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Wage inequality is a bigger threat to workers than robots



The idea that machines will replace humans, transforming the work force, is far from new. The Luddites, bands of English workers who destroyed machinery in cotton and wood mills in the early 19th century because they believed the machines were taking their jobs, were responding to exactly these fears.

Machines in car factoryMostly, similar concerns in the intervening two centuries have proven to be unfounded. The old jobs are lost, but new, previously unimagined jobs emerge. But will that continue to be the case? As technology develops at an accelerating pace, there is growing concern that new social divisions are emerging because the amount of valued work is decreasing.

The concern is that there will be a 'precariat': a large proportion of the population permanently in a financially precarious situation. That, in turn, will have implications for market demand. If there is too much of a divide between rich and poor, then this will cause the overall market to shrink.

There are certainly signs of deepening social divisions between the rich and the rest of the working population in developing economies. Nevertheless, previous predictions of a collapse in employment have proven to be wrong. This is largely because a confusion arises from conflating production and transactions. They are not the same thing.

If we assume that there is a certain amount of finite production that society needs in order to thrive, and that this is largely unchanging, then having more machines doing the producing would seem to inevitably result in people losing their employment. From this perspective, machines are effectively in competition with workers.

Such a situation may be true at the enterprise level — within a firm, machines can put people out of their jobs — but it tends not to be true across the whole economy. As patterns of production alter, new kinds of transactions emerge. Even if the production of goods and services stays roughly the same, the pattern of transactions will alter — and jobs are defined by transactions: that is, getting paid a wage or salary.

Imagine the selling of a physical widget that was formerly produced by people, but is now produced by machines. That would mean those on the production line will lose their jobs.

But when it comes to the selling of that widget new jobs will emerge. In contemporary markets, for instance, it is important to have effective social media campaigns. That means employing people in a type of job that never existed when people produced the widget.


"Futurist Paul Mason argues that advanced economies are witnessing the 'first economic model in 200 years ... premised on the suppression of wages and smashing the social power and resilience of the working class'."


In this hypothetical example, it is possible that the actual number of widgets may not alter greatly — the production levels will remain the same — yet the type of transactions involved in making those sales could change significantly — and along with it the patterns of employment. Transactions turn out to be far more malleable than production systems.

This is not to say that the new forms of employment will necessarily be especially desirable. Futurist Paul Mason argues that advanced economies are witnessing the 'first economic model in 200 years the upswing of which was premised on the suppression of wages and smashing the social power and resilience of the working class'. He blames the lack of influence of organised labour, which in the 1850s, 1900s and 1950s forced entrepreneurs and corporations to innovate their way to a new form of capitalism, rather than just relying on cutting wages.

According to the OECD, the richest 10 per cent of the population in member economies earn 9.5 times the income of the poorest ten per cent. In the 1980s, this ratio stood at 7:1. In America, the top one per cent earn about a quarter of the income and control 40 per cent of the wealth. The OECD argues that the inequity has resulted in lower economic growth.

The concern is that such inequality may worsen. Guy Standing, professor of development studies at the School of Oriental and African Studies, University of London, has coined the term the 'precariat' to describe a growing under class of people unable to get reasonably remunerated work. If the only well rewarded employment is in technology, maintaining and developing machines, then it is possible that only 20 per cent of the population might have jobs.

That means the issue of jobs cannot be seen as separate from wealth distribution. The problem is — as Henry Ford understood when he paid his workers well so they could buy his cars — that too much social inequality means insufficient demand for products and low economic growth. The issue is not whether or not there will be jobs — it is most likely that there will be — but how fair the wages system will be.


David JamesDavid James is the managing editor of businessadvantagepng.com

This is the latest article in our ongoing series on work.

Topic tags: David James, work



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Existing comments

An interesting article, David. The present government strategy is to reduce the welfare payments to poor people while handing out tax breaks and the like to the better funded end of the population. It seems to me that it would be better for the government to fund the poor as they will go and spend that extra money, stimulating the economy, while the well-off will not.

Brian Finlayson | 21 November 2016  

Just wondering ... Unemployment rates 1966-2000 Between 1966 and 2000, both the number of people who were unemployed and Australia's unemployment rate have increased. Over this period, the number of unemployed people in Australia increased from 90,300 to 596,000. In the late 1960s and early 1970s, the unemployment rate stood at 2% but over the 1970s rose gradually to 6%. The early 1980s saw a sharp rise in the unemployment rate to 10% in 1983. This declined to 6% by 1989. A further steep rise then occurred in the early 1990s, peaking at 11% in 1993. As well as showing a general increase over the period, the unemployment rate has fluctuated with the economic cycle. However, unemployment rates have become successively higher with each economic downturn (1972, 1978, 1983 and 1993). (http://www.abs.gov.au/AUSSTATS/abs@.nsf/2f762f95845417aeca25706c00834efa/855e6f87080d2e1aca2570ec000c8e5f!OpenDocument)

Noel Kapernick | 21 November 2016  

If we really are moving into a post-work Western world, then that should be welcomed as it gives people time for family, spiritual and educational/cultural things. What is then needed is really radical and imaginative approaches to money income beyond the mere wage. It will look something like this: a decent minimum hourly work wage but limited to 20 hours "work" per week per person (so as to share round the work available); then automatically 20 hours of society-paid cash at the same minimum wage level, with the possibilities of some tied conditions such as a number if weeks of educational/cultural/charity volunteer activity per year. The cost will be met be financial redistribution taxes on people above minimum wages (open hours) and companies that are earning well. It is imperative that the "bottom" income is high enough that all people can buy things as full members of the community to keep the economy bouyant. Making lots of people poor is the last thing that capitalism wants, though it is a counter-productive and disagreeable element of the Thatcherite version of it, at lest without such community/government stabilisers added on. Watch the new film "I, Dan Barnes" to see how NOT to do it!!

Eugene | 22 November 2016  

sorry: the film I was referring to was of course"I, Daniel Blake" (not Barnes). Sad but true.

Eugene | 22 November 2016  

I presume you meant 'woollen' instead of 'wood' in your first paragraph, David? G K Chesterton - an incisive Catholic thinker - was against Monopoly Capitalism, which, I believe, is the position of the Church itself. The current economic situation which has developed in the West seems to be Monopoly Capitalism in extremis. It seems, with the rise of Theresa May, criticised by one commentator because she took on board the belief of her Anglo-Catholic clerical father in the Social Contract, we see the end of Thatcherism. Likewise the defeat of Hillary Clinton, who, despite her rhetoric, was seen as an ally of the Wall Street plutocracy and a benefactor of the current system, sees the end of that cosy alliance in the Democratic Party. I regard Futurologists as modern day Readers of Omens, which may, indeed, be apt.The business of government is not to foster 'free trade' (which can mean many things) but to govern on behalf of all the governed. Our politicians need to beware: if they continue the way they are it might lead to the rise of another Donald Trump here. He/she has not yet manifested.

Edward Fido | 23 November 2016  

Perhaps the time has come for a Universal Basic Income. Worthwhile to read about this phenomenon and consider its worth!

GAJ | 25 November 2016  

Many years ago, in the early 80s I read an article in "Electronics Australia" - "How technology raises the IQ of the village idiot" The basic premise was that prior to the industrial revolution every village had its idiot - IQ -5 drool dribbling out of both sides of his mouth. But, he could be a productive member of his community. He could clean the stables, load the manure onto a cart, hop up into the driver's seat and then unload at the other end. He did not need to know the destination, the horse did. Come the tractor and trailer and he was out of a job. He was incapable of driving. To use your example of widgets; there are some people who are incapable of doing anything else but make wigets

Lindsay Stafford | 25 November 2016  

The loss of permanent jobs for the manual labourer and other low skilled workers is being met with both less opportunity and casualisation. To suggest that the majority can be upskilled is pie-in-the-sky. The ageing of the skilled tradesman is a growing problem due to (among other issues) an insufficiency of apprenticeships. Why train someone when you can bring in an already skilled worker under a 457 visa? It is no wonder that a backlash is growing against the greed of a wealthy minority and the failure of governments to rein in the Mammonites. Regrettably the Christian churches today are great at providing social services but weak in muscular Christianity e.g. a strong campaign against online gambling advertising and poker machines. We cannot go back to the past when the Churches had a profound influence; but at least we shouldn't be going down without a fight!

William Player | 28 November 2016  

Dear David - wage inequality versus robots as a threat? I fear the way you've presented your argument will merely give succor to the neo-liberal cause, arguing as you do that the spread of machines has happened before, etc. My view is that the problem with the way society is moving is the full-on acceptance of 'an irreversible revolution spurred on by a massive hi-tech disruption'. (Not my characterization, but one that's daily imposed on us by the proponents of that cause.). Thus 'robots are merely a part of that revolutionary thrust' goes the line. So get with it! But the real cause at issue here is the threat to the human person, most prominently outlined by Yuval Noah Harari in his book, 'Homo Deus - A Brief History of Tomorrow': 'organisms are algorithms', etc.Don't lets forget what's really at issue here.

Len Puglisi | 09 January 2017  

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