so many jobs in the US that the government will have to offer cash handouts to keep people from becoming homeless. If he is correct, what does that mean for government policy?

Increasing unemployment causes two fiscal problems. Firstly, revenue is reduced owing to lower income tax receipts. Secondly, government spending increases as welfare payments rise. The traditional aim of balancing the budget becomes difficult to achieve. If firms that automate become more profitable, GDP will increase and corporation tax could make up the shortfall. However, increased corporate profits do not necessarily mean higher wages for employees, so income inequality could become a bigger problem.

It is impossible to turn the clock back. If a country does not automate, production will simply move to a country that has. Comparative advantage will be lost and a trade deficit will emerge, creating another headache for the government.

The effects of automation on government policy are complex. Perhaps so complicated that economists may be needed after all!

Author : Gerry Reilly (Senior Teaching Fellow)