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On Automation, Recession And…

A grim picture of economic inequality emerged in the US in the 1980-90s; and three decades later, the scenario has turned out to be more so. There, it was seen that the richest 1% owned 10% of the national wealth in 1989. The figure increased to 35% in 2021. On the other hand, the bottom 50% of the economic hierarchy used to hold only 1.6% of the national wealth in 1989, and the percentage touched 2.1 in 2021.

Experts have expressed different opinions about the reasons behind this sharp increase in economic inequality in the US. While some believe that the Trade Union Movement has gradually become irrelevant in the US, others are of the opinion that the 2008 Global Economic Recession is responsible for this situation. According to some, profits from Global Trade have been concentrated among the wealthy section of people in recent times. Experts have also blamed the increasing tendency to offshore the local jobs abroad for this growing inequality. However, MIT Professor Daron Acemoglu and Boston University Professor Pascual Restrepo have claimed in a recent study that none of the above mentioned issues is the main cause of rising inequality. They have further claimed that the main reason for the growing economic inequality in the US is the steady rise of Automation over the past three decades.

Automation is a term for technology applications where human input is minimised. It includes Business Process Automation (BPA), Information Technology (IT) automation, personal applications, such as Home Automation, and others. The backbone of Automation is Artificial Intelligence (AI) and modern Data Science. From banking services to the food industry, from education to the health sector… Automation and Robotics are widely used in the US, and other Developed Nations. The question arises here: How can the boom in automation be blamed for increasing economic inequality?

Professors Acemoglu and Restrepo have analysed labour market data over the past three-four decades to show that the rise of automation has led to massive declines in employment for unskilled, low-skilled, and lowly-educated workers across the US. These people usually do blue-collared and clerical jobs, which can be easily done by Automation. Hence, their employment opportunities have decreased drastically because of the rise of automation. However, the number of unskilled, low-skilled and lowly-educated job seekers in the labour market has not decreased. So, many of them are forced to accept lower salaries in order to survive in the highly competitive job market. On the other hand, employment of skilled and highly-educated employees did not shrink. Most importantly, the kind of jobs they involve are not easy to automate. Therefore, the employees, belonging to this category, were not required to accept lower salaries. In fact, their average incomes have not decreased, but increased, in the last three decades.

Unskilled, low-skilled and lowly-educated employees generally lie at the bottom of the economic hierarchy (rather relatively poor). On the contrary, skilled and highly-educated employees are positioned at the top of the economic hierarchy (or relatively wealthy). According to Professor Acemoglu and Professor Restrepo, automation has worsened the plight of those at the bottom of the economic hierarchy in the US over the past three decades. They are of the opinion that automation has played a crucial role in increasing economic inequality by helping those at the top of the economic hierarchy flourish.

Meanwhile, Thomas Piketty, a French Economist who is a Professor of Economics at the School for Advanced Studies in the Social Sciences, Associate Chair at the Paris School of Economics and Centennial Professor of Economics in the International Inequalities Institute at the London School of Economics, has mentioned in his latest research paper that income inequality in India is at its highest level since 1922. A recent report, prepared by Oxfam, has also stated that India is gradually becoming a country only for the rich. As per the report, more than 40% of the total wealth generated in the South Asian country went to the richest 1% of people from 2012 to 2021, while the poorest 50% citizens managed to hold only 3% of wealth. India, currently, has the highest unemployment rate in the last eight to 10 years. In such a scenario, the Government of India has announced that it would adopt automation technology in various sectors, including finance and health.

According to the experts, automation creates trouble mainly for the unskilled, low-skilled and uneducated people. Incidentally, these people constitute the majority of India’s workforce. As a result of the Government’s automation policy, they will either lose their jobs or be forced to work for lower wages. It shall certainly widen the income inequality in the coming days.

It has become increasingly difficult to ignore automation technology. However, the Government can take some measures in an attempt to keep the negative aspects of automation in check. The Government should be very focused on imparting higher education to a large section of the labour force, in order to make them skilled. If a welder receives higher education and becomes a designer, then the person can overcome the crisis in the job market, as it would be difficult to automate the designer’s work. The Government often helps new business ventures (such as Start-up India) through various schemes. It is felt that the Government needs to ensure that most of these ventures are not fully automated.

Automation is somewhat like Frankenstein, which we have carefully built for many years. Now, it is trying to become the cause of our destruction. Hence, our main duty is to safeguard the society from the dangers of automation with all our might.

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