South Africa: The Economic Consequences of Automation


While Brexit captures the headlines in the United Kingdom and elsewhere, the silent march of automation continues. Most economists view this trend favourably: Technology, they say, may destroy jobs in the short run, but creates new and better jobs in the longer term.

The destruction of jobs as a result of automation is clear and direct: a firm automates a conveyor belt, supermarket checkout or delivery system, keeps one-tenth of the workforce as supervisors, and fires the rest. But what happens after that is far less obvious.

The standard economic argument is that workers affected by automation will initially lose their jobs, but the population as a whole will subsequently be compensated. For example, the Nobel laureate economist Christopher Pissarides and Jacques Bughin of the McKinsey Global Institute argue that higher productivity resulting from automation "implies faster economic growth, more consumer spending, increased labour demand and thus greater job creation".

But this theory of compensation is far too abstract. For starters, we need to distinguish between "labour-saving" and "labour-augmenting" innovation. Product innovation, such as the introduction of the car or mobile phone, is labour-augmenting. By contrast, process innovation, or the introduction of an improved production method, is labour-saving, because it...

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