Where Will Future Wage Growth Come From?

Visit the Tokyo Olympics in 2020 and you may have a chance to meet Unibo.

Unibo will be helping out at hotel’s front desks around Japan during the Olympics. It will be giving tourists directions and advice.

In case you didn’t guess it, Unibo is a robot. It can speak a number of languages and imitate people’s expressions through facial recognition.

The fact is, Japan loves robots. The country is looking to enlist their help to manage the influx of visitors during the Olympics.

Japan wants to have the city of Tokyo filled with robots by then. They are looking at placing them in airports and hotels to assist tourists. They are even looking at having driverless cars to shuttle people around.

But, Japan is also looking at increasing the use of robots in several industries to help them with their ageing population.

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You see, Japan’s population is getting older.

As you can see in the graph below, the population aged 65+ has increased in recent decades and is looking to stay steady until 2060. Meanwhile, the younger population is set to decrease by then. Robots could help them replace people in the workforce as it decreases and increase production.

Graph of Japan's population

Source: Wikipedia

[Click to open in a new window]

We could be getting a glimpse at our future here with Japan.

Developed Countries Are Ageing Too…

As we wrote this week, populations in developed countries are also ageing.

Older workers are also starting to see a decrease in social security benefits due to an increase in the dependency ratio. That is, the ratio of people aged 0 to 14, and 65 and over, to the working population.

But, we are also seeing automation, artificial intelligence (AI), and robots starting to infiltrate our society.

One form of artificial intelligence is embodied agents. That is, an intelligent agent that can interact with humans in a virtual or physical form in a very similar way to how another human would.

You may have already bumped into an embodied agent. They are increasingly being used as a customer service tool on websites, to engage with customers.

We are also seeing technology making strides in traditional jobs like driverless cars, butchers, cooks…

Big fast food chains like McDonalds already have robots working in their kitchens. McDonalds even has a store in Arizona fully run by robots.

Robots are also becoming quite popular as domestic helpers and even aiding the elders. 

Technology use is also growing in high skilled industries.

As news.com.au recently reported:

Robots already lend a hand in spinal surgery, with models such as Renaissance allowing surgeons to place screws in spines with 99 per cent accuracy (9 per cent higher than conventional methods).

‘The famous da Vinci surgical system (where surgeon’s hand motions are translated into smaller, more precise robotic movements) is now used across a wide range of procedures, from prostate cancer treatment to performing heart valve surgery.

‘In the US, a robot called Watson assists in diagnoses and produces management plans for oncology patients by synthesising information from millions of reports, patient records, clinical trials and journals. Meanwhile, Woebot, the world’s first robotic therapist, has more than two million conversations a week.

While these technologies may help with ageing populations, and to increase productivity, the danger is that we may see also see a decrease in jobs.

The Dangers With Robots

Think about it.

Robots don’t require a salary, food or sleep. They don’t take cigarette breaks or get sick. They don’t even need decent working conditions.

They are much cheaper than humans. All they need is maintenance, and the more robots in the workforce the cheaper that will become.

The thing is, it is not that easy to determine how robots are affecting jobs, as one robot will not always replace one human job.

You see, one of the trends developing is ‘collaborative robots’, whereby robots work with humans.

We are also seeing more jobs getting automated, like self-serving cashiers and order stations…even  in finance.

According to a recent study by the Organisation for Economic Development (OECD), across 32 countries almost one in two jobs are ‘likely to be significantly affected by automation, based on the tasks they involve.’ With 14% of jobs in OECD being ‘highly automatable’.

But, robots and automation are not the only trend that could threaten jobs.

There is also blockchain technology.

While I think that blockchain technology is the future, it also concerns me that getting rid of intermediaries will mean less jobs, less paperwork…in short, less humans.

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This is from Coinbase:

With billions of dollars expected to be saved every year by moving transactions to blockchains or distributed ledger systems, what’s often lost in the conversation is that much of this money will likely stem from a reduction in salaries currently paid to real, working people. […]

While industry numbers are only now beginning to be researched, [Blythe] Masters [CEO of Digital Asset Holdings] positioned blockchain in the same category as robotics, machine learning and artificial intelligence – all industries that she believes need to consider the impact of their innovations on public policy surrounding job creation.

According to Masters’ own estimation, blockchain’s impact will go far beyond the 5–10% of employees that she says “any well-disciplined organization will naturally try to squeeze out” in the process of improving processes.

Robotics, automation, AI and blockchain are all leading to less jobs for humans.

It may mean they create different jobs. Yet, how will these technologies impact salary growth?

We are already starting to struggle to create salary growth and we are seeing higher underemployment. These technologies may make this worse.

As population ages, we may need robots. The problem is that robots could increase job destruction and push wage growth down.

The more we invest in robots, the more competition will increase, bringing robot production costs lower. The more expensive labour becomes, the more incentive there is to invest in robots. Human workers will have to become cheaper to be able to compete.

Now is the time to question how these new technologies will affect the economy, and how we should apply them to improve our standards of living, not worsen them.

Best,

Selva Freigedo,
Editor, Markets & Money


Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.


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