The importance of human capital in the era of automation

The importance of human capital in the era of automation

As new technologies continue to replace workers, technological advancement also creates new occupations depending on the interaction between humans and machines, causing a skill mismatch. Giuseppe Di Giacomo And Benjamin Lerch discuss how workers are responding to the increasing automation of production processes and why human capital adjustments are crucial for future competition on the labor market.

Industrial robots

Industrial robots are among the main automation technologies of the last decades. The International Federation of Robotics (IFR) defines them as “multipurpose manipulators automatically controlled, reprogrammable, programmable on three or more axes” and estimates that the global stock of robots has increased from 500 thousand to nearly three million units in the first few years’ 90 and the late 2010s. Up to now, robots have been mainly used in the manufacturing sector, as they can be programmed to autonomously perform manual tasks (including assembly, material handling, packaging and welding). However, they are also increasingly being adopted in other sectors, such as the service sector. South Korea and Japan are the main adopting countries with ten and five robots installed per thousand workers, followed by European countries, particularly Germany and Italy, and the United States (see Figure 1).

Figure 1 – Industrial robots per thousand employees

Source: International Federation of Robotics (IFR) and Organization for Economic Cooperation and Development (OECD)

Robots and the job market

From a theoretical point of view, the use of automation technologies has an ambiguous impact on the results of the labor market. On the one hand, robots can replace human workers in a variety of manual activities and thus reduce employment and wages (displacement effect). On the other hand, they can increase the productivity of adopting firms, contributing to the creation of new jobs and activities and increasing the demand for labor (productivity effect).

Empirical studies have addressed the question of which of these two effects dominates in practical applications and found conflicting results between countries. Acemoglu and Restrepo (2020) find that the introduction of industrial robots in the United States between 1993 and 2007 reduced aggregate employment by half a million workers, suggesting that these machines are destroying more jobs than they are creating. . This finding, however, does not hold up among European countries, where robots have replaced low-skilled workers from the manufacturing sector but have also increased the demand for labor in the service sector, leaving aggregate employment virtually unchanged (Graetz and Michaels, 2018 ; Dauth et al., 2021).

The role of human capital

In analyzing the implications of automation on employment, it is important to point out two facts. First, not all workers are exposed to the risk of automation to the same extent. Less educated workers are more likely to be displaced, as they are often employed in manual, routine, activity-intensive occupations that can be performed (at least in part) by a robot (Di Giacomo and Lerch, 2022). Second, the jobs and activities that have been created through technological progress often require interaction between man and machine and cannot be performed by low-skilled displaced workers due to a lack of necessary skills (Restrepo, 2015 ). These skills could be acquired by investing in additional human capital in the form of a university degree, as graduates are often employed in jobs requiring cognitive and social skills that are more difficult to automate (Acemoglu and Autor, 2011; Lerch 2022). These findings raise the question of whether advances in automation technologies have contributed to the growing trend of the population with a university degree visible in many countries.

Human Capital Adjustments: A Study

In our study, ‘Automation and regulation of human capital: the effect of robots on college enrollment’, we address this question by examining the effect of companies’ adoption of industrial robots on human capital adjustments of individuals in local US labor markets. We focus on the United States, as their labor markets have experienced a significant contraction in employment due to the introduction of robots since the 1990s, while the share of the population with tertiary education has increased by 50 percent (see Figure 2). The analysis is conducted at the local labor market level, using commuting zones. These are territorial units that correspond to aggregations of adjacent counties characterized by large commuting flows within (but not through) them.

Figure 2 – Population with university degrees

2a

Notes: The share of the population with a university degree (bachelor’s or master’s degree) is calculated in terms of the working-age population (18-64 years). Bachelor’s degrees last four years and offer a general study approach. Membership degrees last two years and specialize in technical or professional courses. Source: Current Population Survey (CPS).

According to our estimates, on average, one more robot increases college enrollment for about five students. In other words, for every three workers that have been moved by robots, one individual enters college. These students are usually between the ages of 18 and 35 and enroll in community colleges to earn an Associate degree with specialization in application fields complementary to new technologies (including engineering, information technology, but also economics and commerce). This finding suggests that the introduction of 120,000 new robots into the US economy between 1993 and 2007 contributed to an increase in the college-educated population by approximately 8.5%.

But what drives individuals to adapt their human capital to technological progress? The short answer is that acquiring a college degree grants workers access to jobs less susceptible to automation. However, there is more, as we find that robot adoption is also increasing the wage differentials between university workers and less educated ones. This happens because the use of robots induces companies to increase the demand for highly skilled and complementary workers to new technologies (productivity effect), and reduces the demand for less educated workers who can be easily replaced by a robot (displacement effect). In line with this finding, even young people who are not yet directly affected by automation in the workplace, but who observe the growing wage gap, decide to enroll in university to invest in additional human capital and benefit from higher relative wages. .

Concluding remarks

The adoption of automation technologies is shaping the future of labor markets. However, this condition should not fuel concerns about structural technological unemployment in the coming decades, as the introduction of new technologies is also increasing the demand for human labor in new occupations. With around 30 million vacancies in OECD countries, the demand for jobs is higher than ever (The Economist, 2022). Workers may, however, need to adapt their skills to carry out these jobs, a process that our results believe has already begun. In addition, policymakers should facilitate the transition to future labor markets by investing in specific skills training programs for the “new” workforce and retraining the “old” one. The world of work is changing, but that doesn’t mean we’ve lost our race against the machines.

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Note: The post expresses the point of view of its authors, not the position USAPP – American Politics and Policy, nor the London School of Economics.

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About the Authors

Joseph Di Giacomo – University of Italian Switzerland
Giuseppe is a PhD student in Economics at the University of Italian Switzerland. He holds a Masters in Economics and Economic Policy from the University of Bologna and has successfully completed the Swiss Program for Doctoral Students in Economics hosted by the Swiss National Bank. His research interests include applied labor economics, automation and macroeconomics.

Benjamin Lerch – University of Italian Switzerland
Benjamin is a PhD student in Economics at the University of Italian Switzerland, currently visiting Stanford University. He holds a Masters in Applied Economic Analysis from the University of Bern and has successfully completed the Swiss program for doctoral students in economics. He is widely interested in applied labor economics, with particular attention to the impacts of automation on the labor market.

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